Self-Directed Solo 401(k) (2024)

FAQs

Can a Solo 401k be self-directed? ›

With a self-directed Solo 401(k) or IRA, you can invest in a variety of areas, including: Real estate.

Drawbacks to the solo 401(k)

Like other 401(k) plans, the solo 401(k) will hit you with taxes and penalties if you withdraw the money before retirement age, currently set at 59½.

A Solo 401k plan is surprisingly easy to administer. With the Solo 401k plan by Nabers Group, you do not need a third party administrator. In fact, you are allowed to act as your own administrator.

One of the more common questions we receive from self-employed business owners seeking to establish a Solo 401(k) plan is whether it can reduce self-employment tax. The short answer is no.

Moving the Funds from the Solo 401k to the Self-Directed IRA: If transferring by check, make the full transfer check from the pre-tax Solo 401k account payable in the name of the new IRA custodian F.B.O. your name. If transferring electronically, such as by wire, ensure the funds move directly to your pre-tax IRA.

ANSWER: Once you permanently cease self-employment activity, the solo 401k plan will need to be closed and transferred to an IRA or to another employer plan (e.g., your day-time employer's 401k plan).

The limits are the same as for the Solo 401(k): $69,000 for 2024 (up from $66,000 in 2023); however, your contribution cannot exceed 25% of your gross adjusted income. No catch-up contribution is allowed for those age 50 or older.

A solo 401(k) is generally considered a better option for solo practitioners than a SEP IRA, because it offers the following additional features: Employee deferrals – Unlike a SEP IRA, a solo 401(k) allows both employer and employee contributions.

Differences at the state level determine when IRAs are fair game for lawsuits. The fact is that many states don't protect IRAs nearly as well. Even though the Solo 401k doesn't generally qualify under Title I of ERISA, it often offers more from lawsuits and bankruptcy courts.

Do I need an LLC for a Solo 401k? ›

The Solo 401k is specially designed for owner-only businesses to help you maximize contributions and minimize taxes. No need to incorporate solely to open one either. As long as you have self-employment income, you can set up this supercharged retirement account on your own without any full-time W-2 employees.

With a self-directed Solo 401k plan, you are in complete control. This means you are the plan administrator, trustee, and record keeper. And it's very important to keep excellent records of your Solo 401k. Therefore, you'll keep track of the money coming in and going out of the plan.

A solo 401(k) is considered one of the best retirement plans for building long-term wealth and deferring a portion of your income regardless of whether you have a second job or side gig. Learn how to maximize solo 401(k) contributions and the tax benefits you can earn in return.

Yes. The solo 401k is classified as a retirement trust, which is an entity that is separate from your operating business. You probably already have an EIN for your business, but you will need an EIN for the 401k trust itself. When you open a bank or brokerage account for the 401k the institutions will need this EIN.

No Employees in Other Businesses

If you have a business that fits the qualification guidelines for Solo 401(k), you may not be eligible, however, if you or certain family members have ownership in other businesses that do have employees. The IRS defines a Controlled or Affiliated Service Group.

To qualify for a solo 401(k), you must produce your income from your own business. And the business must be run by you alone, or you and your spouse.

You can write a check directly from your personal or business checking account to the solo 401k account. This is probably the most common way for business owners to fund their solo 401k outside of payroll.

A self-employed 401(k), also known as a solo 401(k), can be an option for maximizing retirement savings even if you're not making a lot of money. Who can open one? If you are self-employed or own a business or partnership with no employees you can open a self-employed 401(k).

Solo 401(k) contribution limits for 2024

With a solo 401(k), you can make contributions in 2 ways: as the employee and as the employer. Each portion of that equation has a different limit that adds up to that hypothetical max of $69,000, or $76,500, which includes catch-up contributions, for those 50 or older.