Can I make Mega Backdoor Roth contributions while repaying a Solo 401(k) loan?

Yes. Taking a participant loan and making Solo 401(k) contributions — including Mega Backdoor Roth contributions — are completely separate transactions. An outstanding loan does not prevent the solopreneur from contributing up to $72,000 (or more if age 50+) for 2026.

Does My Solo 401k Financial support trustee-to-trustee transfers to a new employer's 401(k)?

It depends on two conditions. The receiving employer plan must accept rollovers from another employer plan. The participant must also be eligible to move funds out, which requires a triggering event such as age 59 1/2 while the Solo 401(k) is still maintained, or termination of the plan. My Solo 401k Financial prepares the Form 1099-R when notified timely.

How do I fix a wrong plan effective date on a previously filed Form 5500-EZ?

Amend the affected Form 5500-EZ filings rather than correcting the date on the following year's form. Form 5500-EZ accommodates year-to-year changes such as a new plan sponsor, but not a retroactive correction to the original effective date. A timely original filing that is later amended would not be expected to be treated as untimely.

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Solo 401(k) Plan Document Is Not a Commodity: Unlock the Mega Backdoor Roth and Keep Your Brokerage

September 2, 2026 | By George Blower

Solo 401(k) Plan Document Is Not a Commodity: Unlock the Mega Backdoor Roth and Keep Your Brokerage

Can I keep my Fidelity or Schwab account and still get the Mega Backdoor Roth with a Solo 401(k)?

Yes — and the reason is the plan document, not the brokerage account. A Solo 401(k) plan document governs which features a plan can use: the Mega Backdoor Roth, participant loans up to $50,000, in-plan Roth conversions, and alternative investments. Discount brokerages such as Fidelity and Schwab offer their own plan documents that block most of these features. My Solo 401k Financial provides advanced plan documents that unlock the full feature set while letting solopreneurs and their advisors keep accounts at any bank, brokerage, or credit union of their choice.

My Solo 401k Financial daily webinar series — Solo 401(k) Plan Document Is Not a Commodity. Duration: 18:14

Key Takeaways

The Solo 401(k) plan document — not the brokerage — determines whether a plan allows the Mega Backdoor Roth, participant loans, in-plan Roth conversions, and alternative investments.
Fidelity and Schwab’s own Solo 401(k) plan documents do not permit Mega Backdoor Roth contributions or participant loans; these features require a separate, advanced plan document.
A Solo 401(k) participant loan allows borrowing up to 50% of the account balance, not to exceed $50,000, with repayment at prime-plus-one-percent interest over up to five years — or up to thirty years for a primary residence purchase.
The 2026 Solo 401(k) voluntary after-tax contribution limit is $72,000 (before catch-up); a solopreneur whose W-2 wages from a C-Corp meet or will meet that threshold can contribute the full amount and immediately convert it to a Roth Solo 401(k) — the Mega Backdoor Roth strategy.
Once a Solo 401(k) plan balance exceeds $250,000 (including any defined-benefit plan), an annual Form 5500-EZ must be filed; the IRS penalty for late filing is $250 per day, and discount brokerages do not prepare this form.
Eligible solopreneurs can claim up to $1,500 in Solo 401(k) tax credits, which more than offsets My Solo 401k Financial’s fees ($650 initial cost; $125 annual fee thereafter) for the first seven years.
My Solo 401k Financial does not hold or have access to client account funds, making the firm fully compatible with advisors and clients who want custody at Fidelity, Schwab, E-Trade, or hundreds of other institutions.

What Does the Solo 401(k) Plan Document Actually Control?

The Solo 401(k) plan document is the legal rulebook for the plan. When a solopreneur opens a Solo 401(k) directly at a discount brokerage, that brokerage’s plan document governs what the plan can and cannot do — and those documents are written to keep operations simple for the brokerage, not to maximize features for the participant.

“Many assume that all Solo 401(k) plans are interchangeable and that free brokerage plans offered by discount brokerages offer every available benefit, which is simply not true because it depends on the documents. You aren’t comparing accounts. You’re comparing the rules defined in the plan document.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(1:08 in the webinar)

Specifically, the Solo 401(k) plan document controls:

Contribution types — whether voluntary after-tax contributions (the first step of the Mega Backdoor Roth) are permitted
In-plan Roth conversions — whether pre-tax or after-tax dollars can be converted to a Roth account inside the plan
Participant loans — whether the participant can borrow from the plan at all
Investment range — whether the plan is limited to publicly traded securities or can hold alternative assets such as real estate, cryptocurrency, precious metals, and private equity
Withdrawal rules — the conditions under which distributions are permitted

Two Solo 401(k) plans held at the same brokerage can have completely different capabilities if they were established under different plan documents. A plan opened with My Solo 401k Financial’s documents at Fidelity or Schwab has access to features that the brokerage’s own Solo 401(k) plan documents do not permit.

Feature Comparison: Discount Brokerage Plan vs. Advanced Plan Document

Solo 401(k) plan features: discount brokerage plan document vs. My Solo 401k Financial advanced plan document
Feature	Fidelity / Schwab Own Plan	My Solo 401k Financial Plan
Mega Backdoor Roth (voluntary after-tax contributions)	❌ Not permitted	✅ Permitted
In-plan Roth conversions	❌ Not permitted	✅ Permitted
Mandatory Roth Catch-Up Contributions for High W-2 Earners	✅ Now required by SECURE 2.0	✅ Permitted
401(k) participant loans up to $50,000	❌ Not permitted	✅ Permitted
Alternative investments (real estate, crypto, precious metals, private equity)	❌ Not permitted	✅ Permitted
Checkbook / wire control	Limited (brokerage only)	✅ Full checkbook and wire control
Form 5500-EZ preparation	❌ Not provided	✅ Prepared (timely notification required)
1099-R preparation (for conversions)	❌ Not provided by plan provider	✅ Prepared (timely notification required)
$1,500 Solo 401(k) tax credit eligibility	❌ Not supported	✅ Supported

The table above compares which features are available based on the plan document provider, not the brokerage where accounts are held. A plan using My Solo 401k Financial documents can be held at Fidelity, Schwab, or any other institution that will open accounts for third-party solo 401k plans.

How the Full Roth Toolkit Works in a Solo 401(k) Plan

The Solo 401(k) plan document determines whether the plan offers the complete Roth menu. SECURE 2.0 compelled discount brokerages to permit at least Roth elective deferrals (since catch-up contributions must be made as Roth contributions for certain High W-2 Wage earners) but they still do not offer Mega Backdoor Roth contributions or in-plan Roth conversions.

Mega Backdoor Roth: The Two-Step Process

The Mega Backdoor Roth strategy uses voluntary after-tax contributions — a contribution type that Fidelity’s and Schwab’s own plan documents do not allow. The process has two steps:

Voluntary after-tax contribution — the solopreneur contributes after-tax dollars to the voluntary after-tax account inside the Solo 401(k). For 2026, a solopreneur whose W-2 wages from a C-Corp equal or will equal $72,000 can contribute up to $72,000 as a voluntary after-tax contribution (assuming no other contributions to the plan or to a 403(b)).
In-plan conversion — those after-tax dollars are immediately transferred to the Roth Solo 401(k) account (or to a Roth IRA). This second step is a conversion and triggers a reporting requirement on Form 1099-R.

Example (2026 tax year): A solopreneur’s C-Corp W-2 wages reach $72,000 by late June 2026. In the first week of July, the solopreneur contributes $72,000 to the voluntary after-tax Solo 401(k) account and immediately transfers those funds to the Roth Solo 401(k). The contribution step does not appear on the personal tax return, the business tax return, or the W-2. The conversion step is reported on Form 1099-R, which My Solo 401k Financial prepares at no additional charge after the client submits the applicable form at mysolo401k.net/forms.

“The Mega Backdoor Roth … is really a two-step process where you first make a voluntary after-tax contribution, and then you transfer those voluntary after-tax Solo 401(k) funds from the voluntary after-tax Solo 401(k) account to either a Roth Solo 401(k) or a Roth IRA. So there is a conversion step. There’s a contribution step, then a conversion step.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(8:09 in the webinar)

Learn more about the Mega Backdoor Roth using a Solo 401(k) plan on the My Solo 401k Financial website.

2026 Catch-Up Contributions and the $150,000 Roth Threshold

For 2026, participants age 50 and older can make an additional $8,000 catch-up contribution above the $72,000 annual addition limit. Participants age 60, 61, 62, or 63 at the end of 2026 may be eligible for a higher “super catch-up” contribution of $11,250 (instead of $8,000) under SECURE 2.0. Under SECURE 2.0, catch-up contributions must be made as Roth contributions for participants whose prior-year wages exceeded $150,000 (which will increase over time) — but participants whose W-2 wages are $150,000 or less may make catch-up contributions as pre-tax contributions.

Important: The deadline to make 2026 Solo 401(k) contributions — including voluntary after-tax contributions — is the business tax return deadline, including any timely filed extension.

Solo 401(k) Participant Loans: How the $50,000 Loan Feature Works

The Solo 401(k) plan document must expressly permit participant loans for a plan to offer them. Fidelity’s and Schwab’s own plan documents do not allow this feature. A plan established under My Solo 401k Financial’s documents can allow the participant to borrow from their own retirement account and repay themselves with interest.

“With a 401(k) participant loan you can borrow up to fifty percent of your balance, not to exceed fifty thousand dollars, and then use the money for any purpose whatsoever. So if you’re going to use it for a general purpose your payback period is going to be a five-year payback period … the interest is prime plus one percent or a CD rate plus two percent.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(4:51 in the webinar)

Key loan rules under a properly documented Solo 401(k):

Maximum loan amount: 50% of vested account balance, not to exceed $50,000
Permissible uses: Any purpose (general purpose loan)
General purpose repayment term: Five years, with equal monthly or quarterly payments of principal and interest
Primary residence purchase: Term can be extended to match the underlying mortgage term — potentially up to 30 years
Interest rate: Prime rate plus 1% or CD rate plus 2%
Documentation: Required loan documents must be prepared; My Solo 401k Financial prepares these at no additional charge within one business day of receiving the applicable form submission

Investment Freedom: What a Truly Advanced Solo 401(k) Plan Document Unlocks

A discount brokerage Solo 401(k) plan document limits investments to whatever that brokerage offers — typically publicly traded stocks, ETFs, and mutual funds. An advanced Solo 401(k) plan document removes that restriction and gives the participant checkbook control — the ability to write checks or initiate wire transfers directly from the plan’s bank account to fund any IRS-permissible investment.

“If you obtain truly advanced Solo 401(k) plan documents, like the one offered by My Solo 401k Financial, you still can have your accounts at that bank or brokerage of choice … you can also have true investment freedom to diversify, whether that’s in real estate, precious metals, cryptocurrency — and you have checkbook control, wire control.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(6:25 in the webinar)

Asset classes available under an advanced Solo 401(k) plan document include:

Publicly traded stocks, ETFs, and mutual funds (same as at any brokerage)
Real estate (rental property, raw land, notes)
Precious metals (IRS-approved gold, silver, platinum, palladium)
Cryptocurrency
Private equity and pre-IPO stock
Other alternative investments permitted by ERISA and IRS rules

Keep Your Brokerage and Your Advisor: How the Model Works

The key distinction between My Solo 401k Financial and other Solo 401(k) providers is custody. My Solo 401k Financial is a plan document provider and compliance support firm, not a custodian. The firm never holds, accesses, or manages client account assets.

“We never want to hold your money. We don’t hold your money. We don’t have access to your accounts. So that makes us very compatible with advisors, for example, where they may want to custody at a specific institution.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(9:37 in the webinar)

The workflow for a solopreneur or advisor who wants advanced Solo 401(k) features while keeping existing custodial relationships:

Obtain the Solo 401(k) plan documents from My Solo 401k Financial (online application; documents prepared same business day after payment).
Open the Solo 401(k) trust account(s) at the bank, brokerage, or credit union of choice — Fidelity, Schwab, E-Trade, or any of hundreds of banks and credit unions nationally.
Nickname each account (pre-tax, Roth, voluntary after-tax) inside the brokerage’s online interface to keep them organized. The brokerage provides the accounts; My Solo 401k Financial provides the plan and compliance support.
Submit forms at mysolo401k.net/forms whenever a reportable transaction occurs (Mega Backdoor Roth conversion, loan request, distribution).

For advisors, this model means the advisor’s assets under management remain under the advisor’s custody at their preferred custodian, while the advisor’s solopreneur clients gain access to features the brokerage’s own plan documents would not allow.

Explore the full range of Solo 401(k) plan features and setup options at My Solo 401k Financial.

Advanced Compliance Support: Form 5500-EZ, Form 1099-R, and the $1,500 Tax Credit

Form 5500-EZ: The $250-Per-Day Penalty Most Solopreneurs Don’t Know About

When the total value of a Solo 401(k) plan — including any defined benefit plan the solopreneur maintains — exceeds $250,000, the IRS requires an annual informational return on Form 5500-EZ. The late-filing penalty is $250 per day with no statutory maximum. Discount brokerages do not prepare this form. My Solo 401k Financial prepares and electronically files the Form 5500-EZ at no additional charge when clients notify the firm in time to capture the required financial data.

Important: Because My Solo 401k Financial does not have access to client account balances, clients must notify the firm when the $250,000 threshold is reached and provide balance information annually. Late notification can result in the firm being unable to file the Form 5500-EZ on time.

Form 1099-R for Roth Conversions

The second step of the Mega Backdoor Roth — converting voluntary after-tax contributions to Roth — is a taxable conversion that must be reported on Form 1099-R. My Solo 401k Financial prepares the Form 1099-R at no additional charge when clients submit the after-tax-to-Roth transfer notification through the firm’s website.

The $1,500 Solo 401(k) Tax Credit

My Solo 401k Financial was the first Solo 401(k) provider to offer plan documents that enable eligible solopreneurs to claim $1,500 in Solo 401(k) tax credits — credits that exceed the firm’s fees for the first seven years. The firm’s fee structure is $650 at setup (a $525 establishment fee plus the first $125 annual fee), then $125 per year thereafter. The flat annual fee does not increase as plan value grows.

