Live webinar: Free Isn’t Free — 5 TRAPS in Fidelity Solo 401(k) That Cost Solopreneurs THOUSANDS | My Solo 401k Financial

Key Takeaways

• The Fidelity Solo 401(k) free plan does not automatically enable designated Roth employee contributions — the solopreneur must separately execute and retain a Designated Roth Addendum, and if it is missing or misfiled, no Roth provisions legally exist in the plan.
• Starting with 2026 contributions, catch-up contributions for participants age 50 or older who earn more than $150,000 in W-2 wages from their self-employed business must be made on a Roth basis — a requirement that is impossible to meet if the Roth addendum was never executed.
• Fidelity’s basic Solo 401(k) plan documents do not support in-plan Roth conversions or the Mega Backdoor Roth, even though the in-plan Roth option appears on the Designated Roth Addendum form.
• Entering the date of sign-up rather than January 1 of the current tax year as the plan effective date unknowingly restricts the compensation window, reducing the maximum allowable Solo 401(k) contribution for the first year.
• Employer contribution percentages are hard-coded as pro-rata in Fidelity’s plan documents, forcing the primary solopreneur and spouse to use the identical employer contribution percentage — a significant limitation for couples with different savings goals.
• Errors in Fidelity’s self-completed adoption agreement — including an incorrect plan number, wrong effective date, or undisclosed prior plans — cause the plan to lose reliance on Fidelity’s IRS opinion letter, reclassifying it as an individually designed plan.
• The Fidelity free plan does not include the SECURE Act automatic enrollment tax credit feature, meaning solopreneurs cannot claim the $1,500 credit ($500/year × 3 years) available to plans with an eligible automatic contribution arrangement (EACA).

Why Solopreneurs Choose the Fidelity Solo 401(k) — And What They Miss

The Fidelity Solo 401(k) free plan attracts self-employed business owners for understandable reasons: zero setup cost, zero custody fees, and the Fidelity brand name. But there is a cost comparison most solopreneurs don’t make.

Importantly, using My Solo 401k Financial plan documents does not mean giving up Fidelity as a custodian. The majority of My Solo 401k Financial’s customers who open brokerage accounts choose Fidelity — they simply bring their own plan documents. The accounts stay at Fidelity; the legal framework that governs what those accounts can do is far more capable.

The Root Cause: Fidelity’s Free Plan Is Self-Service

A Solo 401(k) is a legal entity — a trust. Like any trust, the documents that create it dictate what it can do. When a solopreneur sets up the Fidelity Solo 401(k) free plan, they receive a set of documents — including an adoption agreement, basic plan document, trust agreement, and optional addenda — and are responsible for completing them correctly.

Fidelity does not pre-fill the paperwork. Fidelity does not proactively enable optional features. And Fidelity does not catch errors before they create compliance exposure. Every trap described below flows from that single structural reality.

The 5 Traps in Fidelity’s Free Solo 401(k) Plan

Trap 1 — Roth Not Auto-Enabled, and In-Plan Roth Conversions Not Supported

The Fidelity Solo 401(k) free plan does not automatically activate the Designated Roth employee contribution feature. To make Roth employee deferrals, the solopreneur must separately execute a Designated Roth Addendum. That addendum is not automatically returned to Fidelity — it must be retained in the solopreneur’s own business records. If it is missing or misfiled, no Roth provisions legally exist in the plan.

The Designated Roth Addendum also lists in-plan Roth conversions as an optional feature. But Fidelity’s instructions state clearly that it does not support this feature. The only path to Roth dollars in the Fidelity free plan is through designated Roth employee contributions — no in-plan conversions, and no Mega Backdoor Roth.

Trap 2 — Eligibility Provision Errors

The Fidelity Solo 401(k) free plan’s adoption agreement requires the solopreneur to complete eligibility provisions. These provisions define who is eligible to participate. Getting them wrong in either direction creates a problem.

Setting requirements too high: A solopreneur who elects the standard age and service requirements (age 21, 1,000 hours per year) without checking the box indicating those requirements do not apply to themselves or their spouse will have to wait until they have satisfied those requirements before making contributions. Contributions made before eligibility is met are ineligible contributions.

