How long does it take to open?
ANSWER:
It takes 3 to 4 days to open the checkbook brokerage account for a solo 401k offered by My Solo 401k Financial with Charles Schwab.
How much does it cost?
ANSWER:
Charles Schwab does not charge a setup fee for a brokerage account for the solo 401k offered by My Solo 401k Financial.
Is Charles Schwab responsible for any reporting under the solo 401k offered by My Solo 401k Financial?
ANSWER:
No as the solo 401k trustee and My Solo 401k Financial handle the solo 401k reporting (e.g., Form 5500-EZ).
How do I place investments under the solo 401k?
ANSWER:
If processing an alternative investment such as real estate or promissory note, by writing a check or by submitting a wire directive to Charles Schwab. If an equity investment such as publicly traded stock or mutual fund, you will logon to the Charles Schwab brokerage account and process the trade on-line.
What fees does Charles Schwab Charge?
ANSWER:
Charles Schwab does not charge stock trading fees, and charges a wire fee of $25. The account also comes with a a free checkbook for placing alternative investments and for processing the solo 401k participant loan.
How do I make contributions?
ANSWER:
One option would be to go to the local Schwab branch and make contributions by paper check (e.g. pre-tax contributions to the pre-tax account, voluntary after-tax contributions to the after-tax account, etc.)
Schwab won’t allow you to electronically transfer funds to the brokerage account from an external account not titled in the name of the plan.
- One option is to open an account at a bank in the name of the Solo 401k so that you can make contributions to the bank account (which would count as a contribution to the plan since in the name of the plan) and then electronically transfer funds from the Solo 401k bank account to the brokerage account at Schwab.
- A second option is to open a brokerage account at Schwab in your name, fund the brokerage account in your name, and then transfer the funds from the brokerage account in your name to the brokerage account in the name of the plan (subject to the contribution limits, deadline, etc.).
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General Information regarding Solo 401k Contributions (2021):
Solo 401k contributions are based net- income from self-employment (i.e. you can’t contribute more than you make).
You can make the contributions from your business or personal checking account as long as the funds stem from self-employment income.
The total contribution limit for tax year 2021 is $58,000 plus an additional $6,500 catch if age 50 or older.
To make the contribution, you will make the check payable in the name of the solo 401k and write “Annual Contribution” on the memo section of the check.
You can use our on-line solo 401k contribution calculator to calculate the contribution amount.
Here is the link and it works best on Internet Explorer browser [note: the online calculator shows the limits for 2020 as many customers are still making 2020 contributions].
https://www.mysolo401k.net/Calc/Individual401kContribution.html
You may also use the online annual contribution form located on our website to internally document the contribution. This form is for your records only.
https://www.mysolo401k.net/wp-content/uploads/2014/09/Solo_401k_Annual_Contribution_Form.pdfHere is additional information regarding the solo 401k contribution rules.
Solo 401k Contributions
The business owner acts in both capacities in a solo 401k plan: employee and employer. As such, the business owner can make both contribution types: employee and employer. (Note: Matching contributions do not apply to a Solo 401k plan).
Type 1 Contribution (Employee): Employee contributions also known as elective deferrals up to 100% of net earnings from self-employment income up to the annual contribution limit; Note: See information below regarding how to determine your self-employment income for contribution purposes since it depends on how your self-employed business is organized (e.g. sole proprietor, S-Corp, etc.).
2021`: $19,500 plus an additional $6,500 catch-up contribution if you are 50 or older; and
Note: If the Solo 401k participant is participating in another qualified plan such as a 401k plan offered through a w-2 “day job,” any employee contributions made by the individual to such plan will be aggregated with any employee contributions made to the Solo 401k plan in determining whether the limit has been met.
Type 2 Contribution (Employer): Employer profit sharing contributions up to:
- If taxed as an unincorporated business (e.g., sole proprietor or partnership) then 20% of net business income (i.e. from Line 31 on Schedule C or Line 14 of K-1 as applicable) after deducting one-half of self-employment tax; or
- If taxed as a corporation, then 25% of w-2 income.
Note: For a solo 401k with multiple participants (e.g. husband and wife), the employee & employer contribution limits are calculated for each participant individually (i.e., based on each person’s self-employment income).
Total Contributions: Total contributions to a solo 401k plan cannot exceed $58,000 for 2021, plus an additional catch-up amount of $6,500 if age 50 or older. Please note that if you intend to also make Roth and/or after-tax contributions, please contact us for more information on making such contributions.
IMPORTANT: The annual solo 401k contribution limits depends on the type of entity sponsoring the solo 401k plan.
- If the entity type is a Sole Proprietor, it is equal to line 31 of Schedule C(after deducting one-half of self-employment tax).
- If the entity type is a C-Corporation, it is equal to W-2income from your self-employed business (“Box 1 plus any pre-tax elective deferrals NOT in Box 1).
- If the entity type is an S–Corporation, it is equal to W-2income from your self-employed business (“Box 1 plus any pre-tax elective deferrals NOT in Box 1).
- If the entity type is a Partnership, it is equal K-1 (Form 1065) line 14 from your self-employed business (after deducting one-half of self-employment tax).
Note: To determine the amount equal to one-half of the self-employment tax, please take the following steps:
- Navigate to our online calculator: https://www.mysolo401k.net/Calc/Individual401kContribution.html
- For Business Type: select “Unincorporated Sole Proprietorship”
- Enter your net income as applicable (e.g. for a Sole Proprietor enter net income from line 31; for a Partnership enter Line 14 from your K-1).
- Enter your age
- Click “View Report”
- In the sentence beginning “*Calculated as net business income…” the amount equal to one-half of the self-employment tax will appear in the phrase “Self-Employment Tax of ___”
Solo 401k Contribution Deadlines:
The self-directed 401k contribution deadlines are based on the type of entity sponsoring the solo 401k.
- If the entity type is a Sole Proprietorship, the annual solo 401k contribution deadline is April 15, or October 15 if tax return extension is timely filed.
- If the entity type is an LLC taxed as an S-Corporation (calendar year), the annual solo401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is an LLC taxed as a Partnership (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is a Partnership (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is an S-Corporation (calendar year), the annual solo 401k contribution deadline is March 15, or September 15 if tax return extension is timely filed.
- If the entity type is an C-Corporation (calendar year), the annual solo 401k contribution deadline is April 15, or October 15 if tax return extension is timely filed.