“We were the first Solo 401(k) provider … to offer plans that enable the solopreneur to claim fifteen hundred dollars in Solo 401(k) tax credits, which is going to more than offset our fees for the first seven years.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(11:01 in the webinar)

Attendee Questions from the Webinar

Mike’s Question: Do I Need to Do Anything at Fidelity Besides Renaming the Accounts?

Attendee Mike asked whether there is anything at Fidelity needed to differentiate the Solo 401(k) sub-accounts — pre-tax, Roth, and voluntary after-tax — beyond simply renaming them.

The answer: renaming (nicknaming) the accounts is essentially all that is needed. When a customer brings My Solo 401k Financial plan documents to Fidelity, Fidelity’s role is to provide the brokerage accounts — not to act as plan administrator, not to police the plan, and not to provide compliance support. The participant logs into Fidelity, uses the gear/settings option on each account, and assigns a nickname (e.g., “Solo 401k Pre-Tax,” “Solo 401k Roth,” “Solo 401k After-Tax”) to track each account type.

Manisha’s Question: C-Corp W-2 Wages, Mega Backdoor Roth Timing, and SEP IRA RMDs

Attendee Manisha asked: “My W-2 wages for my C-Corp by the end of June 2026 will exceed $72,000. Can I contribute $72,000 to my voluntary after-tax account in the first week of July and immediately move the money to the Roth Solo 401(k)? I have a SEP IRA in Fidelity. I’m currently taking RMDs from my SEP IRA. Do I have to roll my SEP IRA into my new Solo 401(k) pre-tax account?”

The answer to the first part: yes. A solopreneur can make 2026 Solo 401(k) contributions as long as the income to justify those contributions has been or will be earned by year-end. Making a $72,000 voluntary after-tax contribution in early July — when W-2 wages will reach $72,000 by June 30 — is permissible, provided no other contributions have been made to the Solo 401(k) or to a 403(b) that would reduce the available limit. The contribution can be made, then immediately converted to the Roth Solo 401(k).

The answer to the second part: no. A solopreneur taking required minimum distributions from a SEP IRA cannot roll the RMD amounts themselves into the Solo 401(k). However, the remaining non-RMD balance in the SEP IRA can be transferred (rolled over) to the pre-tax Solo 401(k) — but there is no requirement to do so. The solopreneur may leave the SEP IRA where it is.

The deadline to make all 2026 contributions — including catch-up contributions — is the business tax return deadline including any timely filed extension. For a sole proprietor or single-member LLC, that is April 15, 2027, or October 15, 2027 with extension.

Key Terms Defined

Solo 401(k) plan document: The legal instrument that establishes and governs a one-participant 401(k) plan. The plan document determines which contribution types, investment categories, loan features, and distribution rules are available to the plan participant. Two plans at the same brokerage can have entirely different capabilities depending on whose plan document was used.
Mega Backdoor Roth: A two-step strategy available under Solo 401(k) plans whose documents permit voluntary after-tax contributions. Step one: the participant contributes after-tax dollars up to the annual addition limit ($72,000 for 2026 before catch-up). Step two: those after-tax dollars are converted to the Roth Solo 401(k) or Roth IRA, triggering a 1099-R but generating no taxable income because the contribution was already after-tax.
Checkbook control: A feature of Solo 401(k) plans under which the participant trustee has direct signing authority over a bank account held in the name of the Solo 401(k) trust. This allows the participant to write checks or initiate wires to fund non-brokerage investments — such as real estate or private equity — without going through a custodian for each transaction.
Form 5500-EZ: The annual information return required by the IRS for one-participant 401(k) plans whose total assets — including any related defined benefit plan — exceed $250,000 at year-end. The late-filing penalty is $250 per day. Discount brokerages that serve as plan document providers do not prepare this form; My Solo 401k Financial does, at no additional charge (for those who timely request it and provide info needed in a timely fashion).
In-plan Roth conversion: A transaction inside a Solo 401(k) plan in which pre-tax or after-tax funds are converted to the Roth account within the same plan. This triggers income recognition (for pre-tax conversions) and a 1099-R reporting requirement. The conversion feature must be permitted by the plan document — it is not available in Fidelity’s or Schwab’s own Solo 401(k) plan documents.

Frequently Asked Questions

Can I get the Mega Backdoor Roth if my Solo 401(k) is at Fidelity?

It depends on the plan document, not the brokerage. If you opened a Solo 401(k) directly through Fidelity using Fidelity’s own plan document, Fidelity does not permit voluntary after-tax contributions, so the Mega Backdoor Roth is not available (but you can update your plan documents to documents provided by My Solo 401k Financial to enable the feature via the restatement process). If you obtain advanced plan documents from My Solo 401k Financial and then open the Solo 401(k) accounts at Fidelity under those documents, the Mega Backdoor Roth is fully available — because the plan documents allow it, not Fidelity’s.

What is the 2026 Solo 401(k) Mega Backdoor Roth contribution limit?

The 2026 annual addition limit for a Solo 401(k) is $72,000 (before catch-up contributions). A solopreneur can contribute up to $72,000 as a voluntary after-tax contribution — assuming no other contributions reduce the available headroom — and then immediately convert those funds to a Roth Solo 401(k). Participants age 50 and older with the self-employment income to justify the contribution (and who have not made catch up contributions to another plan such as a day job 401k) may contribute an additional catch-up contributions on top of the $72,000 – but note that such catch-up contributions are not made as voluntary after-tax contributions but rather as direct Pre-tax and/or Roth employee contributions.

Can I take a loan from my Solo 401(k) at Fidelity or Schwab?

Not if the plan was established using Fidelity’s or Schwab’s own plan documents — those documents do not permit participant loans. A plan established with My Solo 401k Financial’s advanced plan documents allows loans up to 50% of the vested balance (maximum $50,000), repayable at prime-plus-one-percent over five years for general purposes or up to 30 years for a primary residence purchase. The loan documents are prepared by My Solo 401k Financial at no additional charge (if timely requested).

This article is based on the 6/29/2026 live webinar hosted by My Solo 401k Financial. Analysis by George Blower, Retirement Accounts Attorney, My Solo 401k Financial.

Ready to Unlock the Full Solo 401(k) Feature Set?

Get advanced plan documents prepared same-day and start using the Mega Backdoor Roth, participant loans, and alternative investments — while keeping your account at the brokerage or bank of your choice.

Open a Solo 401(k) Account at My Solo 401k Financial →

Educational Purposes Only: This content is provided for educational purposes only and should not be construed as tax, legal, or investment advice, nor is it a solicitation. When making an investment or retirement planning decision, please consult with your tax attorney and financial professional.

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Self-Directed IRA Prohibited Transactions (IRC 4975)

September 1, 2026 | By Mark Nolan

Self-Directed IRA Prohibited Transactions: Why $100K in Wine Means a 1099-R

Direct Answer: Self-Directed IRA prohibited transactions are governed by IRC Section 4975(c), which bars self-dealing between a self-directed IRA and “disqualified persons” such as the account owner, spouse, parents, and children. Separately, self-directed IRAs may never hold life insurance contracts, S corporation stock, or collectibles under IRC Section 408(m). A true prohibited transaction disqualifies the entire IRA in the year it occurs, while buying a disallowed investment, such as a collectible, is treated only as a distribution of the amount invested.

September 1, 2026 — As of this date, the prohibited transaction rules under IRC Section 4975(c) and the collectibles rule under IRC Section 408(m) are existing, enacted federal tax law that already applies to every self-directed IRA. Nothing described in this article is proposed legislation.

Key Takeaways

IRC Section 4975(c) prohibits self-dealing between a self-directed IRA and disqualified persons, including the IRA owner, spouse, parents, grandparents, children, and service providers such as a CPA or custodian.
A self-directed IRA can never hold a life insurance contract or S corporation stock, though it may hold C corporation stock.
Collectibles — art, rugs, antiques, gems, stamps, coins, and alcoholic beverages — are disallowed investments under the collectibles rule tied to IRC Section 408(m).
IRC Section 408(m) carves out an exception for certain gold, silver, platinum, and palladium bullion and coins, such as American Eagle and Canadian Maple Leaf coins.
Buying a disallowed collectible triggers a deemed distribution of the amount invested, plus any gains, in the year of purchase, reported on Form 1099-R, plus a 10% early-distribution penalty if the owner is under age 59½.
A true prohibited transaction, such as self-dealing or buying property from a disqualified person, disqualifies the entire self-directed IRA — not just the amount involved — in the year the violation occurs.
Unlike a Solo 401k, which permits a participant loan of up to 50% of the account balance capped at $50,000, a self-directed IRA owner can never borrow from the IRA itself.

Webinar recording: Self-Directed IRA Prohibited Transactions, hosted by Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial.

What Investments and Transactions Are Prohibited in a Self-Directed IRA?

Self-Directed IRA prohibited transactions fall into two distinct categories that carry very different consequences: disallowed investments, which the IRA simply cannot own, and prohibited transactions, which are deals the IRA cannot do with certain people. A self-directed IRA, also called an SDIRA, can generally invest in alternative assets like real estate, precious metals, private equity, cryptocurrency, promissory notes, and tax liens, in addition to publicly traded stocks. But those broader powers come with two sets of rules the account owner has to follow.

“One of the biggest advantages of a self-directed IRA, also called an SDIRA, is the ability to invest in alternative investments like real estate, precious metals, private equity, cryptocurrency, promissory notes, tax liens — virtually any alternative investment out there.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(1:30 in the webinar)

The self-directed IRA prohibited transaction rules are found at IRC Section 4975(c), and they exist to stop the account owner from self-dealing or personally benefiting, directly or indirectly, from an investment made by the IRA. Separately, a short list of non-permissible investments — collectibles, life insurance, and S corporation stock — are disallowed outright, regardless of who is involved in the transaction.

“Just because an IRA is self-directed, it doesn’t mean that anything goes. It’s not the Wild West.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(2:30 in the webinar)

Two Investments an IRA Can Never Own

An IRA — including a self-directed IRA — can never own a life insurance contract. That prohibition is specific to IRAs; a Solo 401k is allowed to hold life insurance. An IRA is also barred from owning shares of an S corporation, because S corporation rules do not permit an IRA, which is technically a retirement trust, to be a shareholder. A self-directed IRA can, however, own shares of a C corporation.

Collectibles: Art, Wine, Coins, and Gems

Self-directed IRA regulations also block a category called collectibles. Examples include works of art, rugs, antiques, certain metals, gems, stamps, coins, and alcoholic beverages. Using self-directed IRA money to buy a rare painting is not permitted, and a self-directed IRA cannot buy a case of collectible wine or liquor either.

Important: Buying a collectible does not disqualify the entire self-directed IRA. Instead, the amount used to make that purchase — plus any gains — is treated as a taxable distribution in the year of the purchase.

“Let’s say in 2026, your self-directed IRA bought a case of fine wine… that’s a disallowed investment, and it happened in 2026. Let’s say it was a $100,000 investment. So that $100,000, plus any gains from that investment, would be taxable in the year that it occurred.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(6:00 in the webinar)

In this hypothetical, a $100,000 disallowed wine purchase made in 2026 would generate a Form 1099-R for that distribution amount in 2026, and the rest of the self-directed IRA would stay intact. Because it is treated as a deemed distribution from a disallowed investment, it is also subject to a 10% early-distribution penalty if the IRA owner is under age 59½, plus ordinary federal income tax and, depending on the owner’s state of residence, state tax.

Are Gold and Precious Metals Prohibited in a Self-Directed IRA?

Self-directed IRA precious metals investing is not automatically prohibited, even though metals fall within the general collectibles category on the surface. IRC Section 408(m) provides a specific exception for certain qualifying coins and precious metals bars. As long as the self-directed IRA custodian and structure allow for alternative investments, the IRA can hold gold, silver, platinum, and palladium — but not every gold coin or precious metals product qualifies.

“Even though, on the surface, metals fall within the general collectible rules… IRC Section 408(m) provides an exception for certain qualifying coins and precious metals.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(7:50 in the webinar )

Approved precious metals include Canadian Maple Leaf coins and American Eagle coins. The self-directed IRA must still satisfy applicable IRS purity and custody requirements for the specific bar or coin to qualify under IRC Section 408(m).

Can a Self-Directed IRA Own Real Estate?

A self-directed IRA can own real estate, and investing in property is not itself a prohibited transaction. Allowed self-directed IRA real estate types include single-family homes, multi-family properties, commercial real estate, raw land, and farmland. The restriction is on who the property comes from, not the property type.

Important: A self-directed IRA cannot purchase a property that the owner already personally owns, or that the owner’s parents or children own, because those are disqualified parties. Routing the sale through a third party first — a “strawman” transaction — is also prohibited.

“A self-directed IRA cannot purchase a property that you already personally own, your parents own, or your kids own, because those are examples of disqualified parties.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(9:20 in the webinar )

Can a Self-Directed IRA Invest in Private Equity?

A self-directed IRA can invest in private companies — a private C corporation, an LLC, a partnership, or a venture fund. But the self-directed IRA cannot invest in a private entity where the IRA owner, or certain family members, personally work, because the IRS treats that as an indirect personal benefit. As a general rule, the IRA owner also cannot own 50% or more of that private entity when personal funds, Solo 401k funds, and self-directed IRA funds are combined.

Who Is a Disqualified Person Under IRC Section 4975?

Self-directed IRA prohibited transaction rules under IRC Section 4975 restrict transactions between the IRA and certain related parties called disqualified persons. Disqualified persons include the IRA owner, the owner’s spouse, parents, grandparents, and children, and anyone who provides services to the self-directed IRA, such as the owner’s CPA or the IRA custodian.

“The prohibited transactions are put in place to make sure that you’re not self-dealing or benefiting indirectly, personally, from investments made by your self-directed IRA.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(3:50 in the webinar )

What Common Actions Trigger a Self-Directed IRA Prohibited Transaction?

Even when the underlying asset is allowed, such as real estate, a self-directed IRA transaction can still be prohibited because of who is involved or how the asset is used. Common triggers include:

Selling, exchanging, or depositing personal property into a self-directed IRA, or buying property from a disqualified person such as a parent or child.
Using property owned by the self-directed IRA for personal or business use — including renting it to yourself or a disqualified party, even at fair market rent (for example, buying a house near a child’s college for that child to rent).
Borrowing money from a self-directed IRA.
Personally guaranteeing a loan made to a self-directed IRA, or using self-directed IRA funds as security for a personal loan.
Paying yourself from self-directed IRA funds for services performed for the IRA, such as finding properties for it to buy.
Performing “sweat equity” work — such as repairs — on property owned by the self-directed IRA.
Paying property expenses (taxes, utilities) connected to a self-directed IRA investment with personal funds instead of IRA funds.

