AboutJohn D Smith, CFP Expertise I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related financial planning/investment issues. I have a B.S. degree in Financial Planning & Counseling. I am also a Certified Financial Planner (CFP) and have performed fee only investment management and financial planning services for the past 11 years.
Question I am a small business owner myself and my wife are the owners and employees. One years ago I opened a Individual K for myself and rolled over a 401K from a previous job. At that time I had no future expectations of hiring employees. I took out a loan on the Individual K to pay expenses. Now to my surprise the business has expanded to the point I need to hire two employees. My question is what are my options with the Individual K. In the expanded business myself and my wife will continue to be majority owners and an additional partner who will be a minor owner. I will hire two full time employees. For retirement planning purposes, do I suspend the Individual K? What are my options with the loan and the Individual K? Can I keep the Individual K and be employed as a consultant with the business? Do I have to set up a traditional 401K for the business?
Thank You.
Answer Hi. The indivdual, or solo 401k, is available only to business owners, their spouses and children. Once you hire outside employees that meet the eligibility requirement for the 401k, you need to alter the plan to include them. If you prefer not to have the 401k, then you can suspend the plan but will have to suspend it for yourself as well. In doing so, you would be required to pay back the loan or consider the loan amount a distribution and pay applicable taxes and penalties. You do have other qualified plan options that may better suit your needs if you find that the 401k is not right for you with employees. Your accountant or another qualified retirement plan expert can assist you with determing the best plan for your needs. I hope this helps.
