Are you leaving money on the table with your Solo 401(k)? If you’re using Fidelity’s basic plan, you might be missing out on powerful tax-advantaged retirement saving strategies. Let’s dive into how you can supercharge your retirement savings while keeping your accounts at Fidelity.
Quick Reference: Solo 401(k) Features Comparison
| Feature | Fidelity Basic Solo 401(k) | My Solo 401k Financial |
|---|---|---|
| Traditional (Pre-tax) Contributions | ✅ | ✅ |
| Roth Contributions | ❌ | ✅ |
| Mega Backdoor Roth | ❌ | ✅ |
| In-Plan Roth Conversions | ❌ | ✅ |
| Alternative Investment Options | ❌ | ✅ |
| Compliance Support (5500-EZ and 1099-R) | ❌ | ✅ |
| $1,500 Solo 401k Tax Credit | ❌ | ✅ |
| Solo 401k Loan | ❌ | ✅ |
Are You Eligible? Quick Self-Check ✓
You can set up a Solo 401(k) if you can answer “yes” to these questions:
- Do you have self-employment income?
- Are there “NO” full-time W-2 employees (excluding yourself and spouse (if any)) working for any business owned by you and/or your spouse (if any)?
💡 Pro Tip: Even if you have a full-time job with a 401(k), you can still set up a Solo 401(k) for your side business!
The Power of Choice: Your Contribution Options
Option 1: Traditional Solo 401(k)
- Pre-tax contributions
- Tax-deferred growth
- Required Minimum Distributions (RMDs) at age 73
Option 2: Roth Solo 401(k)
- After-tax contributions
- Tax-free growth
- No RMDs
Option 3: Mega Backdoor Roth
- Contribute up to $70,000 for 2025 (or $77,500 is age 50 or older or $81,250 if age 60-63)
- Convert after-tax contributions to Roth
- Tax-free growth on converted amounts
Step-by-Step Guide: Setting Up Your Enhanced Solo 401(k) at Fidelity
1. Plan Creation 📝
- Work with a third-party provider like My Solo 401k Financial to create your plan documents
- Obtain EIN for the Solo 401k (note: My Solo 401k Financial obtains for its clients)
2. Account Setup 🏦
- Use Fidelity’s online process to open applicable accounts under name and EIN of the Solo 401k
- Open different accounts if there are multiple participants (e.g. spouses and/or business partners) and/or multiple types of funds (i.e. Pre-tax, Roth and/or Voluntary After-tax (Mega Backdoor Roth))
3. Funding Your Accounts 💰
- See Fidelity contribution options including electronic and payroll integration:
- My Solo 401k Financial helps educate clients every day on the contribution rules for their specific scenario
4. Invest 📊
- Invest however you see fit in stocks, bonds mutual funds, etc.
- Fidelity offers free online trading
- Invest in alternative investments such as real estate, crypto, private placement, precious metals, etc. since allowed under our plan which governs the account.
Common Questions Answered
Why can’t I just use Fidelity’s basic plan?
Fidelity’s basic plan lacks advanced features that could significantly boost your retirement savings potential. Think of it like choosing between a flip phone and a smartphone with all the latest features – both make calls, but one does much more.
Is it complicated to maintain multiple accounts?
Not with proper guidance. While you’ll need separate accounts for different types of contributions, we are hands-on in helping clients open the requisite number of accounts as well as educate clients on the rules and provide the compliance support for the Solo 401k. Plus, having everything at Fidelity means you can view all accounts in one dashboard.
What about compliance requirements?
No worries as My Solo 401k Financial handles the ongoing compliance support as an optional free service (no additional charge):
- Form 1099-R issuance for Mega Backdoor Roth
- Form 5500-EZ if the value exceeds $250k
- Plan amendments when laws change
🚀 Success Tips
- Start Early in the Year
- Maximize time for investment growth
- Easier to spread contributions across months
- Keep Good Records
- Track all contributions by type
- Save documentation for tax purposes
- Stay Informed
- Follow Solo 401k contribution limit changes
- Understand deadliness
Ready to Upgrade Your Retirement Strategy?
Don’t let the limitations of a basic Solo 401(k) hold you back. With the right setup, you can maintain your accounts at Fidelity while accessing powerful features like Roth and Mega Backdoor Roth contributions. Your future self will thank you for taking the time to optimize your retirement savings strategy today.
Remember: While this information is educational, consult with financial and tax professionals before making significant retirement planning decisions.