“Clients often ask, well, I want to fix a leaky toilet for a property owned by a self-directed IRA. I think I’m very handy and can just fix it myself… Well, that’s great — you’re handy, Handy Andy — but no, you can’t do that.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(11:00 in the webinar )

Instead of doing the repair personally, the self-directed IRA has to pay an unrelated contractor, and that contractor has to be paid with self-directed IRA funds — never personal funds. The same rule applies to every expense connected to a self-directed IRA investment, from property taxes to utility bills.

Can You Borrow Money From a Self-Directed IRA?

A self-directed IRA owner can never borrow money directly from the IRA. That is different from the Solo 401k, which permits a participant loan of up to 50% of the total account balance, not to exceed $50,000 — a feature self-directed IRAs do not have.

Info: Don’t confuse a loan with the 60-day rollover rule. A self-directed IRA owner can take a distribution and redeposit it into the same or another IRA (or a Solo 401k) within 60 days, generally once during a rolling period. The custodian still issues a Form 1099-R using distribution code 1 (under age 59½) or code 7 (age 59½ and over) in box 7, and the owner must report it as a non-taxable rollover on Form 1040.

A self-directed IRA also cannot be used as collateral in either direction. The owner cannot personally guarantee a loan made to the self-directed IRA, though the IRA can obtain a non-recourse loan in its own name for a real estate purchase. Likewise, IRA funds cannot secure a loan the owner takes out personally, such as financing for their own home or a personal investment property. Techniques such as a Mega Backdoor Roth using a Solo 401k plan operate under separate Solo 401k rules and do not change any of these self-directed IRA borrowing restrictions.

What Happens If You Trigger a Self-Directed IRA Prohibited Transaction?

A self-directed IRA prohibited transaction has far more severe consequences than buying a single disallowed investment. Instead of only the amount involved being taxed, the entire self-directed IRA — including any other holdings or cash in the account — becomes subject to taxes and penalties in the year the prohibited transaction occurred.

“The prohibited transaction results in the entire self-directed IRA being subject to taxes… that entire IRA will be subject to taxes and penalties in the year that that prohibited transaction occurred.”

— Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial
(13:00 in the webinar )

If the prohibited transaction happened in a prior year, the owner does not have to amend every intervening year’s tax return — taxes and penalties apply as of the year the prohibited transaction occurred. The bottom line: any self-directed IRA investment or expense must be made for the benefit of the IRA itself, never for the owner’s direct or indirect personal benefit.

Disallowed Investment vs. Prohibited Transaction: Self-Directed IRA Tax Consequences
Violation Type	Example	What Gets Taxed	IRS Form Issued
Disallowed Investment (e.g., a collectible)	Buying a $100,000 case of fine wine	Only the amount invested, plus gains, as a distribution in the year of purchase	Form 1099-R for the distribution amount
Prohibited Transaction (e.g., self-dealing)	Selling a personally owned rental property to your self-directed IRA	The entire self-directed IRA loses its tax-advantaged status for that year	Form 1099-R reflecting the full IRA value

In short: a disallowed investment taxes only what was invested, while a prohibited transaction taxes the entire self-directed IRA.

Self-Directed IRA vs. Solo 401k: Can You Borrow From the Account?
Account Type	Participant Loan Allowed?	Maximum Loan Amount
Self-Directed IRA	No — any amount borrowed is treated as a taxable distribution	Not applicable
Solo 401k	Yes	Up to 50% of the account balance, capped at $50,000

In short: a Solo 401k allows a participant loan up to $50,000; a self-directed IRA does not allow participant loans at all.

Frequently Asked Questions

What investments are prohibited in a self-directed IRA?

A self-directed IRA can never hold life insurance contracts, S corporation stock, or collectibles such as art, rugs, antiques, gems, stamps, coins, and alcoholic beverages. Beyond those outright bans, IRC Section 4975(c) also prohibits transactions between the IRA and disqualified persons, such as the owner, spouse, parents, or children, even when the underlying asset type is otherwise allowed.

Are gold and precious metals prohibited in a self-directed IRA?

Not necessarily. Metals generally fall under the collectibles ban, but IRC Section 408(m) creates an exception for certain qualifying gold, silver, platinum, and palladium bars and coins, such as American Eagle and Canadian Maple Leaf coins. Not every gold coin or precious metals product qualifies for the exception.

Does the collectibles rule apply the same way as a prohibited transaction?

No. Buying a disallowed collectible triggers a distribution of just the amount invested, plus gains, in the year of purchase, reported on Form 1099-R. A prohibited transaction under IRC Section 4975(c), such as self-dealing with a disqualified person, disqualifies the entire self-directed IRA for that year instead.

Can a self-directed IRA own physical real estate?

Yes. A self-directed IRA can own single-family homes, multi-family properties, commercial real estate, raw land, and farmland. The property just cannot be bought from, sold to, or used by a disqualified person, including the owner, their parents, or their children, even at fair market rent.

Who counts as a disqualified person for a self-directed IRA?

Under IRC Section 4975, disqualified persons include the IRA owner, the owner’s spouse, parents, grandparents, and children, and anyone providing services to the IRA, such as its CPA or custodian. Transactions between the self-directed IRA and any of these people can trigger a prohibited transaction.

Can I borrow money from my self-directed IRA?

No. Borrowing from a self-directed IRA is treated as a taxable distribution. This differs from a Solo 401k, which allows a participant loan of up to 50% of the account balance, capped at $50,000. The 60-day IRA rollover rule is a separate mechanism, not a loan.

Can a self-directed IRA invest in a private company?

Yes, a self-directed IRA can invest in a private C corporation, LLC, partnership, or venture fund. It cannot invest in a private entity where the owner or certain family members personally work, and the owner generally cannot own 50% or more of that entity when combining personal, Solo 401k, and IRA funds.

What happens if I engage in a self-directed IRA prohibited transaction?

The entire self-directed IRA — not just the asset involved — becomes subject to income tax and, if applicable, the 10% early-distribution penalty in the year the prohibited transaction occurred. If the violation happened in a prior year, tax and penalties apply as of that year rather than requiring amended returns for every year since.

Glossary of Self-Directed IRA Terms

Self-Directed IRA (SDIRA): An individual retirement account that lets the account holder invest beyond publicly traded stocks and bonds, in assets such as real estate, precious metals, and private equity, subject to IRS rules.
Disqualified Person: Under IRC Section 4975, a person or entity — including the IRA owner, spouse, parents, children, grandparents, and certain service providers such as a CPA or custodian — who cannot transact directly or indirectly with the self-directed IRA.
Prohibited Transaction: A transaction between a self-directed IRA and a disqualified person, such as self-dealing or an improper sale, that disqualifies the entire IRA’s tax-advantaged status under IRC Section 4975(c).
Collectible: A disallowed IRA investment category defined under IRC Section 408(m), including works of art, rugs, antiques, gems, stamps, coins, and alcoholic beverages.
Non-Recourse Loan: A loan made directly to a self-directed IRA, rather than to the IRA owner personally, where the lender’s only recourse in default is the property itself.
Form 1099-R: The IRS form an IRA custodian issues to report a distribution from an IRA, including a deemed distribution caused by a disallowed investment or a prohibited transaction.

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Educational purposes only: This article is for general educational purposes and does not constitute tax, legal, or investment advice. Self-directed IRA prohibited transaction rules are fact-specific; consult a qualified CPA, tax attorney, or your IRA custodian before making an investment decision.

This article is based on the August 11, 2026 live webinar hosted by My Solo 401k Financial. Analysis by Mark Nolan, Founder/ Compliance Officer, My Solo 401k Financial.

Solo 401k

Solo 401(k) Participant Loan: How to Borrow Up to $50,000 From a Rolled-Over Former Employer Plan

September 1, 2026 | By George Blower

Solo 401(k) Participant Loan: How to Borrow Up to $50,000 From a Rolled-Over Former Employer Plan

By George Blower, Retirement Accounts Attorney, My Solo 401k Financial September 1, 2026

Can I borrow from my old 401(k) after rolling it over to a Solo 401(k)?

Direct Answer

Former employer 401(k) plans prohibit new participant loans once you leave the company, and IRAs are legally barred from making loans entirely. Self-employed individuals who qualify for a Solo 401(k) can roll their stranded former-employer funds into a Solo 401(k) plan — such as the one offered by My Solo 401k Financial — and immediately borrow up to 50% of the balance, not to exceed $50,000, with no bank underwriting, no credit check, and no income verification required.

Key Takeaways

Former employer 401(k) plans almost universally prohibit participant loans after employment ends, and IRAs are legally ineligible for loans under IRC § 4975.
A Solo 401(k) participant loan allows a qualified solopreneur to borrow up to 50% of the Solo 401(k) balance, not to exceed $50,000, repaid over a 5-year term at prime plus 1% interest (or a CD rate plus 2%).
To qualify for a Solo 401(k), a solopreneur must have self-employment income and no non-owner, non-spouse full-time W-2 employees working for any business owned by them or their spouse.
Rolling over a former employer plan to a My Solo 401k Financial Solo 401(k) is a tax-free direct rollover reported to the IRS via a 1099-R as a non-taxable transfer.
Once rollover funds clear the Solo 401(k) account, the loan can be taken immediately — no waiting period and no vesting period applies.

Status: As of September 1, 2026, the Solo 401(k) participant loan rules described in this post reflect current IRS guidance under IRC § 72(p) and the plan documents offered by My Solo 401k Financial. These are existing statutory provisions, not pending legislation.

My Solo 401k Financial daily webinar — You CAN’T Borrow From an Old 401k — UNLESS You Do This First [Air Date: 8/31/2026]

Why Former Employer 401(k) Plans Block Participant Loans

Former employer 401(k) plans create “stranded capital” — funds that waste away in a plan the account holder can no longer fully use. Once an employee leaves a company, the former employer plan almost always strictly prohibits new participant loans. The core reason is logistical: most corporate plans collect loan repayments through paycheck deductions, and a departed employee no longer receives a paycheck.

“A former employer plan will almost always strictly prohibit participant loans after leaving the company. You might’ve had a 401(k) option when you worked at the company … but once you leave your job, the plan is no longer going to allow you to take a 401(k) participant loan.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(1:38 in the webinar)

Beyond the loan prohibition, former employer plans create additional friction for departed employees. Fees that were subsidized during active employment often increase because the employer has no incentive to continue subsidizing costs for ex-employees. Investment options may also narrow, and no new contributions are permitted since the individual no longer works for the sponsoring employer.

Why Rolling to an IRA Doesn’t Solve the Loan Problem

Rolling a former employer 401(k) into a traditional IRA is a common default choice, but it eliminates the possibility of a participant loan entirely. IRAs cannot make loans to their owners. An IRA rollover offers no path to accessing the funds through a loan.

Important:
A traditional IRA — including a rollover IRA at Fidelity, Vanguard, or Schwab — is legally prohibited from lending money to its owner.

The Fix: Roll Over to a Solo 401(k) That Allows Participant Loans

A Solo 401(k) — also called a self-employed 401(k) or individual 401(k) — is a qualified retirement plan available exclusively to self-employed individuals and small business owners with no non-owner, non-spouse full-time W-2 employees. Unlike a standard brokerage Solo 401(k) offered by Fidelity or Schwab, a Solo 401(k) established with plan documents from My Solo 401k Financial explicitly permits participant loans.

“If you’re eligible to set up a Solo 401(k) because you’re self-employed with no non-owner, non-spouse, full-time W-2 employees working for any business owned by you or a spouse … and you roll it over to a Solo 401(k), like the one offered by My Solo 401k Financial that allows for 401(k) participant loans, you could use the proceeds that you roll over from that former employer plan to fund that loan.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(3:48 in the webinar)

Example:
A solopreneur has $200,000 sitting in a former employer’s 401(k). They are self-employed with no full-time W-2 employees. They open a Solo 401(k) with My Solo 401k Financial, roll over the $200,000 tax-free, and — once the funds clear — immediately borrow $50,000 (50% of $100,000 minimum, capped at $50,000 regardless of balance). The loan carries no credit check and requires no bank approval.

Discount Brokerage Solo 401(k) Plans Don’t Allow Loans

Schwab and Fidelity each offer their own Solo 401(k) plans, but neither plan allows 401(k) participant loans. To access the loan feature, a solopreneur must use plan documents that explicitly authorize loans — and then open a brokerage or bank account using those documents. My Solo 401k Financial provides IRS-approved plan documents that authorize loans, and helps clients open accounts at the bank or brokerage of their choice, including Fidelity and Schwab (since they will open accounts for solopreneurs who bring their own solo 401k plan documents).

Who Qualifies for a Solo 401(k)?

Solo 401(k) eligibility rests on two requirements. Meeting both unlocks access to the plan, the rollover, and the loan.

Requirement 1: Self-Employment Income

The solopreneur must report earned self-employment income on their taxes. The specific reporting line depends on the business structure:

Sole proprietorship: net profit on line 31 of Schedule C
S-corp or C-corp: W-2 wages paid by the business to the owner
Partnership: income on line 14 of Schedule K-1

A formal legal entity (LLC, S-corp, C-corp) is not required. Many clients of My Solo 401k Financial operate as sole proprietors with no separate business entity.

Critically, a day job does not disqualify a solopreneur. An individual with a W-2 employer who also earns side self-employment income can establish a Solo 401(k) based on that side income, provided they meet the second requirement.

“Even if someone has a day job … if they have side self-employment income that they report on their taxes like on Schedule C if they’re a sole proprietor … and there’s no non-owner, non-spouse employees working for you, then they’re going to be able to set up a Solo 401(k) based off of their side self-employment income.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(18:59 in the webinar)

Requirement 2: No Non-Owner, Non-Spouse Full-Time W-2 Employees

The plan cannot cover any non-owner, non-spouse full-time W-2 employee working for any business owned by the solopreneur or their spouse (i.e. w-2 employee age 21 or older who works 1000 hours per year with 1 year of service or 500 hours per year for 2 consecutive years). A spouse who actively works in the business and earns their own self-employment income can also participate in the Solo 401(k), effectively doubling the household’s contributions and savings.

