Is a Solo 401k Right for Me?

A Solo 401(k), also known as an individual 401(k) or a self-employed 401(k), is a retirement savings plan designed for self-employed individuals and small business owners who do not have any employees, other than a spouse.

To be eligible you must be self-employed or own a small business with no full-time employees, except for your spouse.

Any type of business structure is eligible, including sole proprietorships, partnerships, corporations, and LLCs.

A Solo 401(k) and a Self-Directed SEP IRA both cater to self-employed individuals and small business owners, but they differ in several key ways. The Solo 401(k) allows for both employee and employer contributions, offering higher total contribution limits and the option for Roth contributions, along with a loan provision. In contrast, a Self-Directed SEP IRA only allows employer contributions, lacks a Roth option and loan provision, and typically has simpler administrative requirements with no annual filing regardless of account size. The Solo 401(k) is suitable for those seeking higher contribution limits and more control over investments, while the Self-Directed SEP IRA is ideal for those prioritizing simplicity and lower administrative burden.

A Solo 401(k) offers a wide range of investment options, enabling you to tailor your investment strategy to your specific goals and risk tolerance. You can invest in traditional assets like stocks, bonds, ETFs, A.I Trading portfolios for members,  and money market funds. Additionally, alternative investments such as real estate, private equity, precious metals, cryptocurrencies, tax liens, and private loans are also permitted. Other investment options include certificates of deposit (CDs), Treasury securities, REITs (Real Estate Investment Trusts), commodities, hedge funds, and limited partnerships. For those who set up a self-directed Solo 401(k), the range of permissible investments can be broader, including promissory notes, foreign currencies, and crowdfunding investments. However, it’s important to adhere to IRS rules regarding prohibited transactions and disqualified persons to avoid penalties. Overall, a Solo 401(k) provides considerable flexibility to create a diversified retirement portfolio aligned with your investment goals and risk tolerance.

You will be able to have your own checking account, if you open a checkbook LLC. 

You can open your Solo 401(K) account here.

Funding a Solo 401(k) involves making contributions from your self-employment income, which can be done in two main ways: employee deferrals and employer contributions. As an employee, you can contribute up to $22,500 in 2024 (or $30,000 if you’re age 50 or older due to catch-up contributions). Additionally, as the employer, you can contribute up to 25% of your compensation, with total contributions (employee plus employer) not exceeding $66,000 in 2024 (or $73,500 if including catch-up contributions). These contributions can be made from your business’s earnings and can be deposited into the Solo 401(k) checking account, ensuring they are properly recorded and managed for tax purposes.

To transfer funds from another retirement account to a Solo 401(k), you need to initiate a rollover process. Start by ensuring your Solo 401(k) is established and ready to receive funds. Then, contact the administrator of your existing retirement account to request a direct rollover, where the funds are transferred directly to the Solo 401(k) plan, or an indirect rollover, where you receive the funds and deposit them into the Solo 401(k) within 60 days. Ensure the transfer is properly documented and report the rollover on your tax return to maintain the tax-deferred status of your funds.

To start a Solo 401(k), first determine your eligibility as a self-employed individual or small business owner with no employees other than a spouse. Next fill out or online application. Complete the required paperwork to establish the plan, including obtaining an Employer Identification Number (EIN) for the Solo 401(k). Set up a designated checking account for the plan, then fund the account through contributions from your self-employment income. Finally, ensure you understand and comply with ongoing administrative requirements, such as annual filing (form 5500) if plan assets exceed $250,000. This will be handled by IRA Club on your behalf. You can click here to establish your account.