Setting requirements too low: A solopreneur who universally waives service requirements so that they and their spouse can participate immediately may inadvertently make part-time or seasonal W-2 employees eligible to participate in the plan as well — at which point the plan is no longer a Solo 401(k).

Trap 3 — Wrong Effective Date Shrinks the Contribution Window

The Fidelity Solo 401(k) free plan adoption agreement requires an effective date for the plan. Many solopreneurs simply enter the date they sign up — say, October of the current year. That choice unknowingly restricts the compensation window for the entire first year.

Trap 4 — Hard-Coded Pro-Rata Employer Contributions

Fidelity’s basic Solo 401(k) plan documents hard-code employer contributions as pro-rata. Every employer contribution percentage applied to the primary solopreneur must be applied at the identical percentage to the spouse’s W-2 wages. The solopreneur cannot change this in Fidelity’s documents.

My Solo 401k Financial’s plan documents allow different employer contribution percentages for each participant. One spouse can elect the maximum 25%; the other can elect zero.

Trap 5 — Document Errors Void IRS Opinion Letter Protection

The Fidelity Solo 401(k) free plan comes with an IRS opinion letter — confirmation that Fidelity’s prototype plan documents satisfy Internal Revenue Code qualification requirements. That opinion letter is valuable because it can be cited on Form 5500-EZ, which is required when plan assets exceed $250,000.

But Fidelity’s own plan documents state that if the solopreneur makes errors in the self-completed adoption agreement — including an incorrect effective date, a wrong plan number, or failure to disclose prior plans — the plan cannot rely on Fidelity’s opinion letter. The plan is then treated as an individually designed plan.

Fidelity Free Plan vs. My Solo 401k Financial Plan: Feature Comparison

Why Fidelity Made These Omissions — And What It Costs Solopreneurs

The Fidelity Solo 401(k) free plan’s missing features are not oversights — they are business decisions. Fidelity designed a streamlined prototype plan that handles standard brokerage investments. Features like the Mega Backdoor Roth, participant loans, and in-plan Roth conversions require more complex plan language and ongoing administrative support that Fidelity has chosen not to offer in the free plan.

The cumulative impact over a solopreneur’s working lifetime can be substantial. Missing the $1,500 SECURE Act credit is a direct, immediate tax cost. Missing the Mega Backdoor Roth forecloses potentially hundreds of thousands of dollars in tax-free retirement growth. Missing participant loans eliminates a liquidity option. Missing 5500-EZ support creates a compliance burden the moment the plan exceeds $250,000.

Solopreneurs who already use My Solo 401k Financial’s plan documents with their Fidelity accounts can invest in the full range of Solo 401(k) features while keeping their Fidelity brokerage relationship intact.

Key Terms

Fidelity Solo 401(k) free plan

Fidelity’s basic prototype Solo 401(k) plan available at no setup cost directly through Fidelity, using Fidelity’s own plan documents that the solopreneur must self-complete.

IRS opinion letter

A letter from the IRS confirming that a prototype retirement plan document satisfies Internal Revenue Code qualification requirements. The opinion letter number must be reported on Form 5500-EZ. If the plan cannot rely on its opinion letter, it is reclassified as an individually designed plan.

Designated Roth Addendum

A supplemental plan document that formally enables designated Roth employee contributions within a 401(k). Under Fidelity’s free plan process, the solopreneur must separately execute and retain this addendum in their own business records.

Mega Backdoor Roth

A strategy allowing Solo 401(k) participants to make voluntary after-tax (non-Roth) contributions up to the annual additions limit, then convert those dollars to Roth, enabling tax-free growth well beyond normal Roth contribution limits. Not supported by Fidelity’s basic Solo 401(k) plan.

Form 5500-EZ

An IRS annual report required for one-participant retirement plans when fair market value of plan assets exceeds $250,000 at the end of the plan year. Fidelity’s basic Solo 401(k) does not include 5500-EZ preparation support.

SECURE Act automatic enrollment tax credit

A tax credit of up to $1,500 — $500 per year for three consecutive years — available to plan sponsors whose plan includes an eligible automatic contribution arrangement (EACA). Fidelity’s basic Solo 401(k) does not include the EACA feature, so this credit is not available to Fidelity free plan users.

Frequently Asked Questions