Solo 401(k) vs. Former Employer Plan vs. Traditional IRA: Side-by-Side

Comparison of rollover destination options for former employer 401(k) funds — participant loan access, contribution ability, and investment flexibility.
Feature	Former Employer 401(k)	Traditional / Rollover IRA	Solo 401(k) (My Solo 401k Financial)
Participant Loan	Not available after leaving employer	Not available (prohibited by law)	✓ Up to 50% / $50,000
New Contributions	Not permitted	Yes, but lower limits (~$7,500 in 2026)	✓ Up to $72,000+ for 2026
Alternative Investments	Typically restricted	Standard brokerage only (unless self-directed)	✓ Real estate, crypto, precious metals, private equity
Checkbook Control	No	No (standard brokerage IRA)	✓ Yes
Mega Backdoor Roth	No	No	✓ Available
SECURE Act Tax Credits	No	No	✓ Up to $500/year for 3 years
Ongoing Fees	Often increase after departure	Varies	Fixed plan fee; bank/brokerage fee varies

Table summary: A Solo 401(k) established with My Solo 401k Financial plan documents is the only rollover destination that unlocks participant loans, high contribution limits, alternative investments, and SECURE Act tax credits simultaneously for a qualifying solopreneur.

How the Direct Rollover Works: Step by Step

The Solo 401(k) participant loan strategy requires completing a direct rollover before the loan can be taken. My Solo 401k Financial provides hands-on support throughout the process, including deep experience transferring funds from hundreds of different institutions.

Confirm Solo 401(k) eligibility (self-employment income + no non-owner/non-spouse full-time W-2 employees).
Sign up at mysolo401k.net; plan documents are prepared within the same business day.
My Solo 401k Financial obtains the EIN for the plan and assists in opening a bank or brokerage account (e.g., Fidelity, Schwab, local bank) in the plan’s name.
Request a direct rollover from the former employer plan administrator — funds transfer by check, made payable to the Solo 401(k) plan, not the individual.
Deposit the check(s) into the Solo 401(k) account. Pre-tax and Roth money typically arrive as two separate checks.
Wait for funds to clear.
Submit the loan questionnaire on the My Solo 401k Financial website; loan documents are prepared within one business day.
Transfer loan proceeds to a personal bank account; repay per the loan schedule.

Tax Reporting of the Rollover

The former employer plan administrator reports the rollover to the IRS via a 1099-R, coded as a non-taxable direct rollover. If the administrator makes a reporting error, documentation showing that the transfer was directed as a direct rollover can be used to correct the record. The rollover itself carries no taxes and no penalties when processed correctly.

“As a direct rollover it’s going to transfer with no taxes, no penalties. … They’ll report it as a non-taxable direct rollover. And that’s the proper way to do it.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(11:21 in the webinar)

Timeline: How Long Before the Loan Is Available?

The rollover timeline depends on the former employer plan administrator’s processing speed. The typical path runs approximately two to three weeks: the administrator issues a check, the check arrives by mail, and the check clears the Solo 401(k) account. My Solo 401k Financial works in parallel to open the bank or brokerage account during this period, so the solopreneur can deposit the check immediately upon arrival. Once funds clear, the loan can be taken right away.

Info:
There is no waiting period and no vesting period. As soon as the rollover funds clear the Solo 401(k) account, the solopreneur is eligible to take a participant loan. No standing period applies, and no separate qualification process is required beyond submitting the loan questionnaire.

Solo 401(k) Participant Loan Terms: What to Expect

A Solo 401(k) participant loan from My Solo 401k Financial follows IRS rules. The loan terms are not set by a bank or credit institution.

Solo 401(k) participant loan terms — My Solo 401k Financial plan documents.
Term	Details
Maximum Loan Amount	50% of the Solo 401(k) balance, not to exceed $50,000
Minimum Balance for Max Loan	$100,000 (50% of $100,000 = $50,000) in total value of cash and assets across all of the Solo 401k participant’s sub-accounts
Interest Rate	Prime plus 1% OR CD rate plus 2%
Repayment Term	5 years (standard); up to 15–30 years for primary residence purchase
Payment Frequency	Monthly or quarterly (solopreneur’s choice)
Payment Type	Equal payments of principal and interest
Credit / Income Verification	None — no bank underwriting, no credit score check, no income verification
Repayment Recipient	The Solo 401(k) account itself (not a bank, not My Solo 401k Financial)
Loan Document Preparation	Within 1 business day of questionnaire submission

Table summary: A Solo 401(k) participant loan carries no bank qualification requirements. The solopreneur repays the loan — including interest — back into their own retirement account.

“Once the money clears you can take a loan right away … there’s no bank underwriting, no credit score checks, no income verification … there’s no type of loan qualification process. You qualify as long as the money is in that Solo 401(k).”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(12:04 in the webinar)

Interest payments flow back into the Solo 401(k) account, not to a lender. The solopreneur is effectively paying interest to their own retirement plan. To learn more about the Solo 401(k) plan structure and features, the My Solo 401k Financial website provides extensive documentation.

Additional Features Unlocked by the Solo 401(k) Rollover

Beyond loan access, rolling a stranded former employer plan into a Solo 401(k) with My Solo 401k Financial opens additional wealth-building tools that are unavailable in a former employer plan or standard IRA.

Mega Backdoor Roth Solo 401(k) Contributions

My Solo 401k Financial was the first Solo 401(k) provider to offer a plan supporting the Mega Backdoor Roth strategy. For 2026, a solopreneur can contribute up to $72,000 (or more if age 50 or older) with sufficient self-employment income, with contributions ultimately directed into a Roth account. A participant loan and Mega Backdoor Roth contributions are fully compatible — they are separate transactions that do not interfere with each other.

“It works totally fine. Those are really two separate transactions. One is taking a loan from your 401(k) account. The other is making contributions to the Solo 401(k). So the fact that you’ve taken a 401(k) participant loan is not going to prevent that individual from being able to make those 401(k) contributions.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(19:23 in the webinar)

SECURE Act Tax Credits: $500/Year for Three Years

My Solo 401k Financial was also the first Solo 401(k) provider to offer a plan that enables solopreneurs to claim SECURE Act tax credits. The plan includes an automatic contribution (EACA) feature, which unlocks a $500-per-year tax credit for three consecutive years — $1,500 in total. The solopreneur retains the right to opt out of the default contribution amount and contribute on any schedule they prefer, while still claiming the credits.

Alternative Investments and Checkbook Control

Solo 401(k) plan documents from My Solo 401k Financial authorize a wide range of alternative investments including real estate, cryptocurrency, notes, precious metals, and private equity. The plan’s checkbook control structure allows the solopreneur to act quickly on investment opportunities without waiting for a custodian to process a request. Self-directed IRAs can offer similar investments, but typically carry higher fees and slower processing times.

Investing in Real Estate Through a Solo 401(k) — An Attendee Question

Webinar attendee Michael asked how to purchase real estate using a Solo 401(k). The key rules governing Solo 401(k) real estate investing include:

The investment must be for a pure investment purpose, not personal use.
Real estate must be purchased from an unrelated party — not from the solopreneur or a closely related person.
The property must be titled in the name of the Solo 401(k) plan.
All income and expenses related to the property must flow in and out of the Solo 401(k) account.
The solopreneur cannot personally work on the property or use it for personal purposes.
The property must be leased or sold to an unrelated person.

Form 5500-EZ and 1099-R Support

A Form 5500-EZ is required when the Solo 401(k) plan value — including any defined benefit plan sponsored by the solopreneur — exceeds $250,000. My Solo 401k Financial provides 5500-EZ preparation at no additional charge when timely notified. The firm prepares the form in an electronic filing system, assigns it to the solopreneur for signature, and submits it to the IRS upon receipt.

A Form 1099-R is required in certain transactions, such as a Mega Backdoor Roth conversion where after-tax contributions are transferred to a Roth account. My Solo 401k Financial prepares the 1099-R and files it when timely requested through the firm’s online forms.

Definitions

Solo 401(k): A qualified defined contribution retirement plan available exclusively to self-employed individuals and small business owners with no non-owner, non-spouse full-time W-2 employees. Also called a self-employed 401(k) or individual 401(k).
Participant Loan: A loan made from a qualified retirement plan — such as a Solo 401(k) — to a plan participant. The IRS rules cap the loan at the lesser of 50% of the vested account balance or $50,000. IRAs are prohibited from making participant loans.
Direct Rollover: A tax-free transfer of funds from one qualified retirement plan directly to another, where the payment is made payable to the receiving plan rather than to the individual. A direct rollover avoids mandatory 20% federal income tax withholding and the 60-day rollover rule that applies to indirect rollovers.
Mega Backdoor Roth: A strategy in which a Solo 401(k) participant makes voluntary after-tax contributions to the plan and then converts those contributions to a Roth account. This allows contributions beyond the standard pre-tax and Roth elective deferral limits, up to the overall 415(c) limit ($72,000 for 2026).
EACA (Eligible Automatic Contribution Arrangement): A plan design feature that sets a default contribution percentage for participants. Under the SECURE Act, a plan that includes an EACA enables the plan sponsor to claim a $500-per-year tax credit for up to three years. Participants retain the right to opt out of the default contribution amount.
Form 5500-EZ: An IRS annual return filed by one-participant retirement plans (including Solo 401(k) plans) when the plan’s total value (including the value of any defined benefit plan) exceeds $250,000 at the end of the plan year.

Frequently Asked Questions

Can I borrow from my old 401(k) if I no longer work at that company?

No. Former employer 401(k) plans almost universally prohibit new participant loans after employment ends. The standard mechanism for repayment — payroll deduction — is unavailable once you leave the company. To access those funds through a loan, you must roll the balance into a Solo 401(k) plan that explicitly permits participant loans, such as the one offered by My Solo 401k Financial — provided you qualify for a Solo 401(k).

Why can’t I just roll my old 401(k) into an IRA and take a loan?

IRA loans are prohibited by law. An IRA rollover provides no path to loan access.

How much can I borrow from a Solo 401(k)?

A Solo 401(k) participant loan is limited to the lesser of 50% of the vested account balance or $50,000. To borrow the maximum $50,000, the Solo 401(k) balance must be at least $100,000. The loan carries interest at prime plus 1% (or a CD rate plus 2%), is repaid in equal monthly or quarterly installments of principal and interest, and must be repaid within five years — or up to 15–30 years if the proceeds are used to purchase a primary residence.

Do I need a credit check or income verification to take a Solo 401(k) loan?

No. A Solo 401(k) participant loan requires no bank underwriting, no credit score check, and no income verification. The solopreneur qualifies for the loan as long as the funds are in the Solo 401(k) and the plan documents — such as those from My Solo 401k Financial — authorize participant loans. Loan documents are prepared within one business day of the solopreneur submitting a questionnaire on the My Solo 401k Financial website.

Can I qualify for a Solo 401(k) if I still have a W-2 day job?

Yes. A W-2 day job does not disqualify you from establishing a Solo 401(k). If you also earn self-employment income from a side business — reported on Schedule C, a K-1, or as W-2 wages from your own S-corp — and that business has no non-owner, non-spouse full-time W-2 employees, you can establish a Solo 401(k) based on that self-employment income.

How long does it take to access loan funds after rolling over my old 401(k)?

The timeline depends on the former employer plan administrator’s processing speed, but typically runs two to three weeks: the administrator issues a check, the check arrives by mail, and the check clears the Solo 401(k) account. My Solo 401k Financial opens the bank or brokerage account concurrently, so the solopreneur can deposit the check as soon as it arrives. Once funds clear, the loan can be taken immediately — there is no waiting period.

Can I use a Solo 401(k) loan and also make Mega Backdoor Roth contributions at the same time?

Yes. Taking a participant loan and making Solo 401(k) contributions — including Mega Backdoor Roth contributions — are completely separate transactions. Having an outstanding loan does not prevent the solopreneur from contributing to the plan or from executing a Mega Backdoor Roth conversion. For 2026, the Solo 401(k) contribution limit is up to $72,000 (more if age 50 or older) with sufficient self-employment income.

Does Fidelity or Schwab’s own Solo 401(k) plan allow participant loans?

No. The standard Solo 401(k) plans offered directly by Fidelity and Schwab do not permit participant loans. However, both Fidelity and Schwab will open brokerage accounts for clients who bring their own IRS-approved plan documents. Solopreneurs who obtain plan documents from My Solo 401k Financial — which authorize participant loans — can then open a Fidelity or Schwab brokerage account under those documents to hold their Solo 401(k) assets.

This article is based on the 8/31/2026 live webinar hosted by My Solo 401k Financial, titled You CAN’T Borrow From an Old 401k — UNLESS You Do This First. Analysis by George Blower, Retirement Accounts Attorney, My Solo 401k Financial.

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Educational Purposes Only. This article is provided for educational purposes only and should not be construed as tax, legal, or investment advice, nor as a solicitation. When making any investment or retirement planning decision, please consult with your tax attorney and qualified financial professional.

Solo 401k

Morgan Stanley Solo 401(k) Plans End December 31, 2026: Your Action Plan

August 30, 2026 | By George Blower

Morgan Stanley Solo 401(k) Plans End December 31, 2026: Your Action Plan

Published August 30, 2026 | Based on the My Solo 401k Financial live webinar of August 27, 2026 | By George Blower, Retirement Accounts Attorney

Direct Answer

Morgan Stanley Solo 401(k) plan holders must obtain replacement plan documents before December 31, 2026. Morgan Stanley is resigning as prototype plan sponsor and will stop maintaining its IRS opinion letter. Accounts are not being closed. Holders may keep their assets at Morgan Stanley and restate the plan with a third-party document provider such as My Solo 401k Financial. Taking no action leaves the plan without a valid adoption agreement.

