Single Member LLC as Shareholder in Radiology Group-Can I start my own solo401k?

[tm9]

July 1^st I became a partner in a small radiology group, which is an LLC. I created a personal LLC to be the shareholder in the radiology group. I am compensated with monthly guaranteed payments and quarterly bonus checks. With this setup, am I able to start my own solo 401k (as I am the only employee of my personal LLC)? Or is that not allowed by the IRS? This would be to avoid using the groups 401k. Thanks!

[GasFIRE]

Ownership interests in both entities creates control or affiliated service group issues. To cover all employees you’d have to use the group 401k. Experts like spiritrider and Kon know the details of the rules.

[tm9]

Thank you for your reply!

[spiritrider]

GasFIRE is correct. While it is unlikely you and the group are a Controlled Group. You are almost certainly an Affiliated Service Group. You would not be eligible to adopt a one participant 401k plan and discriminate against the practice's employees.

Even if the group had no employees and/or no 401k. You would not be eligible to adopt a one participant 401k plan.

"An individual partner is not an employer who may establish a qualified plan with respect to his services to the partnership."

An LLC is unnecessary, provides no real benefit and could be counter-productive. The IRS considers a default Single Member LLC a disregarded entity (sole proprietorship).

Maybe the forum accountants can weigh in, but I'm not sure how the tax filing would even work.

[Larry Ragman]

So, no. But find out all you can about the group 401k and use it to your advantage.

[jacoavlu]

if the group 401k has crappy funds or whatever you should be able to simply set up a self directed account under the same plan and park your contributions at fidelity or schwab or etrade and invest as you wish. This may require some work with the plan TPA especially if never done before

if the plan is really bad and you’re an owner then you can consider taking on the task of making the whole plan better for everyone

[tm9]

Ok great. Just the information I needed. Thanks for your responses!

[litovskyassetmanagement]

GasFIRE is correct. While it is unlikely you and the group are a Controlled Group. You are almost certainly an Affiliated Service Group. You would not be eligible to adopt a one participant 401k plan and discriminate against the practice's employees.

Even if the group had no employees and/or no 401k. You would not be eligible to adopt a one participant 401k plan.

"An individual partner is not an employer who may establish a qualified plan with respect to his services to the partnership."

An LLC is unnecessary, provides no real benefit and could be counter-productive. The IRS considers a default Single Member LLC a disregarded entity (sole proprietorship).

Maybe the forum accountants can weigh in, but I'm not sure how the tax filing would even work.

I see the individual entities set up for small groups sometimes for accounting/tax reasons, it happens often enough (accountants don't always consider the fact that this makes setting up/managing retirement plans a bit more complex due to this). And of course the questions about solo 401k plans stem from this. It is interesting that it might be possible to set up solo 401k plans if it is just a group of partners under some circumstances (if solo 401k documents have some unifying language, which is probably not realistic with off-the-shelf products, and everyone has to file their own 5500, which can also lead to issues), but I don't want to encourage anyone to do it as it can get very complex/messy and totally blow up if/when they hire an NHCE. It is definitely a lot more efficient to have a single plan set up, and possibly even cost effective as you might end up with custom plan documents anyway (and a TPA involved one way or another). 'Solo 401k group plans' may be one of the origins of the 'brokerage only' 401k plans for many groups where they end up with individual accounts. Eventually a single plan is set up for the group, but many individual SDBAs remains in place, creating all types of issues. Not to mention that if you want to do MBR 401k or anything of the sort you have to deal with multiple accounts which will make tracking/reporting even more complex. So in short, set up a single plan for the practice, and if you plan to grow, do not go the 'SDBA for all' route.