Multiple Employer 401(k) Plans
The Solo 401(k) is a fantastic retirement plan for self-employed entrepreneurs.
Because a Solo 401(k) is designed for an owner-only business, it provides the savings power of a 401(k) in a simple to operate format. With high contribution limits, the potential for tax-deferral or tax-free Roth savings, and participant loans, there sure is a lot to like.
Of course, with a Safeguard self-directed Solo 401(k), you also get the ability to be truly diversified and invest in alternative assets like real estate, cryptocurrency, and venture capital.
But what if you have more than one source of self-employment income? Or what if both you and your spouse have separate self-employment? Does that mean you need multiple plans? That sounds complicated.
Actually, a Solo 401(k) can be shared by multiple related employers. For some investors, this can create a really nice package.
Owner-Only 401(k) Plan
Solo 401(k) is one of many marketing names that has been given to what is technically best described as an “owner-only” 401(k). Common names include Individual 401(k), Single 401(k), Uni-K, and the like. The IRS even confuses matters by using One-Participant 401(k) as their primary name.
The bottom line is that this simplified version of a 401(k) is designed for owner-only businesses. The lack of non-owner employees is what brings administrative simplicity to the Solo 401(k).
If a business has any full-time employees working more than 1,000 hours per year, those employees must be provided plan benefits and a Solo 401(k) is no longer available. Similar restrictions apply for a business that has long-term part-time employees working more than 500 hours per year for 3 consecutive years starting in 2021.
There are many configurations where a Solo 401(k) can have more than one participant, as we have discussed elsewhere.
It is also possible that more than one owner-only business can act as a plan sponsor for a Solo 401(k).
No Employees in Related Businesses
If you have a qualifying owner-only business, you still may not be eligible for a Solo 401(k). If you or your spouse have other businesses with eligible employees, that can make your qualifying business ineligible. All businesses within a related service group or control group of shared ownership are looked at as one for purposes of benefits coverage.
Employer Qualification
Many different business types can sponsor a Solo 401(k), including sole proprietorships, LLCs, partnerships, S-Corporations and C-Corporations.
The key consideration is that there must be a business activity that generates earned income such as a 1099-NEC, schedule C, or W-2.
Passive earnings such as rental income, capital gains, or shareholder dividends on a K-1 do not count as earned income and are not eligible for sponsoring or contributing to a Solo 401(k).
Multiple Employer Examples
If you and/or your spouse have multiple businesses that qualify for a Solo 401(k), they can establish a single plan jointly.
One business acts as the primary employer and takes the lead with respect to plan administration and compliance matters.
One or more additional businesses can act as a “Participating Employer” and sign on to the plan.
This allows a person with more than one business to tap the income from multiple sources for purposes of making plan contributions.
The multi-employer format also allows for spouses to share a single plan even if they each have their own separate business.
Following are a few examples to illustrate the potential:
- Emily is a sole proprietor as a therapist and also has an LLC through which she runs a seasonal craft business at farmer’s markets.
- Eric has a S-Corporation for software development. His wife Jade is a CPA and operates using a professional corporation.
- Linda and Raphael have a partnership as architects. Raphael also referees basketball and has 1099 sole proprietor income.
- Victor has two separate LLCs for different internet storefront ventures.
How Contributions Work
Making plan contributions in a multiple employer plan can be complex. Be sure to consult with your licensed tax counsel to handle this topic properly.
If one person has multiple businesses that all have pass-through tax treatment, the income is essentially lumped together for purposes of making contributions. The resulting amount will need to be allocated to all relevant schedule C forms in proportion to the respective income of each business.
If there are businesses with different income treatment, such as a sole proprietorship and a corporation where compensation is issued on a W-2, care needs to be taken to allocate contributions across the businesses appropriately.
When two individuals have their own separate businesses, they each look to their own income for purposes of making contributions.
Under no circumstances should a single plan participant exceed their salary deferral maximum, which in 2021 is $19,500 for those under age 50 and $26,000 for those age 50 and older. This limit is shared across plans, so if you have a Solo 401(k) and also have a separate 401(k) from an employer other than yourself, you need to stay under this limit in the aggregate.
Employee salary deferrals are elective. Each participating owner can choose to contribute or not, in any allowable amount without consideration for how other participants contribute.
If profit sharing contributions are made, all eligible participants must take the same percentage based on their individual compensation.
Investing In a Plan with Multiple Participants
While it is necessary to independently track the respective savings of each participant in a plan, it is not required that you invest separately.
Any investment is made by the plan, and the transaction counterparty does not see that funds belonging to Michelle or James are being used.
On the back end as plan trustees and administrators, Michelle and James need to document how each investment is funded. They can choose to invest separately into different opportunities, or they can choose to pool their funds into a single deal.
We have explored this topic in detail in a prior article.
Power Up
The multiple employer Solo 401(k) can help maximize plan benefits for those investors who have more than one form of self-employment.
With the ability to tap more sources of income for plan contributions, and to pool savings with your spouse for purposes of investing, you can get more out of your retirement savings.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