Key Takeaways

Morgan Stanley sent a notice on May 13, 2026 to its VIP Defined Contribution prototype plan sponsors announcing its resignation as prototype sponsor effective December 31, 2026.
After December 31, 2026, Morgan Stanley Solo 401(k) sponsors can no longer rely on the Morgan Stanley IRS opinion letter for their plan.
Plan sponsors who take no action will have their accounts automatically transitioned to a Morgan Stanley RPM account, the account type used for holders who bring their own third-party plan documents.
The IRS opinion letter is referenced on Form 5500-EZ, which must be filed once total plan assets exceed $250,000.
Under an RPM account, Morgan Stanley will no longer prepare Form 1099-R, prepare Form 5500-EZ, or provide plan-level compliance oversight.
Restating the plan with My Solo 401k Financial adds mega backdoor Roth contributions of up to $72,000 for 2026, in-plan Roth conversions, participant loans, and alternative investments, while the assets stay at Morgan Stanley.
Adopting an auto-enrollment feature makes the self-employed business eligible for $1,500 in tax credits under the SECURE Act — $500 per year for three consecutive years — and this is available to existing plans, not only new ones.

Status: As of August 30, 2026, the Morgan Stanley Solo 401(k) prototype plan resignation is an announced and effective corporate decision, communicated to account holders by written notice. It is not a proposal, a rumor, or pending legislation. The resignation takes effect December 31, 2026.

Full webinar replay: Morgan Stanley Solo 401(k) plan document resignation and the December 31, 2026 restatement deadline, hosted by George Blower of My Solo 401k Financial.

What should I do if Morgan Stanley is dropping my Solo 401(k) plan?

A Morgan Stanley Solo 401(k) plan holder should obtain restated plan documents from a third-party plan document provider before December 31, 2026. The account itself does not need to move. Morgan Stanley is resigning only as the provider of the plan documents, not as the custodian of the assets. Once restated documents are in place, the holder notifies Morgan Stanley, and Morgan Stanley converts the account to RPM non-prototype status.

“The do nothing option is a trap… it addresses the custody, but it does not address the plan document compliance. So without a separate document provider, your plan remains without a valid adoption agreement after… December 31, 2026.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(11:09 in the webinar)

What did the Morgan Stanley Solo 401(k) notice actually say?

The Morgan Stanley Solo 401(k) notice went to VIP Defined Contribution prototype plan sponsors on May 13, 2026. It stated that Morgan Stanley is resigning as prototype sponsor effective December 31, 2026. Two things stop on that date. Morgan Stanley stops providing and updating its IRS pre-approved plan documents, and Morgan Stanley stops maintaining the IRS opinion letter that covers those documents.

Why a plan document is not optional paperwork

A Solo 401(k) is a legal entity, structured as a trust, and the plan document is what creates it and defines what it can do. A plan document is also a living document: when the law changes, the document must be amended. The current amendment deadline for SECURE 2.0 is the end of 2026, which is precisely the obligation Morgan Stanley has chosen not to take on for its Solo 401(k) sponsors.

“So a 401(k) plan, it’s a legal entity. It’s technically a trust. And so like any legal entity, the documents… dictate what you can do.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(4:36 in the webinar)

Why does losing the IRS opinion letter matter?

Every Morgan Stanley Solo 401(k) plan has relied on the Morgan Stanley IRS opinion letter as evidence that the plan document is IRS-approved. After the resignation date, that letter is no longer maintained, and sponsors cannot rely on it. My Solo 401k Financial provides its own IRS opinion letter to every new client as part of the establishment document packet.

“Morgan Stanley is no longer going to provide or update their IRS pre-approved plan documents that govern your 401(k)… And the firm will no longer maintain the IRS opinion letter, the official seal of approval for your plan structure.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(7:50 in the webinar)

Form 5500-EZ filers face the sharpest exposure

Form 5500-EZ must be filed once the value of the plan exceeds $250,000, and the filing references the plan’s opinion letter. A self-employed business with a Morgan Stanley Solo 401(k) above that threshold can no longer reference the Morgan Stanley opinion letter after the resignation takes effect.

“The compliance risk is definitely highlighted in the context of someone that has to file a 5500-EZ, because that self-employed business can no longer reference that opinion letter…”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(8:08 in the webinar)

Disqualification risk if no action is taken

Important:

A Morgan Stanley Solo 401(k) that is not kept up to date risks plan disqualification. Consequences discussed in the webinar include loss of the deduction for contributions, loss of the ability to roll additional funds into the plan, and potential IRS penalties for non-compliant plan operation.

What is a Morgan Stanley RPM account?

A Morgan Stanley Solo 401(k) holder who takes no action will have the account automatically transitioned to an RPM account. Morgan Stanley already uses this account type for clients who bring their own third-party plan documents — including existing My Solo 401k Financial clients who have held their accounts at Morgan Stanley for years. The transition solves custody. It does not solve documents.

Under RPM status, ongoing duties shift entirely to the plan sponsor. Morgan Stanley will not issue Form 1099-R for the plan, will not prepare Form 5500-EZ, and will not police the account from a plan-compliance perspective.

Example:

A Morgan Stanley Solo 401(k) holder with $310,000 in the plan takes no action. On January 1, 2027, the account is an RPM account with no current plan document behind it. The Form 5500-EZ obligation still applies because the balance exceeds $250,000, but there is no opinion letter to reference and no party preparing the form.

Three options for Morgan Stanley Solo 401(k) plan holders

Morgan Stanley Solo 401(k) sponsors have three realistic paths before the December 31, 2026 deadline. Each carries a different tax and compliance consequence.

Comparison of the three options available to a Morgan Stanley Solo 401(k) plan sponsor before December 31, 2026
Option	What happens to the account	Document status	Main consequence
Do nothing	Auto-converted to a Morgan Stanley RPM account	No valid adoption agreement after December 31, 2026	Disqualification risk; no opinion letter for Form 5500-EZ
Close or distribute	All assets transferred out of the Solo 401(k)	Plan terminated	Taxable event if distributed; if rolled to an IRA, a 12-month wait before establishing a new plan
Restate with a third-party provider	Assets stay at Morgan Stanley; account converts to RPM status	Current SECURE 2.0-compliant documents plus a new IRS opinion letter	Plan stays in compliance and gains advanced features

Table summary in plain text: Doing nothing converts the account to RPM status but leaves the plan without a valid adoption agreement. Closing the plan triggers either a taxable distribution or a 12-month waiting period after an IRA rollover. Restating with a third-party document provider keeps the assets at Morgan Stanley and restores compliance.

What does restating a Morgan Stanley Solo 401(k) add?

Restating a Morgan Stanley Solo 401(k) onto My Solo 401k Financial documents is not a like-for-like replacement. The restated document permits features that the Morgan Stanley prototype document did not.

Features added to a Morgan Stanley Solo 401(k) upon restatement, with the limits stated in the webinar
Feature	Limit or mechanics
Mega backdoor Roth	Up to $72,000 for 2026, or more at age 50 and above, with the funds landing in a Roth account
In-plan Roth conversion	Move pre-tax Solo 401(k) funds to the Roth Solo 401(k); taxable and reportable in the conversion year
Participant loan	Up to 50% of the balance, not to exceed $50,000; prime plus 1% or a CD rate plus 2%; equal monthly or quarterly payments over a five-year term; any purpose
Alternative investments	Real estate, private equity, precious metals and cryptocurrency, in addition to the investments already held at Morgan Stanley
Ongoing compliance support	SECURE 2.0 amendments, plus Form 1099-R and Form 5500-EZ preparation when timely requested, at no additional charge
Auto-enrollment tax credit	$500 per year for three consecutive years, $1,500 total, under the SECURE Act; available to existing plans, not only new plans

Table summary in plain text: Restatement adds mega backdoor Roth contributions of up to $72,000 for 2026, in-plan Roth conversions, participant loans of up to $50,000, alternative investment authority, Form 1099-R and Form 5500-EZ preparation, and eligibility for $1,500 in SECURE Act auto-enrollment tax credits.

Detailed mechanics of the highest-demand feature are covered separately in the guide to the mega backdoor Roth using a Solo 401k plan.

“Our plan will make the self-employed business eligible to claim $1,500 in tax credits… this is not just limited to new plans, but even existing plans, like an existing Morgan Stanley plan that’s upgraded to our plan… that’s $500 per year for three consecutive years.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(14:02 in the webinar)

Info:

My Solo 401k Financial does not hold or have access to client accounts. Plans are fully portable and can be held at Morgan Stanley, Fidelity, Schwab, Edward Jones, or another bank or brokerage of the client’s choosing.

How to restate a Morgan Stanley Solo 401(k) plan

Restating a Morgan Stanley Solo 401(k) is a four-step process described in the webinar. Documents are prepared the same business day once the application and payment are submitted.

Apply. Go to mysolo401k.net, click Open Account, then click Solo 401k. The application is ten questions.
Identify the existing plan. Answer yes to the question about an existing Solo 401(k), indicate it is a Solo 401(k) at Morgan Stanley, and enter the original effective date. That date appears on the current adoption agreement, or Morgan Stanley can supply it in response to a secure message.
Notify Morgan Stanley. Once the restated documents are issued, tell Morgan Stanley a third-party plan document provider has been engaged so the account can move to RPM non-prototype status.
Use the new features. The restated plan carries the advanced features and the ongoing compliance support described above.

General background on plan structure and features is available on the Solo 401k plan documents overview from My Solo 401k Financial.

Key Question from Live Webinar

Is Morgan Stanley the only firm exiting Solo 401(k) plan documents?

The Morgan Stanley Solo 401(k) decision is not isolated. Edward Jones reached the same conclusion and will also stop providing Solo 401(k) plan documents, while continuing to open accounts for clients who bring their own third-party documents. In both cases the stated driver appears to be the document amendment work required by SECURE 2.0.

“Morgan Stanley, and they’re not the only ones. Edward Jones also made the same decision to no longer provide Solo 401(k) plan documents… They’re still happy to open up accounts for people that want to have their money there… and bring their own plan documents.”

— George Blower, Retirement Accounts Attorney, My Solo 401k Financial
(20:48 in the webinar)

Definitions

Prototype plan: A pre-approved retirement plan document maintained by a financial institution and adopted by many employers, under which the institution handles amendments and holds the IRS opinion letter.
IRS opinion letter: A letter from the IRS confirming that the form of a pre-approved plan document meets Internal Revenue Code requirements. It is referenced when filing Form 5500-EZ.
Restatement: The adoption of a new, complete plan document for an existing plan, preserving the plan’s original effective date rather than starting a new plan.
RPM account: The Morgan Stanley non-prototype account type used for retirement plans whose documents are provided by a third party rather than by Morgan Stanley.
Form 5500-EZ: The annual IRS return for a one-participant retirement plan, required once total plan assets exceed $250,000.
Mega backdoor Roth: A strategy using voluntary after-tax contributions to a 401(k) that are then converted to Roth, permitted only if the plan document allows both the contributions and the conversion.

Frequently asked questions

What should I do if Morgan Stanley is dropping my Solo 401(k) plan?

Obtain restated plan documents from a third-party provider before December 31, 2026. Morgan Stanley is resigning as the plan document sponsor, not closing accounts. Restating preserves the plan’s original effective date, restores a valid IRS opinion letter, and allows the assets to remain at Morgan Stanley under an RPM account.

Is Morgan Stanley closing my Solo 401(k) account?

No. Morgan Stanley is resigning as prototype plan sponsor effective December 31, 2026, which ends its role as plan document provider. The brokerage account continues and is transitioned to RPM non-prototype status, the same account type Morgan Stanley already uses for clients with third-party plan documents.

What happens if I do nothing before December 31, 2026?

The account converts automatically to a Morgan Stanley RPM account, but the plan is left without a valid adoption agreement and without an IRS opinion letter to rely on. Risks discussed in the webinar include plan disqualification, loss of the contribution deduction, loss of the ability to roll funds in, and IRS penalties for non-compliant plan operation.

Do I have to move my money out of Morgan Stanley?

No. Restating the plan with a third-party document provider lets the assets and any existing advisor relationship stay at Morgan Stanley. My Solo 401k Financial does not hold or access client accounts, so plans remain portable across Morgan Stanley, Fidelity, Schwab, Edward Jones, and other custodians.

Can I still file Form 5500-EZ without the Morgan Stanley opinion letter?

Form 5500-EZ is required once plan assets exceed $250,000, and the filing references the plan’s opinion letter. After the Morgan Stanley resignation takes effect, that letter can no longer be relied on. Restating onto documents that carry their own IRS opinion letter restores the reference for future filings.

What are the tax consequences of closing my Morgan Stanley Solo 401(k) instead?

Closing the plan requires transferring all assets out. A taxable distribution is a taxable event. Rolling the assets to an IRA avoids immediate tax, but the webinar notes a 12-month waiting period before a new plan can be established after closing the existing one.

This article is based on the August 27, 2026 live webinar hosted by My Solo 401k Financial. Analysis by George Blower, Retirement Accounts Attorney.

Ready to restate your Morgan Stanley Solo 401(k)?

Restated documents are prepared the same business day. The application is ten questions, your assets stay where they are, and your plan keeps its original effective date.

Open or restate a Solo 401k account

Educational purposes only:

This content is provided for educational purposes only and should not be construed as tax, legal, or investment advice, nor as a solicitation. Please consult your own tax attorney and financial professional before making any investment or plan decision.

IRA LLC

Regulations

What Investments are Prohibited in a Self-Directed IRA

August 27, 2026 | By Mark Nolan

What Investments are PROHIBITED in a Self-Directed IRA?

One of the biggest advantages of a Self-Directed IRA (SDIRA) is the ability to invest beyond publicly traded stocks — into real estate, private equity, precious metals, cryptocurrency, promissory notes, tax liens, and more. But a Self-Directed IRA isn’t the Wild West. The IRS imposes specific rules on non-permissible investments and prohibited transactions, and violating them can put your entire IRA’s tax-advantaged status at risk. Below, we break down exactly what’s off-limits and why.

Watch: A full breakdown of prohibited and disallowed investments in a Self-Directed IRA.

What Is a Truly Self-Directed IRA?

Some custodians label their accounts “self-directed” when investors can really only choose among stocks and mutual funds. A truly Self-Directed IRA allows investment in equities and alternative assets, including real estate, private equity, precious metals, and cryptocurrency. The tradeoff for this flexibility is that account owners must understand the federal rules governing prohibited transactions found in IRC Section 4975(c) — rules designed to stop IRA owners from self-dealing or personally benefiting from investments made inside the IRA.

