Individual 401k vs solo 401k

While Individual 401k and Solo 401k are often lumped under same definition, there are many differences. As a result confusion exists when trying to Open Solo 401k, which allows for checkbook control (i.e., the option to make investments by writing a check).

While both Individual 401k and Solo 401k are for the owner-only business owner/self-employed, brokerage firms and large financial institutions generally refer to their owner-only 401k as Individual 401k. Generally, these firms only allow you to invest Individual 401k in mutual funds and stocks. On the other hand, companies like that offer owner-only 401k for investing in alternative investments (real estate, precious metals, tax liens and more) refer to the owner-only 401k as Solo 401k.

Individual 401k VS. Solo 401k 

Individual 401k

  • Owner-only retirement plan offered by brokerage firms and insurance companies
  • Only allows for investing in annuities, mutual funds and publicly traded stocks
  • Does not always allow for participant loans
  • Does not allow for checkbook control

Solo 401k

  • Owner-only retirement plan that allows business owner to trustee, and self direct Solo 401k into alternative investments
  • Can invest in alternative investments such as real estate, precious metals, tax liens, trust deeds, private shares, as well as equities (stock and mutual funds)
  • Allows for Checkbook Control
  • Allows for participant loans (borrow from Solo 401k)
  • Can be invested in Life Insurance for business owner and his or her beneficiaries
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