Consolidating Multiple Solo 401k Plans into One

[lbc_t_h_3]

My spouse and I have separate solo 401k plans (let’s call them Plan A and Plan B), which we opened a few years ago when we undertook self-employed activities. This year, we opened an LLC as QJV and are looking to consolidate those solo 401k plans into one (let’s call it Plan C).

Furthermore, after some research, it seems that in community property states, we’re considered a Controlled Group and can only have one solo 401k plan. However, we have two solo 401k plans and need to fix this as soon as possible.

We are trying to understand the best course of action.

Option #1:

Adopt a new solo 401k plan (Plan C)

Perform trustee-trustee transfers from Plan A and B to the new Plan C

Close the old solo 401k plans (Plans A and B)

Option #2:

Amend (restate) Plan A so it becomes Plan C

Perform a trustee-trustee transfer from Plan B to the new Plan C

Close solo 401k plan (Plan B)

Option #3:

Create a controlled group plan, which will list both Plan A and Plan B in the solo 401(k) plan documents (Plan C).

It seems like Option #1 is the simplest one, but I’m unsure if it’s ok to do it. Option #2 acts as a middle ground, but its benefits compared to Option #1 aren’t very clear to me. Option #3 appears to be the most complex.

Can we go with Option #1 in our case?

 

[tjh]

@lbc_t_h_3 Yes, Option #1 is a valid and common way to consolidate two solo 401(k) plans into one, even in a community property state.

Here is a step-by-step guide:

1. Adopt a new solo 401(k) plan (Plan C). You can do this by using a template plan document or by working with a financial advisor.
2. Perform trustee-trustee transfers from Plan A and B to the new Plan C. You will need to contact your plan custodians to initiate these transfers.
3. Close the old solo 401(k) plans (Plans A and B). Once the trustee-trustee transfers are complete, you can close your old plans.

Benefits of Option #1:

It is the simplest and most straightforward option.
It gives you the most flexibility in choosing a new plan custodian and investment options.

Drawbacks of Option #2:

It is more complex than Option #1 because it requires you to amend your existing plan document.

You may have less flexibility in choosing investment options for your new plan because you will be limited to the options available under your existing plan document.

Drawbacks of Option #3:

It is the most complex option because it requires you to create a new plan document that lists both of your existing plans.

You may have less flexibility in choosing investment options for your new plan because you will be limited to the options that are available to both of your existing plans.

Overall, Option #1 is the best option for most people who are looking to consolidate two solo 401(k) plans into one. It is simple, straightforward, and gives you the most flexibility in choosing a new plan custodian and investment options.