Info: There are two separate concerns to understand — non-permissible (disallowed) investments, which an IRA can never own, and prohibited transactions, which are otherwise-allowed investments done the wrong way (e.g., real estate purchased from a disqualified person).

Investments a Self-Directed IRA Can Never Own

The Internal Revenue Code places relatively few restrictions on the types of assets a Self-Directed IRA may hold, but there are two categories that are absolutely off-limits:

Life Insurance Contracts

An IRA can never invest in a life insurance contract. Don’t confuse this with the rules for a Solo 401k, which does permit life insurance investments — that exception simply does not extend to IRAs.

S Corporation Stock

Because an IRA is technically a retirement trust, it cannot be a shareholder of an S corporation — that’s an S-corp eligibility rule, not an IRA-specific one. An IRA is permitted to hold shares of a C corporation.

Investment Type	Allowed in a Self-Directed IRA?
C Corporation stock	✅ Allowed
S Corporation stock	❌ Prohibited
Life insurance contracts	❌ Prohibited
Real estate	✅ Allowed (with restrictions)
Private equity / private companies	✅ Allowed (with restrictions)
IRS-approved gold, silver, platinum, palladium	✅ Allowed (with restrictions)

Collectibles Are Off-Limits

The Self-Directed IRA regulations do not permit investment in collectibles. This includes:

Works of art, rugs, and antiques
Gems and certain metals
Stamps and coins (outside the precious-metals exception below)
Alcoholic beverages, such as collectible wine or liquor

Example: In 2026, a Self-Directed IRA purchases a $100,000 case of fine wine. Because collectibles are disallowed, the $100,000 (plus any gains) is treated as a taxable distribution in 2026, and the IRA owner receives a Form 1099-R for that amount. The rest of the IRA remains intact and unaffected.

Warning: A disallowed collectible purchase doesn’t shut down the whole IRA immediately — but the amount used for that purchase is treated as a deemed distribution in the year it occurred. If the IRA owner is under age 59½, that distribution is also subject to a 10% early distribution penalty, plus applicable federal and state income taxes.

Are Gold and Precious Metals Prohibited?

Not necessarily. Although precious metals technically fall under the general collectibles rule, IRC Section 408(m) carves out an exception for certain qualifying coins and bullion. As long as the Self-Directed IRA is structured to allow alternative investments, it can hold gold, silver, platinum, and palladium — but not every product qualifies.

Info: Only IRS-approved precious metals qualify — for example, Canadian Maple Leaf coins and American Eagle coins. Not every gold or silver product on the market is eligible for IRA ownership.

Can a Self-Directed IRA Own Real Estate?

Yes. Real estate — single-family homes, multi-family properties, commercial real estate, raw land, farmland, and more — is an allowed Self-Directed IRA investment. However, the property cannot be purchased from a disqualified person, such as the IRA owner personally, a spouse, parents, or children. A Self-Directed IRA also cannot purchase property currently or previously owned by the IRA owner’s business.

Warning: You cannot get around these rules with an indirect “strawman” transaction — for example, selling a property you own to a neighbor who then sells it to your Self-Directed IRA. If you cannot do something directly, you cannot do it indirectly either.

Private Equity and Private Company Investments

A Self-Directed IRA can invest in private companies — a private C corporation, an LLC, a partnership, or a venture fund. However, two restrictions apply:

The IRA owner (or certain family members) cannot work for the entity the IRA invests in.
The IRA owner generally cannot own 50% or more of that private entity, whether through personal funds, Solo 401k funds, Self-Directed IRA funds, or any combination.

Prohibited Transactions Under IRC Section 4975

IRC Section 4975 restricts transactions between a Self-Directed IRA and certain related parties known as disqualified persons. Even when the underlying asset (like real estate) is an allowed investment, the transaction itself can still be prohibited.

Who Counts as a Disqualified Person?

Disqualified Person	Relationship to the IRA
IRA owner	The account holder personally
Spouse	Immediate family
Parents and grandparents	Lineal ascendants
Children and their spouses	Lineal descendants
CPA, custodian, or other service providers	Anyone providing services to the IRA

Common Prohibited Transaction Examples

Prohibited Action	Why It’s Disallowed
Selling or exchanging personal property with the IRA	A sale or exchange between the IRA and a disqualified person
Personally using IRA-owned real estate	Personal benefit, even at fair market rent
Renting IRA-owned property to a child	Benefits a disqualified person
Borrowing money from your IRA	Treated as a taxable distribution (unlike a Solo 401k loan)
Personally guaranteeing an IRA loan	Indirect personal benefit / self-dealing
Using IRA funds as collateral for a personal loan	IRA assets cannot secure personal obligations
Paying yourself for services to the IRA	Self-dealing / personal compensation
Performing “sweat equity” repairs yourself	Providing personal services to the IRA is disallowed

Info: A non-recourse loan made directly to the Self-Directed IRA — where the IRA itself makes the payments — is allowed. What’s prohibited is the IRA owner personally guaranteeing that loan.

Example: A Self-Directed IRA owns a rental property. All related expenses — property taxes, water, and electric bills — must be paid directly from the IRA’s own funds, never from the IRA owner’s personal bank account.

Consequences of a Prohibited Transaction

Important: Unlike a disallowed collectible purchase (which only affects the amount invested), a true prohibited transaction under IRC 4975 causes the entire Self-Directed IRA — including cash and other holdings — to become subject to taxes and penalties in the year the prohibited transaction occurred.

Key Takeaway

A Self-Directed IRA opens the door to a far wider range of investments than a regular IRA — real estate, private equity, precious metals, cryptocurrency, and more. But every investment decision should be made to benefit the IRA itself, never the IRA owner or a disqualified person indirectly. Understanding the disallowed investment rules and the prohibited transaction rules up front is the best way to protect your retirement savings from unexpected taxes and penalties.

Have Questions About What Your Self-Directed IRA Can Invest In?
Our team at My Solo 401k Financial can help you understand the prohibited transaction rules and structure your Self-Directed IRA or Solo 401k the right way.

Next Steps:
Learn More About Self-Directed IRAs | Open a Solo 401k Today

Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making investment decisions with your retirement funds.

Solo 401k

How to Remove Excess Voluntary After-Tax Solo 401(k) Contribution After It Has Already Been Converted to the Roth Solo 401k-the Mega Backdoor Roth Conversion

August 22, 2026 | By Mark Nolan

The Mega Backdoor Roth Solo 401(k) strategy can be an excellent way for self-employed individuals and business owners to move additional retirement funds into a Roth account.

The strategy typically involves:

Making a voluntary after-tax contribution to the Solo 401(k); and
Converting those funds to the Roth Solo 401(k) through an in-plan Roth conversion.

But what happens if you later discover that part of the voluntary after-tax contribution exceeded the amount you were permitted to contribute?

The situation becomes a little more complicated if the excess contribution has already been converted to the Roth Solo 401(k).

Fortunately, the excess generally can be corrected. However, the conversion and the subsequent corrective distribution are separate reportable events, so it is important to handle each step properly.

First: Understand Why an Excess Voluntary After-Tax Contribution Can Occur

Voluntary after-tax Solo 401(k) contributions are employee contributions for purposes of the retirement-plan rules.

They are different from:

Pre-tax employee salary deferrals;
Roth employee salary deferrals; and
Employer profit-sharing contributions.

Nevertheless, voluntary after-tax contributions count toward the overall IRC Section 415(c) annual-additions limit.

For 2026, the annual-additions limit is generally the lesser of:

$72,000, or
100% of the participant’s eligible compensation.

Qualifying age-50-or-older catch-up contributions are generally permitted on top of the Section 415(c) limit.

When determining whether the limit has been exceeded, the participant generally needs to consider the combined amount of:

Pre-tax employee contributions;
Roth employee contributions;
Voluntary after-tax employee contributions; and
Employer contributions.

Therefore, someone implementing a Mega Backdoor Roth strategy needs to calculate the remaining Section 415(c) contribution room before funding the voluntary after-tax account.

What If the Excess After-Tax Contribution Was Already Converted to Roth?

Suppose you contributed too much to your voluntary after-tax Solo 401(k) account and then immediately converted the entire account to the Roth Solo 401(k).

You subsequently discover that, for example, $5,000 of the contribution exceeded your allowable Solo 401(k) contribution limit.

The fact that the money has already been converted to Roth does not make the excess contribution disappear.

There are now two separate events that need to be addressed:

The original after-tax-to-Roth in-plan conversion; and
The correction and removal of the excess contribution and attributable earnings.

Step 1: Report the Full Amount That Was Actually Converted

If the voluntary after-tax funds were already converted to the Roth Solo 401(k), the conversion should reflect what actually occurred.

That means the conversion reporting should include the entire amount that was converted — including the portion subsequently determined to be an excess contribution.

For example:

Voluntary after-tax contribution: $50,000
Amount actually converted to Roth Solo 401(k): $50,000
Amount later determined to be excess: $5,000

The conversion was still $50,000.

You generally would not go back and report the conversion as only $45,000 simply because $5,000 was subsequently determined to be an excess contribution.

The full conversion needs to be properly documented and reported on Form 1099-R.

My Solo 401k Financial clients can document an after-tax-to-Roth Solo 401(k) in-plan conversion using our After-Tax to Roth Solo 401(k) In-Plan Conversion Form.

Step 2: Determine the Amount of the Excess Contribution

Next, determine exactly how much of the voluntary after-tax contribution exceeded the applicable contribution limit.

This calculation should be performed carefully because the overall Section 415(c) limit takes multiple types of Solo 401(k) contributions into account.

For example, assume a participant made:

$24,500 of regular employee contributions;
$20,000 of employer contributions; and
$30,000 of voluntary after-tax contributions.

Total annual additions would equal:

$74,500

If the participant’s applicable Section 415(c) limit is $72,000, the plan has a:

$2,500 excess annual addition.

The appropriate corrective amount will depend on the participant’s actual contribution history and the source of the excess.

Step 3: Calculate Earnings Attributable to the Excess Amount

Correcting the excess generally does not mean simply withdrawing the original excess contribution.

The plan must also determine the earnings attributable to the excess contribution.

For example, assume:

Excess voluntary after-tax contribution: $5,000
Attributable investment earnings: $300

The corrective distribution would generally be:

$5,300

The calculation should reflect the investment experience attributable to the excess amount during the applicable period.

If there was an investment loss instead of a gain, the correction calculation may need to reflect that loss.

Step 4: Remove the Excess Contribution and Earnings From the Solo 401(k)

IRS correction procedures provide for excess annual additions attributable to after-tax employee contributions to be distributed to the affected participant, adjusted for earnings.

Therefore, once the corrective amount has been calculated, the excess contribution and attributable earnings generally need to be distributed from the Solo 401(k) to the participant personally.

This is not a transfer to another retirement account.

The corrective distribution should generally be paid to the participant’s personal bank or brokerage account.

If the Solo 401(k) funds are held at Schwab, Fidelity, or another brokerage institution, the participant will need to follow that institution’s procedures for taking the corrective distribution.

For example, Schwab may require its applicable distribution or wire-transfer paperwork to direct the funds from the Solo 401(k) brokerage account to the participant’s personal account.

Step 5: Report the Corrective Distribution on Form 1099-R

The corrective distribution is another reportable event.

A Form 1099-R generally must be issued for the calendar year in which the excess contribution and attributable earnings are distributed.

Importantly, because the original voluntary after-tax contribution was made with money that had already been taxed, the returned after-tax contribution itself generally is not taxable again.

The attributable earnings generally are taxable.

The IRS’s 2026 Form 1099-R instructions provide specific reporting treatment for a return of employee after-tax contributions plus earnings under the correction procedures:

Box 1: Reports the gross corrective distribution;
Box 2a: Generally reports the taxable earnings;
Box 5: Generally reflects the returned employee after-tax contributions; and
Box 7: The applicable corrective-distribution code is used.

The IRS also explains that a corrective payment representing the return of after-tax contributions is not taxable, while earnings attributable to those contributions are taxable in the year distributed.

Example: Excess Contribution After a Mega Backdoor Roth Conversion

Consider the following example.

John has a Solo 401(k) and wants to maximize his 2026 contributions using the Mega Backdoor Roth strategy.

He contributes:

$24,500 as a Roth employee contribution;
$17,500 as an employer contribution; and
$32,000 as a voluntary after-tax contribution.

He then immediately converts the entire $32,000 voluntary after-tax balance to his Roth Solo 401(k).

Later, John and his CPA determine that based on his compensation and contribution calculations, he was permitted to contribute only $30,000 as a voluntary after-tax contribution.

He therefore has a:

$2,000 excess contribution.

Assume $120 of investment earnings are attributable to that $2,000.

John’s correction would generally involve:

1. Report the original conversion.

The original $32,000 conversion actually occurred, so the full $32,000 should be documented and reported as the in-plan Roth conversion.

2. Calculate the correction.

Excess contribution: $2,000
Earnings: $120
Corrective distribution: $2,120

3. Distribute $2,120 from the Solo 401(k).

The corrective distribution is paid to John personally.

4. Issue Form 1099-R for the corrective distribution.

The Form 1099-R generally reflects the $2,120 gross corrective distribution, with the $2,000 after-tax contribution treated as basis and the $120 of earnings generally taxable.

Do Not Simply Withdraw the Excess Without Documenting the Correction

A Solo 401(k) is a qualified retirement plan. Money generally should not simply be moved from the plan to a personal account without determining and documenting the legal basis for the distribution.

When correcting an excess voluntary after-tax contribution, participants should maintain records showing:

The contribution that created the excess;
How the permissible contribution amount was calculated;
The amount of the excess;
The calculation of attributable earnings or losses;
The date and amount of the corrective distribution;
Brokerage statements showing the distribution;
The original in-plan Roth conversion documentation; and
The applicable Forms 1099-R.

Keeping a clear paper trail is especially important because there may ultimately be two Forms 1099-R or separate reportable transactions associated with the sequence of events: the original Roth conversion and the later corrective distribution.

Excess After-Tax Contributions Are Different From Excess Salary Deferrals

This distinction is important.

