Solo 401k Frequently Asked Questions
Whether you're exploring a Solo 401k for the first time or you're already managing a plan, there are often many questions about eligibility, contributions, rules, and more. Below, we've answered the most common questions we receive here at BestSolo401k.com.
What is a Solo 401k, and who is it for?
A Solo 401k (also called an Individual 401k or Self-Employed 401k) is a retirement plan designed for self-employed individuals or small-business owners with no full-time employees besides the owner (and possibly the owner's spouse).
It offers high contribution limits and the choice between pre-tax and Roth contributions—providing flexibility and significant tax advantages.
How do I know if I'm eligible?
To open a Solo 401k, you must:
- Have self-employed income from a trade or business (sole proprietor, single-member LLC, S-corp, etc.)
- Employ no full-time W-2 employees except for a spouse
If you're unsure about hours requirements or part-time staff, review the specific IRS guidelines or consult a tax professional.
How much can I contribute each year?
For tax year 2024:
- Employee (Elective) Deferral: Up to $23,000 (plus a $7,500 catch-up if you're 50+)
- Employer (Profit-Sharing): Up to 25% of net self-employment income (or W-2 wages) for an S-Corp or 20% for a Sole Proprietor
- Overall Limit: Up to $69,000 (or $76,500 if 50+)
For tax year 2025:
- Employee (Elective) Deferral: Up to $23,500 (plus $7,500 catch-up if 50+)
- Employer (Profit-Sharing): Up to 25% of net self-employment income (or W-2 wages) for an S-Corp or 20% for a Sole Proprietor
- Overall Limit:Up to 70,000 or ($77,500 for 50+)
Can my spouse join my Solo 401k?
Yes. If your spouse earns income from the same business, they can also make contributions—both as an employee and via employer (profit-sharing). This effectively doubles your household's potential contributions, which is a significant advantage of the Solo 401k structure.
Do I have to file any special forms with the IRS?
- Form 5500-EZ or 5500-SF: Once your Solo 401k balance exceeds $250,000 at the end of the plan year
- Form 1099-R: Required when you take distributions or roll over funds
What if I already have a 401k at my main job?
You can still open a Solo 401k for your self-employed business. However:
- Employee Deferrals are shared across all 401k plans. If you defer $10,000 in your day-job 401k, that counts toward the annual elective deferral limit (e.g., $23,000 for 2024).
- Employer Contributions are separate. So, your self-employed profit-sharing contributions in the Solo 401k do not affect the matching contributions from your day job.
Do I need a separate EIN for my Solo 401k?
Generally, yes. The IRS requires a unique Employer Identification Number (EIN) to establish a Solo 401k, even if you're a sole proprietor. You can apply for an EIN online at the IRS website.
How do I choose a Solo 401k provider?
Key factors include:
- Fees & Costs: Annual account fees, transaction fees, commissions, etc.
- Investment Options: Mutual funds, ETFs, stocks, bonds, and alternative assets.
- Customer Service & Platform: Ease of use, support channels, educational resources.
- Roth Option: If you want the ability to contribute after-tax dollars, ensure your provider offers a Roth Solo 401k option.
What if I hire a full-time employee who isn't my spouse?
Once you have a non-spouse, full-time W-2 employee working 1,000 hours or more per year, you can no longer maintain a Solo 401k. You'd typically need to:
- Transition to a traditional 401k plan, or
- Adopt another retirement plan that includes coverage for your employees.
Can I roll over other retirement accounts into a Solo 401k?
In many cases, yes. Most providers allow rollovers from traditional IRAs, old 401k plans, 403(b)s, and similar accounts into a Solo 401k. Be mindful of any restrictions, Roth balances, or potential tax implications.
Are there penalties for withdrawing funds early?
Is a Solo 401k the best option compared to SEP or SIMPLE IRAs?
It depends on:
- How much you want to contribute each year.
- Whether you need Roth options (Solo 401ks allow Roth contributions; SEP IRAs do not).
- Plan simplicity (SEP IRAs can be simpler to administer, but have lower deferral options at modest incomes).
How do Roth Solo 401k contributions work?
- After-Tax Contributions: You don't get a current-year tax deduction.
- Potentially Tax-Free Withdrawals: If you follow the qualified distribution rules (age 59½ and meet the five-year holding period), earnings can be withdrawn tax-free.
This can be advantageous if you expect higher tax rates in retirement or want to lock in tax-free growth on your investments.
Do I need to make contributions every year?
Where can I find tools or calculators to help me?
We offer free calculators and checklists to make managing your Solo 401k easier:
- Contribution Calculator Estimate how much you can contribute based on your income, age, and business structure.