Individual 401k, Self-Employed 401k, Solo 401k, Uni(k) – these are all aliases for the little known one participant 401k plan available to business owners and their spouses. Solo 401k plans are incredibly powerful tools for saving money for retirement as a small business owner. They allow those that don’t have any employees to supercharge their retirement savings through the use of a specialized 401k plan.

However, Solo 401ks are oftentimes shrouded in mystery, so those who would benefit the most from having one might not know that they even exist. Here, we cover everything you need to know about the Solo 401k.

Setting Up A Solo 401k

Setting up a Solo 401k can be difficult because the process is a bit different than opening any sort of self-directed brokerage account or IRA. Since Solo 401ks are a more specialized offering, you will have to take a few things into consideration: 

Timing

As we mentioned before, Solo 401ks are not like your typical brokerage account. New legislation allows you to set up a 401(k) plan for the prior year similar to IRAs. The due date for the contributions would be the same–you are able to make the contributions up to the due date of your company’s tax return (including extensions).

IRA deadlines must be set up and funded prior to the due date of your personal tax returns. Thus, if your business has the same tax deadlines as your personal due date, then the IRA and Solo 401(k) contributions deadlines would be the same. Though it’s worth noting that some due dates for the corporate return are a month earlier for the Solo(k) than the IRA.

Brokerage Fees

Some brokerages aren’t very up front with their fees, which can eat away at your returns over time. That’s why it’s important to ask specifically about the fees associated with your account before signing on the dotted line.

Is the Broker a Fiduciary?

Fiduciaries have a legal obligation to help you make the best decisions with regard to the investments you make. Whereas a financial advisor without a fiduciary duty may push you to make investments that net them higher commissions.

Frequently Asked Questions for Solo 401k

We know that Solo 401k’s can be a bit confusing, so in an effort to shed some light on the topic, we’ve answered some of the most frequently asked questions about Solo 401k’s below:

Who Qualifies for a Solo 401k?

Surprisingly, many people qualify for a Solo 401k. So long as your business produces an income and is run either by you, or you and your spouse, and doesn’t employ any other people, you are eligible to open a Solo 401k. This makes Solo 401k’s a great option for freelancers, independent contractors, content creators, and other one-person outfits.

How Much Can Be Contributed to a Solo 401k?

Much like contribution limits for IRAs, contribution limits for Solo 401k’s change every year. As of 2022, you can contribute $61,000 to your Solo 401k each year if you are under the age of 50. If you are over the age of 50, your contribution limit increases to $67,500 per year.

The contribution limit for an IRA is $6,000 with $1,000 for those over 50. The Solo(k) will likely automatically include the Roth feature and the ability to convert your account balance to Roth at any time. Roth IRA can be set up in a separate IRA account.

The Roth IRA also has income restrictions, those earning greater than $144,000 for an individual (or a couple whose income exceeds $214,000) may not contribute to a Roth IRA.

Luckily, the income limitations go away under the Solo(k). The Solo(k) allows Roth contributions up to the maximum deferral limit. This is what really makes a Solo(k) superior over the IRA or the SEP IRA.

What is the Difference Between an Individual 401k and Solo 401k?

Unfortunately, there is often some confusion around when it comes to the nomenclature of Solo 401ks. There are many interchangeable names for the Solo 401k, which can (understandably) cause some confusion for those looking to set up a Solo 401k. Try not to let all of the different names confuse you though, at the end of the day, all of them are referencing the same one-participant 401k plan.

A Simple, Effective Solution

Setting up and maintaining a Solo 401k can be both difficult and expensive. This is why Retire4one strives to make the Solo 401k setup process as frictionless and inexpensive as possible.

We believe that you shouldn’t be spending your hard-earned retirement savings on costly setup and maintenance fees for your Solo 401k. That’s why we offer some of the most competitive fees in the business. We are here to ensure that you get the personalized experience of a boutique brokerage, with the safety and security of the investments provided by our partner, Voya. As a team of fiduciaries, we make the best decisions for our clients and have made it a point to make the process of creating an account quick and simple.