Do I qualify for Self-Directed Solo 401k

I am researching Solo 401k plans and am interested in more information on your plans.

I have two businesses:

Business 1(LLC):
I own 49%
Mother owns 51%

Business 2(LLC):
I own 95%
Mother owns 5%

Business 1 will potentially have employees in the next year, perhaps 50% chance.

QUESTION: I would like to be able to make the maximum contribution possible to a tax deferred retirement plan such as a self-directed Solo 401k, for both myself and my Mom.  Business 1 is currently bringing in $200k and Business 2 is inactive.  Does a multi-member LLC qualify for a solo 401k, and what will be the transition process when/if employees are hired?

ANSWER: Solo 401k is for both business partners or for both spouses. Further, any business type including LLC can open Solo 401k. However, to qualify for Solo 401k, you must be truly self-employed. In other words, passive income does not generally qualify as self-employment income and therefore you could not open Solo 401k.

You can learn more about what the IRS considers self-employment income for Solo 401k qualifying purpose by visiting following web page:    http://www.mysolo401k.net/Self-employment-Compensation-for-Self-Directed-Solo-401k-or-Self-Directed-401k.html

Once you hire common law employees who work 1,000 hours or more per year, you can no longer participate in Solo 401k. Instead, the Solo 401k plan would have to be converted to a traditional 401k such as a safe-harbor 401k, at type of 401k for businesses with full-time employees.  We offer safe harbor 401k, so we could easily transition your Solo 401k to a safe-harbor 401k plan once your business starts expanding.

Thank you,
GB