An excess pre-tax or Roth elective deferral under IRC Section 402(g) is subject to rules governing excess elective deferrals, including special April 15 correction provisions.

A voluntary after-tax employee contribution, however, is not the same thing as an elective salary deferral.

Voluntary after-tax employee contributions are included when determining the participant’s annual additions under IRC Section 415(c).

Therefore, when a voluntary after-tax contribution causes the participant to exceed the Section 415(c) limit, the applicable correction generally falls under the IRS rules for excess annual additions.

IRS correction procedures specifically provide for excess amounts attributable to after-tax employee contributions to be distributed to the participant, adjusted for earnings.

This distinction is one reason it is important to identify what type of contribution actually caused the excess before attempting the correction.

Can the Corrective Distribution Be Rolled to an IRA?

Generally, no.

The IRS provides that distributions made to correct a Section 415 failure are not eligible rollover distributions.

Therefore, the participant generally should not attempt to move the corrective distribution to an IRA or another qualified retirement plan.

Instead, it is paid to the participant personally as the correction.

The IRS also states that these corrective distributions generally are not subject to the 10% additional tax on early distributions under IRC Section 72(t).

Who Issues the Form 1099-R?

The Solo 401(k) trustee is responsible for ensuring that required tax reporting is completed.

My Solo 401k Financial clients may work with their CPA or tax professional to prepare and file the Form 1099-R associated with the corrective distribution.

If you would like My Solo 401k Financial to prepare the Form 1099-R associated with an excess-contribution correction, additional processing fees may apply.

Because the facts surrounding excess contributions can vary considerably, coordinate the correction with your Solo 401(k) provider and tax professional before moving the funds.

A Practical Checklist

If you discover that a voluntary after-tax Solo 401(k) contribution was excessive after you already converted it to the Roth Solo 401(k):

Determine the exact amount that exceeded the applicable contribution limit.
Confirm which contribution source created the Section 415(c) excess.
Document the full amount originally converted from voluntary after-tax to Roth.
Calculate the earnings or losses attributable to the excess contribution.
Determine the total corrective distribution.
Complete the brokerage institution’s required distribution paperwork.
Distribute the corrective amount to your personal account.
Maintain documentation supporting the correction.
Prepare and file the applicable Form 1099-R for the corrective distribution.
Coordinate the tax reporting with your CPA or tax professional.

The Bottom Line

If you accidentally contribute too much to the voluntary after-tax portion of your Solo 401(k) and then convert the funds to your Roth Solo 401(k), the excess does not become permissible simply because the Roth conversion has already occurred.

The key is to treat the transactions separately.

First, accurately document and report the full Roth conversion that actually occurred.

Next, identify the excess contribution, calculate the attributable earnings or losses, and process the appropriate corrective distribution from the plan.

Because voluntary after-tax contributions have already been included in taxable income, the return of the contribution itself generally is not taxable again. However, earnings attributable to the excess generally are taxable in the year of the corrective distribution.

Most importantly, do not confuse an excess voluntary after-tax contribution with an excess elective deferral. The two are governed by different retirement-plan correction rules.

Solo 401k

STOP Procrastinating: How to Secure Your 2025 Mega Backdoor Roth Before It’s Too Late

August 22, 2026 | By Mark Nolan

STOP Procrastinating: How to Secure Your 2025 Mega Backdoor Roth Before It’s Too Late

Watch: How self-employed business owners can still open a Solo 401k in 2026 and complete a Mega Backdoor Roth conversion for tax year 2025.

If you had self-employment income in tax year 2025 and you’ve been thinking about completing a Mega Backdoor Roth, now is the time to act. It’s August 2026, but the good news is that, for many business owners, the window to open a Solo 401k and fund the 2025 Mega Backdoor Roth is still open — the deadline is just approaching fast.Thanks to retirement plan legislation, self-employed individuals now have more time to open a Solo 401k in the current year and still have it apply to the prior tax year. That means you can open a Solo 401k for the very first time in 2026 and still perform a Mega Backdoor Roth strategy funded with tax year 2025 voluntary after-tax contributions. If you already opened your Solo 401k plan on or before December 31, 2025, you don’t need to open a new plan — you can proceed straight to the contribution and conversion steps below.

Who Qualifies for a Solo 401k?

To qualify for a Solo 401k, you must be self-employed, and you cannot employ any non-owner, full-time W-2 employees who work 1,000 hours or more per year (contractors don’t count). If both spouses are self-employed in the same business and participate in the same Solo 401k plan, both spouses can independently perform the Mega Backdoor Roth — effectively doubling the household strategy.

Info Highlight: SECURE Act 2.0 changed the rules for when a Solo 401k can be opened. Self-employed individuals can now open a brand-new Solo 401k in the current year and still make prior-year contributions, as long as the plan is opened by the business’s tax filing deadline (including timely-filed extensions).

How the Mega Backdoor Roth Works

The Mega Backdoor Roth strategy requires a Solo 401k plan document that specifically allows for two features: voluntary after-tax contributions and in-plan Roth conversions. Not every Solo 401k offers both. My Solo 401k Financial was the first provider in the industry to offer the Mega Backdoor Roth Solo 401k, and has processed thousands of these conversions, handling the required reporting as part of the standard annual fee.

Step 1: Open (or Restate) the Right Plan

If you already have a basic Solo 401k at a brokerage firm such as Fidelity, Schwab, T. Rowe Price, or E-Trade, don’t assume it allows for a Mega Backdoor Roth — most basic plans do not. You can restate your existing plan to a My Solo 401k Financial plan that supports both voluntary after-tax contributions and in-plan Roth conversions.

Step 2: Open the Necessary Brokerage Accounts

A Solo 401k that allows for pre-tax, Roth, and voluntary after-tax contributions requires separate holding (brokerage) accounts for each source. At minimum, to perform the Mega Backdoor Roth you need a voluntary after-tax account and a Roth account open at the same time.

Step 3: Make the Voluntary After-Tax Contribution

Contribute to the voluntary after-tax holding account, up to your allowable limit based on your 2025 self-employment income (see the calculation tables below).

Step 4: Convert to Roth

Convert the voluntary after-tax funds to either the Roth Solo 401k or a Roth IRA — the choice is yours. Most clients convert to the Roth Solo 401k to consolidate retirement funds under one plan and because Roth Solo 401k accounts, like Roth IRAs, are no longer subject to required minimum distributions.

Step 5: Reporting

The conversion — not the original contribution — is what gets reported to the IRS. My Solo 401k Financial issues Form 1099-R (filed with the Department of the Treasury, with a copy provided to you) once you complete the online conversion form on our website. You’ll report the conversion on your Form 1040 for the year the conversion takes place.

Example — Single Participant: Joe is self-employed through an S corporation and uses My Solo 401k Financial for his plan. He opens three separate brokerage accounts at Fidelity (pre-tax, Roth, and voluntary after-tax) as non-prototype, investment-only accounts. Joe contributes $70,000 to the voluntary after-tax account for tax year 2025, then converts the full amount to his Roth Solo 401k.

Example — Married Couple, Same Business: Joe and Sally are both self-employed in the same S corporation. Even though it’s one plan, each spouse is a separate participant with their own three accounts (six total: pre-tax, Roth, and voluntary after-tax for each). Each receives $70,000 in W-2 wages, each contributes $70,000 to their voluntary after-tax account, and each converts it to their Roth Solo 401k — for a combined household Mega Backdoor Roth of $140,000.

2025 Solo 401k Contribution Limits

Item	2025	2026
Overall Solo 401k limit (415(c))	$70,000	$72,000
Max voluntary after-tax contribution	Up to $70,000 (aggregate with employee/employer contributions)	Up to $72,000 (aggregate with employee/employer contributions)
Catch-up / super catch-up eligible for voluntary after-tax?	No — catch-up contributions can only be made as pre-tax or Roth employee contributions, never as voluntary after-tax

You can perform the Mega Backdoor Roth for both 2025 and 2026 — opening a plan in 2026 does not use up your ability to also convert a 2026 contribution. Your household can pursue both years’ strategies.

2025 Deadlines by Business Entity Type

Business Entity Type	Deadline to Open Plan & Make 2025 Voluntary After-Tax Contribution
S corporation / LLC taxed as an S corporation	September 15, 2026
Partnership / LLC taxed as a partnership	September 15, 2026
C corporation or sole proprietorship	October 15, 2026

Important: The Roth conversion itself does not have to happen by these deadlines — only the plan opening and the voluntary after-tax contribution do. Conversions can be processed after the deadline, but it’s best to convert as soon as possible (ideally by December 31, 2026) because any earnings that accrue in the voluntary after-tax account before conversion are taxable, and the entire balance (basis plus earnings) must be converted — you cannot convert only the basis.

Calculating Your Voluntary After-Tax Contribution Limit

How much you can contribute depends entirely on your business structure and your 2025 self-employment income — not 2026 income.

Entity Type	Starting Figure	Calculation
Sole proprietorship / LLC taxed as sole prop	Schedule C, Line 31 (net profit)	Subtract one-half of self-employment tax, then compare to the $70,000 overall limit
S corporation / LLC taxed as S corp	W-2, Box 1 wages	Dollar-for-dollar — no self-employment tax adjustment needed
Partnership / LLC taxed as partnership	Schedule K-1, Line 14, Code A	Subtract one-half of self-employment tax, then compare to the $70,000 overall limit

My Solo 401k Financial offers an online Solo 401k contribution calculator that runs this math for you once you enter your figures.

Info Highlight: Already have a full-time job with a 401k? Voluntary after-tax Solo 401k contributions are not affected by contributions made to an employer’s plan. If you maxed out a $70,000 employer 401k at your day job and also have qualifying self-employment income on the side, you could potentially contribute another $70,000 to your Solo 401k voluntary after-tax account — for up to $140,000 in combined 2025 retirement contributions.

Common Mega Backdoor Roth Mistakes to Avoid

Assuming Your Current Plan Allows It

Don’t assume a Solo 401k from another provider (T. Rowe Price, E-Trade, or otherwise) supports the Mega Backdoor Roth. Many basic plans don’t include the voluntary after-tax and in-plan conversion features required.

Confusing Voluntary After-Tax With Roth Contributions

These are not the same. Roth contributions (employee or employer) are calculated as a percentage of compensation, which takes more earned income to maximize. Voluntary after-tax contributions used in a Mega Backdoor Roth are a dollar-for-dollar calculation, making it easier to reach the overall limit with less self-employment income.

Forgetting the Contributions Are Aggregated

Employee, employer, and voluntary after-tax contributions all count against the same $70,000 overall 2025 limit. If you’ve already made employee and employer contributions, that reduces how much room remains for voluntary after-tax contributions.

Frequently Asked Questions

Can my spouse also do the Mega Backdoor Roth?

Yes, as long as your spouse is genuinely performing material services for the business and is compensated accordingly. Both spouses can each contribute up to the overall limit and each perform their own conversion.

I own multiple businesses — can I open a Solo 401k for one of them?

It depends on the control group and affiliated service group regulations. These rules examine ownership overlap between businesses and whether the businesses provide services to one another. A qualified Solo 401k provider can help you evaluate whether your specific ownership structure passes these tests.

Can I convert an asset, like real estate, instead of cash?

Yes. An in-kind Roth Solo 401k conversion lets you convert an asset such as real estate or stock directly, at its current fair market value, from the pre-tax Solo 401k to the Roth Solo 401k. This can be advantageous when an asset’s value has temporarily declined, since you pay tax on the lower value and any future appreciation grows tax-free in the Roth account. A separate Roth Solo 401k holding account is required to receive the converted asset.

Can I combine a Solo 401k with a cash balance (defined benefit) plan?

Yes. Many self-employed professionals, particularly doctors, max out their Solo 401k and also open a cash balance plan to further increase employer contributions and supercharge retirement savings.

Ready to Secure Your 2025 Mega Backdoor Roth?The deadline is approaching fast — don’t let this opportunity for tax-free retirement growth pass you by. My Solo 401k Financial can help you open or restate your Solo 401k plan and walk you through every step of the Mega Backdoor Roth to Roth IRA or Roth Solo 401k conversion.

Next Steps:

Get Started Today or watch more of our daily webinars on our YouTube channel for more Solo 401k and self-directed retirement strategies.

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Can a Non-Working Spouse contribute to a 401k?

August 11, 2026 | By Mark Nolan

Can a Non-Working Spouse Contribute to a 401k?

Watch: Why a non-working spouse can’t piggyback on a Solo 401k — and what to do instead.

A married couple may share household income, expenses, and financial goals, but that doesn’t mean both spouses are automatically self-employed in the same business or eligible to contribute to the same Solo 401k. The IRS generally treats each spouse separately when it comes to 401k contributions — a rule that surprises many couples who assume 401k plans work the same way as a Roth IRA or traditional IRA.

Can a Non-Working Spouse Piggyback Off a 401k?

No. A spouse who does not work in the business and does not receive compensation cannot make contributions to a Solo 401k based on the other spouse’s earned income. This is one of the most common points of confusion, because it works differently for IRAs.

Account Type	Can a Non-Working Spouse Contribute Using the Other Spouse’s Income?
Traditional or Roth IRA (spousal IRA)	Yes — based on joint taxable compensation
Solo 401k	No — the spouse must have their own qualifying compensation
Full-time employer 401k	No — same rule applies; compensation must be the individual’s own

Important: The IRS confirms that although a person may contribute to a spousal IRA based on joint taxable compensation, that same rule does not extend to any 401k plan — whether pre-tax, Roth Solo 401k, or the Mega Backdoor Roth voluntary after-tax strategy.

A non-working spouse can instead contribute to a traditional or Roth IRA using the working spouse’s compensation — commonly called a spousal IRA. But that same “piggyback” approach simply does not exist for 401k contributions of any kind.

Why Compensation Is Required for 401k Contributions

A 401k — including a Solo 401k — is an employer-sponsored retirement plan, not an IRA. To participate, an individual must be an eligible employee of the business sponsoring the plan, and contributions are based on each employee’s own separate compensation.

What Doesn’t Qualify a Spouse to Contribute

Common Misconception	Why It Doesn’t Work
Filing a joint tax return	Doesn’t create 401k eligibility — compensation must be the spouse’s own
The other spouse earns substantial income	401k contributions cannot be based on a spouse’s income
Sharing a bank account	Shared finances do not establish plan eligibility
Helping occasionally without compensation	Uncompensated help does not count as qualifying earned income
Working spouse hasn’t maxed out their own limit	Unused contribution room cannot be transferred to a spouse

When Can Both Spouses Contribute to the Same Solo 401k?

