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Can I Upgrade My Existing Solo 401k To Claim The $1500 Solo 401k Tax Credit?
If you already have a solo 401k plan with a brokerage firm like Fidelity, Schwab, E-Trade, or Vanguard, you may be wondering if you can upgrade it to claim the valuable new tax credit for solo 401k plans.
The short answer is yes – you can amend an existing solo 401k plan to add the automatic enrollment feature that allows you to qualify for the tax credit under the SECURE Act. Here is how it works:
Amend Your Current Solo 401k Plan
Before December 31, 2024, adopt an amendment to your existing solo 401k plan that adds an automatic enrollment feature. This feature automatically deducts and contributes a default percentage of your earnings unless you opt-out (note: Opting out will preserve your ability to make contributions in whichever amount or schedule you prefer subject to the Solo 401k contribution limits and deadlines, and moreover, note that there is no requirement to make solo 401k contributions in order to qualify for the tax credit). For clients who now set up a new Solo 401k plan with My Solo 401k Financial or convert a solo 401k plan (e.g. from Fidelity, Schwab, E-Trade, Vanguard, or somewhere else) to a Solo 401k plan with us will now automatically include this feature.
Claim $500 Tax Credit In 2024
Once your solo 401k plan has the auto-enrollment provision, you can claim a $500 tax credit when you file your 2024 taxes in 2025.
Claim Additional $500 Credits
As long as you keep the auto-enrollment feature in your amended solo 401k plan, you can then claim another $500 credit when filing your 2025 taxes and a final $500 credit when filing in 2026 for a total of $1500.
So by taking the simple step of amending your existing individual 401k plan before the end of 2024, you position yourself to receive the full $1500 tax credit over 3 years.
- Note: Please note that one may claim the full $1500 tax credit even if the costs to amend and maintain the plan are less than $1500.
Upgrading your solo 401k plan makes sense even beyond claiming this new tax credit. Many clients upgrade their plans to gain access to Solo 401k loan provisions, the Mega Backdoor Roth strategy to supercharge retirement savings, and the ability to invest in alternative assets like real estate, private companies, loans, precious metals, and more. Our solo 401k plans open up these options that are typically not available in basic solo 401k plans at discount brokerages. Between the tax credit and gaining more control over your retirement investments, now is the perfect time to upgrade your existing solo 401k to a self-directed plan.
