Is the Solo 401k Right for Me?

Many people who own a business have another goal in addition to earning a living. They also want to quickly build their retirement account by investing in alternative assets.

If this is you, great news! There’s a plan that will help sole proprietors achieve these goals. Introducing the Self Directed Solo 401(k) plan. A Self Directed Solo 401(k) plan is a qualified retirement plan aimed at self-employed professionals which allows them to make large income tax-deferred contributions to their retirement.

Can I establish a Solo 401(k)? Am I:

  • Self-Employed individuals (and their spouse) with no W-2 employees
  • Self-Employed individuals (and their spouse) with only part-time W-2 employees (less than 1000 hours per year)

How much may I contribute to a Solo 401(k) for the 2022 tax year?

  • For 2022, the Solo 401(k) contribution limit is $61,000. As the sole proprietor, you are both the owner and the employee of the business; hence, you can make two contributions
    • One contribution to your 401(k) as the employee
    • One contribution to your 401(k) as the employer
  • As the employee, the maximum contribution allowable is up to 100% of compensation up to $20,500. Those 50 or older get to contribute an additional catch-up contribution of $6,500.
  • As the employer, you can make an additional contribution of up to 25% of your compensation or net self-employment income. The total of employee plus employer contribution may not exceed $61,000 or $67,500 for age 50 and over. 
  • You can use the plan to cover your spouse. Your spouse would make elective deferrals as your employee. Your spouse may contribute up to a like amount. 
  • Keep in mind, there are two separate deadlines for employee and employer. Employees must make their contributions by December 31, while the employer makes their contributions by April 15 (October 15 for late filers).

What investment may I hold in a Solo 401(k)?

Your Solo 401(k) can invest in things you know and understand best. Use your experience and know-how to build exactly the investment portfolio you have always wanted. Invest in Real Estate, Promissory Notes, Life Settlements; the list goes on.

I found the investment, what’s the next step?

  1. Establish a business.
  2. Complete IRA Club’s Solo 401k application.
  3. Fund the Solo 401(k) via contributions or a rollover from a former employer’s 401(k) plan.
  4. Work with IRA Club’s Investments Team to make your investment. 

Do I need to file Form 5500-SF?

A Solo 401(k) plan is generally required to file an annual report on Form 5500-SF if it has $250,000 or more in assets.