Solo 401k Plans For Multi-Member LLCs (Partnerships)

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Any business structure is eligible to open and contribute to a solo 401k plan as long as they meet the basic eligibility rules, and that includes multi-member LLCs. To qualify, you must have any form of business, side hustle, or self-employment income and no employees, including part-time employees who have reached 21 years of age, and have worked over 500 hours per year for 3 consecutive 12-month periods. The only exception to the no-employee rule is your spouse.

If you’re part of a multi-member LLC with partners other than your spouse, each partner would be eligible to open and contribute to their own solo 401k plan. Each partner’s plan would need to exclude the other business partners’ roles from participating in their plans.

Step 1: Define roles of each business partner

A retirement plan is not allowed to exclude people from participation as that would be considered discrimination. However, specific roles are allowed to be excluded.

The first step is to define roles for each member in the LLC.

It’s entirely up to you what those roles are, but they must be defined in your LLC Operating Agreement.

For example, some common roles in a multi-member LLC are:

Step 2: Exclude the roles from participating in each other’s plans

Once the roles are clearly defined in your LLC Operating Agreement, your solo 401k plan provider can then create a separate solo 401k plan for each member, with each role excluded from participating in each other’s plans.

An operating agreement outlines the roles, responsibilities and requirements of each member. It also includes details on how you want the business to run, how profit disbursements are made, how voting will be done, and how disputes among members will be settled. 

The Adopting Employer of the plan for each plan would be your multi-member LLC, and each solo 401k would have separate trusts, each with a distinct trust name. Each trust would then get its own EIN, and have their own separate bank accounts.

Also read: How Much Does It Cost To Open a Solo 401k Plan? (Free vs Paid Plans)

How contributions work

By default, a multi-member LLC is viewed as a partnership from a federal income standpoint, and is required to file Form 1065 each year. Because members of an LLC are not employees, they are not issued a Form W-2. The LLC’s earnings and losses are not subject to an entity-level tax, but instead flow-through to the members, who must then each report the income, deductions, gains, and losses on their personal tax return via Schedule K-1 form.

While the total contribution limit of a solo 401k is $66,000 for 2023 ($73,500 if age 50+), you can contribute as both the employee and employer, and each type has different limits and rules.

The total contributions between employee and employer must not exceed the total annual solo 401k contribution limit of $66,000 ($73,500 if age 50+).

In a partnership, a partner’s share of the LLC’s net profit or loss is reported on Schedule K-1 as a distributive share item, while compensation is reported as guaranteed payments.

The amount that a partner can contribute to their solo 401k as an employer is up to 25% of the guaranteed payment amount (approximately 20% if the LLC is not incorporated), and not the net profits of the LLC.

Contribution deadlines

The contribution deadline for contributing to your solo 401k in a multi-member LLC is the same date as the business’ tax returns are due.

A multi-member LLC reports income on Form 1065, due on March 15 each year, unless the day falls on a weekend or holiday. Your deadline can be pushed to September 15 if a tax extension is filed.