Hiring children and keeping Solo 401(k)
I have a client with a solo 401(k). They are planning on hiring their children part time (under 1,000/yr). If the children are excluded from participating in the plan, can the client keep the Solo 401(k), or will they need to change to a 401(k)?
Permalink Submitted by William Tuttle on Wed, 2021-11-03 04:32
A one-participant 401k plan can not have any non-owner/spouse eligible employees.
If the plan supports and the sponsor elects employee eligibility restrictions. The children may be able to be excluded as eligible employees.
Note: Vanguard’s Individual 401k does not support employee eligibility restrictions. The plan is in non-compliance upon the hire of any non-owner/spouse employees.
The allowed eligibility restrictions are:
>= age 21. As long as the children are < age 21 they are not eligible.
Up to one (1) year of service defined as up to >= 1,000 hours/year.
Note: The SECURE ACT added an amendment reducing the minimum hours to 500 for those with three 3 years of service. This provision and the counting of service did not begin until 1/1/2021. The earliest it can apply is 1/1/2024