Last Updated 10/8/2024
Please check out this good question from our one of our daily My Community Q&A Webinars. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.
Open Solo 401k FAQ: Do I need an LLC or S corp to open a Solo 401k?
Frustrated with a high tax bill? As a self-employed person, you have a great option to sock away more pre-tax retirement savings and take control of your financial future. The solo 401k allows higher contributions than any other defined contribution plan available to entrepreneurs – up to $69,000 in 2024 (or $76,500 if age 50 or older). Even better, you can tap into your account early through loans, and invest in alternatives like real estate that an old 401k or IRA doesn’t allow.
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.
Learn More: FAQs on Eligibility to Open a Solo 401k
Who is eligible to open a solo 401k?
To be eligible for a solo 401k, you must earn self-employment income from a trade, business, or profession and have no non-owner/non-spouse full-time w-2 employees working for any business owned by you or a spouse (if any). This includes sole proprietors, partnerships, limited liability companies (LLCs), and S corporations. You cannot open a solo 401k if you only have W-2 wages from an employer.
What are the main benefits of a solo 401k?
A solo 401k allows higher contributions than many other retirement accounts. For 2024, you can contribute up to $69,000. If over 50, an extra $7,500 catch-up contribution is allowed. Other key benefits include the ability to invest in alternative investments (such as real estate, notes, precious metals, etc.) as well as the ability to take a 401k participant loan – you can borrow up to 50% of the vested balance up to $50,000.
What business structure should I choose to open a solo 401k?
Sole proprietors, partnerships, LLCs, and S corps can all open a solo 401k as long as they have earned self-employment income. You do not need to form a specific business entity solely to open a solo 401k.
Can I open and contribute to a solo 401k if I have side income from freelancing?
Yes, if you earn self-employment income from freelancing, consulting, or side jobs, you can open and contribute to a solo 401k. The eligibility requirements look at your earned income, not your business structure.
Do you need an EIN to open your solo 401k?
In short: No. The key requirement is reporting earned self-employment income (whether on Schedule C of your 1040, w-2 wages from your self-employed business, or earned self-employment income reported on Line 14 of K-1 from a partnership) with no full-time non-owner/non-spouse w-2 employees working for any businesses owned by the Solo 401k owner/participant or a spouse (if any).
