Learn - Does Fidelity Allow Self-Directed 401(k) Plans?

Thinking about opening a self-directed 401(k) with Fidelity? Maybe you’ve heard of strategies like checkbook control, the Mega Backdoor Roth, or investing your retirement savings into real estate, private equity, or cryptocurrency. Before you take the next step, it’s important to understand exactly what Fidelity allows—and what it doesn’t—when it comes to Solo 401(k) investing.

Understanding Solo 401(k) Eligibility

A Solo 401(k)—also called an individual 401(k) or self-employed 401(k)—is designed specifically for business owners with no full-time W-2 employees other than themselves or a spouse.

Your business can be structured as:

Sole proprietorship
LLC (taxed as sole prop, partnership, or S-Corp)
S-Corporation
Even a Schedule F farm business

What matters most is that you are earning income from self-employment and performing material services for that business.

If your business employs any full-time W-2 employees working 1,000+ hours per year, you generally don’t qualify for to open a Solo 401(k). However, you can exclude workers under age 21 or independent contractors from the plan regardless of how many hours they work.

Fidelity’s Solo 401(k): What It Offers—and What It Doesn’t

Fidelity’s Solo 401(k) is brokerage-based, which means it focuses on traditional market investments such as:

Stocks and ETFs
Bonds and mutual funds
CDs and index funds

While Fidelity offers a reputable brokerage platform, its in-house Solo 401(k) does not allow:

🚫 Alternative investments (e.g., real estate, crypto, or private equity)
🚫 Participant loans
🚫 Voluntary after-tax contributions (the Mega Backdoor Roth)
🚫 The $1,500 auto contribution tax credit

That means you miss out on major flexibility and benefits available under a true self-directed Solo 401(k).

The MySolo401k Financial Advantage

A self-directed Solo 401(k) from My Solo 401k Financial includes all the features missing from Fidelity’s plan:
✅ Mega Backdoor Roth strategy (voluntary after-tax + in-plan Roth rollover)
✅ Participant loan capability
✅ Alternative investments (real estate, private equity, crypto, precious metals)
✅ $1,500 Auto Contribution Tax Credit (once added to the solo 401k plan, use Form 8881 to claim the credit)
✅ Multiple holding accounts (Pre-Tax, Roth, After-Tax) for better tracking

Even better—you can still use Fidelity brokerage accounts to hold the funds for your My Solo 401k Financial plan. Fidelity refers to these accounts as “Investment-Only Non-Prototype Brokerage Accounts.”

That means My Solo 401k Financial provides the plan documents, compliance support, and IRS reporting, while Fidelity serves as the custodian—a perfect balance of control and flexibility.

The Power of Combining Fidelity + My Solo 401k Financial

Here’s how it works in practice:

Example:
Jane, a self-employed consultant, opens a self-directed Solo 401(k) through My Solo 401k Financial. We help her set up three separate Fidelity brokerage accounts under the plan:

Pre-Tax Solo 401(k)
Roth Solo 401(k)
Voluntary After-Tax Solo 401(k)

Jane invests 50% in mutual funds at Fidelity and 50% in a rental property through the same plan.
→ Fidelity safely holds the funds.
→ My Solo 401k Financial handles compliance, IRS forms (5500-EZ and 1099-R), and plan updates.

Result: Jane enjoys checkbook control, diversification, and tax efficiency—all in one plan.

Why the $1,500 Auto Contribution Credit Matters

Under the SECURE Act 2.0, new Solo 401(k) plans may qualify for a $1,500 tax credit ($500 per year for 3 years) using IRS Form 8881.
To claim it, your plan must explicitly allow for this feature—which Fidelity’s plan does not.

My Solo 401k Financial’s plan documents are drafted to include this credit automatically—helping offset your setup or ongoing administrative costs.