Solo 401(k) Frequently Asked Questions

A Solo 401(k) (also called an Individual 401(k) orSelf-Employed 401(k)) 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.

To open a Solo 401(k), 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.

• Form 5500-EZ or 5500-SF: Once your Solo 401(k) balance exceeds $250,000 at the end of the plan year
• Form 1099-R: Required when you take distributions or roll over funds

You can still open a Solo 401(k) for your self-employed business. However:

• Employee Deferrals are shared across all 401(k) plans. If you defer $10,000 in your day-job 401(k), 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 401(k) do not affect the matching contributions from your day job.

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 401(k) option.

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 401(k). You'd typically need to:

• Transition to a traditional 401(k) plan, or
• Adopt another retirement plan that includes coverage for your employees.

In many cases, yes. Most providers allow rollovers from traditional IRAs, old 401(k) plans, 403(b)s, and similar accounts into a Solo 401(k). Be mindful of any restrictions, Roth balances, or potential tax implications.

It depends on:

• How much you want to contribute each year.
• Whether you need Roth options (Solo 401(k)s allow Roth contributions; SEP IRAs do not).
• Plan simplicity (SEP IRAs can be simpler to administer, but have lower deferral options at modest incomes).

• 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.

We offer free calculators and checklists to make managing your Solo 401(k) easier:

• Contribution Calculator: Estimate how much you can contribute based on your income, age, and business structure.
• Rollover Checklist: Step-by-step instructions for consolidating funds.
• Compliance Checklist: Keep on top of annual filings and deadlines.