Solo 401k FAQ

Self Directed Checkbook Control 401k Plans for the Self Employed


Click any of the Solo 401k Frequently Asked Questions (FAQ) below to expand and review the answer. You may also click “Expand All” for a quick way to read more about the Solo 401k plan.

  • General
  • What is a Solo 401k?

    A Solo 401k is a type of qualified retirement plan. Unlike other 401ks, however, a Solo 401k enjoys reduced administrative requirements, and increased benefits such as a profit-sharing component and much higher contribution limits.

  • What can a Solo 401k invest in?

    Contrary to the vast majority of 401k plans and even most Solo 401ks, our Solo 401k plans can invest into anything allowed by law. Our plan documents don’t place any additional restrictions on your activities. This leaves you free to invest in real estate, cryptocurrencies, private businesses, mortgage notes, precious metals, tax deeds/liens and more. The acquisition of traditional assets such as stocks, bonds, and mutual funds is also permitted. The main restriction is on “self dealing” which means you cannot direct your Solo 401k to transact with (or benefit) you or some of your family members. Such a transaction is called a prohibited transaction.

  • How long has the Solo 401(k) been around?

    Although 401k plans were created in 1981, it wasn’t until the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that additional benefits and reduced administration were made possible for certain plans. Eligibility requirements for these plans required a participant be self-employed with no employees of his or her own (a solo business owner). These plans are now commonly referred to as Solo 401(k) plans. Legislation subsequent to 2001’s EGTRRA has served to increase the flexibility of the Solo 401k.

  • Can I transfer funds into a Solo 401k? Is there a limit?

    Yes. You can transfer funds from most retirement accounts into the Solo 401k without creating taxable distributions. Note that if you participate in a plan (such as a 401k) with your current employer, your plan’s administrator may not allow you access to any of the funds while you are still employed.  To find out, ask the administrator if the plan provides for “in-service distributions.” If in-service distributions are not allowed, transferring assets currently held in that plan will have to wait until your employment is discontinued or the plan is otherwise terminated.

  • Do I need a custodian for my Solo 401k?

    No. 401k plans, which are addressed in section 401 of Internal Revenue Code, do not fall under the custodial requirement that applies to IRAs. Since there is no custodial requirement for a Solo 401k, the plan participant can be his or her own trustee, this gaining direct checkbook control.

  • What are the ongoing costs associated with a Solo 401k?

    The ongoing cost for a Discount Solo 401k is an annual maintenance fee of just $100 - $125 and this includes any amendments or restatements necessary for your plan to keep its qualified status with the IRS. Contact us for setup fees and other pricing information including our price match guarantee.

  • I have a full time job. Can I still have a Solo 401k?

    Quite possibly. Eligibility for a Solo 401k requires that you have some type of self-employment activity AND no full time non-owner employees in any businesses that you own. There is no restriction on being employed elsewhere. Your self-employment activity can be on a part time basis.

  • How old must my business be to start a Solo 401k?

    There is no business age requirement to start a Solo 401k plan.

  • How much income do I need to have to start a Solo 401k?

    There is no minimum amount of self-employment income needed for a Solo 401k as long as you have legitimate self-employment activity.

  • Can I make Roth contributions to a Solo 401k?

    Yes. There is a designated Roth component built into the Solo 401k. You may make any amount of your employee contributions to the plan Roth (post-tax) contributions.

  • Why are Solo 401k contribution limits so high?

    As a solo business owner, you are able to make contributions on behalf of both the employer and the employee since you are considered to serve both roles. These plans offer contribution limits that are about ten times higher than IRA contribution limits.

  • Can my spouse contribute to my Solo 401k?

    Quite possibly. A spouse is eligible to participate in the plan if he or she receives income from the company that adopts the plan. An eligible participant can not only make contributions to the plan from income received from the adopting employer, but can also transfer eligible existing retirement funds into the plan. Spousal participation effectively doubles the maximum limits on contributions to that plan. It also serves to eliminate the costs of having to create and maintain multiple plans.

  • Can I borrow funds from a Solo 401k?

    Yes. With regard to 401ks, there is an exemption to the prohibited transaction rules for participant loans. The participant may borrow funds from the Solo 401k to use for a variety of purposes. All Discount Solo 401k plans come with the participant loan feature built in for no extra charge. We will even supply loan documents free of charge for all plans we create.

  • Do the same prohibited transaction rules apply to Solo 401k and IRA LLCs?

    Yes. Disqualified persons are determined the same way for both structures and the prohibitions apply to the same activities regarding those disqualified persons. One notable exception is the participant loan feature of the Solo 401k. There is a Department of Labor exemption for participant loans.

  • Can I invest in traditional assets such as stocks, bonds, and mutual funds with the Solo 401k?

    Yes. You are able to invest in both traditional as well as alternative assets with a Discount Solo 401k. We offer a fully featured compliant plan for thousands less than some competitors. To invest in stocks, bonds, and mutual funds, a brokerage account can be opened in the name of the Solo 401k trust.

  • Can I obtain financing for an asset purchase in a Solo 401(k)?

    Yes. The financing will have to come by way of a non-recourse loan. A non-recourse loan is a method of financing in which the 401k participant will not be required to personally guarantee the loan, nor will the other assets of the borrower (technically, the Solo 401k) be used to secure the loan. The only action a lender can take in case of default of the loan is to acquire the asset on which the money was loaned.

  • Does your plan allow for after-tax (non-Roth) contributions?

    Yes, our plans are fully-featured and allow for after-tax (non-Roth) contributions. These are sometimes referred to as voluntary after-tax contributions. Many clients utilize these contributions along with in-service distributions or in-plan Roth conversions as part of the mega backdoor Roth strategy.

  • What is form 5500-EZ?

    Form 5500-EZ is the filing requirement for Solo 401ks with $250,000 or more in plan assets. It is simply an informational return that is filed with the IRS. Solo 401k plans with assets totaling less than $250,000 have no filing requirement at all.

  • How do I set up a Solo 401k?

    In order to create a Solo 401k plan for you, we need to collect some basic information about your business so we can use it in your plan documents. You can securely transmit the information to us on our application form.

  • Do I need an ERISA bond?

    No, since the Solo 401k is a "one-participant" plan that only covers the business owner (or the owner and a spouse), it is exempt from Title I of ERISA and there is no bonding requirement.

  • Can I make contributions to a new Solo 401k for last year?

    This depends. The rules used to state that a plan needed to be created by 12/31 of a given year in order to make contributions for that year. New rules now allow plans to be set up and funded by your tax filing deadline, but some adopting employers will have additional requirements. Contact us for details.


Call 303-427-4519
Business Seals