A spouse who performs legitimate self-employment activity for a family business can participate in the Solo 401k sponsored by that business. The business’s entity type — S-corporation, sole proprietorship, or partnership — is not what determines eligibility. What matters is the underlying self-employment activity: the spouse must be performing material services and earning compensation subject to employment or self-employment tax.

Info Highlight: Investment income and capital gains income never qualify a spouse for Solo 401k contributions. Eligibility must be based on earned income from actual work performed in the business.

How Much Can Each Spouse Contribute?

When both spouses genuinely work in the same self-employed business, each contributes based on their own separate compensation, up to the overall 2026 limit.

Limit (Per Spouse)	2026 Amount
Overall limit (415(c))	$72,000
Normal catch-up (age 50+)	$8,000
Super catch-up (ages 60–63)	$11,250 (in place of the normal catch-up)

Example: A married couple both work in the same S-corporation, which sponsors their Solo 401k. Each spouse receives their own separate W-2, and each can contribute up to $72,000 for 2026 based on their respective wages — for a combined household total of $144,000. Each spouse can also make their own catch-up or super catch-up contribution if they qualify by age.

Separate Holding Accounts for Each Spouse

When both spouses participate in the same Solo 401k, it’s still considered one plan — not two. However, each spouse must have their own separate holding accounts: a pre-tax account, a Roth account, and a voluntary after-tax account, for a total of six holding accounts (participant accounts) between both spouses. Funds cannot be co-mingled — each source must be separately tracked.

Mixing Contribution Types

Each spouse can independently choose how to allocate their contributions — some as employee pre-tax, some as employer profit sharing (pre-tax or Roth), and some as voluntary after-tax contributions toward the Mega Backdoor Roth strategy. All contribution types are subject to that same $72,000 aggregate limit, per spouse, per year.

Important: If one spouse contributes the entire $72,000 solely as a voluntary after-tax contribution, no other contribution types can be made for that spouse that year — the overall limit still applies.

You’re Not Required to Contribute Every Year — or Equally

Spouses are not required to contribute the same amount each year, and one spouse can contribute significantly more than the other, or not contribute at all in a given year. Whether or not one spouse contributes has no bearing on the other spouse’s ability to contribute.

Each spouse working under the same business can also transfer IRAs and former employer plan funds into the Solo 401k, with those transfers deposited into their own respective holding accounts based on the source type — for example, a traditional IRA transfer or a former employer’s Roth or pre-tax 401k rollover.

Ready to Set Up a Solo 401k for You and Your Spouse?
Whether one spouse works in the business or both do, our team can help you structure the right Solo 401k plan, open the correct holding accounts, and understand exactly how much each of you can contribute.Next Steps:
Get Started Today — or watch more videos and read more posts from My Solo 401k Financial to learn how to grow your retirement account tax-efficiently.

Solo 401k

How Much of My 1099 Income Can I Put Into a Solo 401k?

August 11, 2026 | By Mark Nolan

How MUCH of 1099 Income Can I Put in SOLO 401k?

Watch: How much of your 1099 income you can really contribute to a Solo 401k — and how the Mega Backdoor Roth fits in.

If you receive income reported on Form 1099-NEC, a Solo 401k can be one of the most powerful ways to save for retirement and reduce your current-year taxable income. But how much of that 1099 income can actually go into the plan isn’t a simple fixed percentage — it depends on your net self-employment income, how your business is taxed, whether you also contribute to another employer plan, your age, and which contribution types your Solo 401k plan allows.

What Counts as 1099 Income for Solo 401k Purposes?

Your gross Form 1099-NEC amount is only the starting point — it is not the figure used to calculate your Solo 401k contribution. As a sole proprietor, that income flows onto Schedule C, where business expenses are deducted first.

Step	What Happens
1. Start with gross 1099-NEC income	This is reported income from clients — not your final contribution base.
2. Report on Schedule C	Deduct business expenses to arrive at net self-employment income.
3. Identify Line 31	This is your net profit figure — the starting point for all Solo 401k contribution calculations.
4. Subtract ½ of self-employment tax	The resulting figure is what’s actually used to calculate employee, employer, and voluntary after-tax contributions.

Warning: A common misconception is calculating Solo 401k contributions directly off the gross 1099-NEC amount. My Solo 401k Financial stresses that you must first move that income to Schedule C, subtract expenses and one-half of self-employment tax, and use that final figure — not the gross 1099 number.

Info Highlight: The Solo 401k contribution calculator from My Solo 401k Financial performs this calculation for you — just plug in Line 31 of your Schedule C, and it will subtract one-half of self-employment tax automatically.

Employee, Employer, and Voluntary After-Tax Contributions

A Solo 401k plan offered by My Solo 401k Financial is drafted for maximum flexibility, allowing employee salary deferrals, employer profit sharing contributions, and voluntary after-tax contributions — whether pre-tax or Roth.

Contribution Type	2026 Limit / Calculation
Employee salary deferral	Up to $24,500 (dollar-for-dollar)
Employer profit sharing (sole proprietorship)	20% of net self-employment income (after Line 31 minus ½ SE tax)
Voluntary after-tax	Remaining room up to the $72,000 overall limit

Example: You can also choose to skip employee and employer contributions entirely and make the full $72,000 overall limit as a single voluntary after-tax contribution, then convert it to the Roth Solo 401k using the Mega Backdoor Roth strategy — as long as your net self-employment income supports it.

What If I Also Have a Daytime Job 401k?

Many 1099 contractors also hold a full-time job with its own employer 401k. Whether your Solo 401k contributions are limited by that daytime plan depends on the contribution type.

Contribution Type	Aggregated With Day-Job 401k?
Employee salary deferral	Yes — shared $24,500 limit across both plans
Employer profit sharing	No — calculated separately from net self-employment income
Voluntary after-tax (Mega Backdoor Roth)	No — calculated separately from net self-employment income

Example: You max out your $72,000 daytime employer 401k. As long as your 1099 side business has enough net self-employment income, you can still make a full $72,000 voluntary after-tax contribution to your Solo 401k and convert it to the Roth Solo 401k or Roth IRA — supercharging your total retirement savings across both plans.

2026 Catch-Up Contribution Rules

Age Range	2026 Catch-Up Amount
50–59, and 64+	$8,000 (normal catch-up)
60–63 (SECURE 2.0 super catch-up)	$11,250 (in place of the normal catch-up)

Important: Catch-up and super catch-up contributions can never be made as voluntary after-tax contributions. For a sole proprietorship, they can be made as either pre-tax or Roth Solo 401k contributions. Starting in 2026, a mandatory Roth catch-up rule under SECURE 2.0 requires higher-earning S-corp and C-corp owners to make catch-up contributions as Roth — but this rule does not apply to 1099-NEC contractors, sole proprietorships, or partnerships.

Is Your LLC Actually a Self-Employed Business?

Example: A couple asked whether their Solo 401k’s profit-and-loss allocation in a family-owned LLC holding rental real estate needs to match their capital contribution percentage. The more fundamental question comes first: is the LLC actually a self-employed business, or just a passive investment entity? Simply forming an LLC doesn’t make you self-employed — what matters is whether you’re performing material services (doing the actual work) and reporting it as earned income, rather than investment, passive, or distribution income.

Info Highlight: Solo 401k eligibility and contributions are based on true self-employment activity — earned income from work performed — not on rental income, capital gains, or other passive or investment income.

Common Mistakes to Avoid

Mistake	Why It’s Wrong
Using gross 1099-NEC income to calculate contributions	You must use net self-employment income from Schedule C, Line 31, minus ½ self-employment tax.
Contributing without earned income	No earned income from self-employment activity means no contributions of any type — employee, employer, or voluntary after-tax.
Assuming employer profit sharing contributions don’t need earned income	Even though these are deducted on the business return, they still require sufficient earned income to justify them.
Assuming every Solo 401k plan allows the Mega Backdoor Roth	Not all providers allow voluntary after-tax contributions — confirm your plan supports it before relying on the strategy.

The Mega Backdoor Roth Solo 401k in Action

My Solo 401k Financial was the first provider in the industry to offer the Mega Backdoor Roth strategy for Solo 401k plans, going back to 2013. For a one-participant plan — say, a 1099-NEC contractor operating as a sole proprietorship — the plan is sponsored by the self-employed business itself, with three separate holding accounts (often at Fidelity or Schwab) for pre-tax, Roth, and voluntary after-tax funds. It’s one plan, not three.

Steps to Complete the Mega Backdoor Roth

Example: Contribute to the voluntary after-tax holding account, then convert those funds to the Roth Solo 401k (or Roth IRA) holding account. My Solo 401k Financial reports the conversion to the IRS via Form 1099-R once the online conversion form is timely submitted through the Forms tab. For a two-participant plan — such as spouses both self-employed in the same S-corp — each spouse maintains separate holding accounts and can independently perform the Mega Backdoor Roth strategy, each receiving their own Form 1099-R.

Ready to Maximize Your 1099 Income in a Solo 401k?
Whether you want to calculate your exact contribution limit, run the Mega Backdoor Roth strategy, or figure out if your side business truly qualifies, our team can help you set up the right Solo 401k structure.

Next Steps:
Get Started Today — or watch more videos and read more posts from My Solo 401k Financial to learn how to grow your retirement account tax-efficiently.

Solo 401k

Can an Employer Contribute MORE than an Employee to a SOLO 401k?

August 10, 2026 | By Mark Nolan

Can an Employer Contribute MORE than an Employee to a SOLO 401k?

Watch: How employer profit sharing contributions to a Solo 401k can exceed employee contributions — and how the Mega Backdoor Roth fits in.

Yes — an employer (profit sharing) contribution can absolutely be greater than an employee contribution in a Solo 401k plan. The two contribution types are governed by separate rules, and there is no IRS requirement that they be equal, or that you make both at all. Whether you’re self-employed as an S-corp, sole proprietorship, partnership, or 1099 contractor, understanding how these two “buckets” work is the key to maximizing what you can put into your Solo 401k — and to using strategies like the Mega Backdoor Roth to their fullest.

What Is a Solo 401k, and Who’s Eligible?

A Solo 401k — also called a Solo K, an Individual 401k, or a Self-Directed Solo 401k depending on the provider — is an owner-only 401k plan. To qualify, your business cannot employ any full-time, non-owner, common-law W-2 employees age 21 or older who work 1,000 hours or more per year. A spouse who works in the business can participate in the same plan without needing to be an owner.

Info Highlight: A Solo 401k can be sponsored by an S-corp, C-corp, partnership, sole proprietorship, or a Schedule F farm business. 1099 independent contractors who receive Form 1099-NEC also qualify.

Example: A business owner asks: “My spouse and I are both on payroll and contributing to our Solo 401k. If I add my kids to payroll, does the plan still work?” It can — as long as the kids are under age 21. Anyone under 21 can be excluded from the plan even if they’re W-2 employees working 1,000+ hours. Once a child turns 21, they’d need to be a 3%-or-more owner in the business to keep the plan intact; otherwise the plan would need to be closed.

Employee vs. Employer Contributions: Two Separate Buckets

With an owner-only Solo 401k, you wear two hats: employer and employee. Unlike a SEP IRA, which only allows employer profit sharing contributions, a Solo 401k allows both an employee contribution and an employer profit sharing contribution — and the employee amount does not have to equal the employer amount. You can make only an employer contribution, only an employee contribution, only a voluntary after-tax contribution, or any combination of the three, as long as you stay within the overall limit.

2026 Solo 401k Contribution Limits

Contribution Category	2026 Limit
Overall limit (under age 50)	$72,000
Normal catch-up (ages 50–59, and 64+)	+$8,000 (total $80,000)
Super catch-up (ages 60–63)	+$11,250 (total $83,250)
Maximum employee contribution	$24,500

Important: You can only use the normal catch-up or the super catch-up amount — not both. And every contribution type (employee, employer, catch-up, or voluntary after-tax) requires enough earned income from self-employment activity to justify it. No earned income means no contributions.

Because contribution limits apply per participant, spouses who are both self-employed in the same business — each with their own W-2 wages, for example under an LLC taxed as an S-corp — can each separately contribute up to the overall limit based on their own respective earned income. Spouses cannot combine or “piggyback” off each other’s self-employment income.

How Much Can the Employer Contribute? (By Entity Type)

Unlike the employee contribution, which is a dollar-for-dollar calculation, the employer profit sharing contribution is always a percentage calculation, and the percentage depends on how your self-employed business is taxed.

Entity Type	Employer Contribution Formula
S-corp / LLC taxed as S-corp	25% of gross W-2 wages (Box 1, plus applicable Box 12a amounts)
Sole proprietorship	20% of (Schedule C, Line 31 minus ½ of self-employment tax)
Partnership	20% of (Schedule K-1, Line 14 Code A minus ½ of self-employment tax)

Example: Say your LLC is taxed as an S-corp and you have $100,000 in gross W-2 wages. Your maximum employer profit sharing contribution is 25% of $100,000 = $25,000. You can then also make the maximum employee contribution of $24,500. That’s $49,500 toward the $72,000 overall 2026 limit — leaving $22,500 in room. That remaining $22,500 can be made as a voluntary after-tax Solo 401k contribution and converted to a Roth Solo 401k or Roth IRA using the Mega Backdoor Roth strategy.

Important: The employer profit sharing contribution can never equal 100% of compensation — it’s always a percentage calculation, capped at 25% (S-corp) or 20% (sole proprietorship/partnership), and it requires sufficient reported earned income to support it.

The Mega Backdoor Roth Solo 401k Strategy

My Solo 401k Financial was the first provider in the industry to offer the Mega Backdoor Roth strategy for Solo 401k plans, allowing voluntary after-tax contributions as part of the plan design. Because voluntary after-tax contributions are a dollar-for-dollar calculation rather than a percentage calculation, it generally takes less self-employment earned income to reach the $72,000 overall limit through the Mega Backdoor Roth than through employer contributions alone. You can even skip employee and employer contributions entirely and make the full $72,000 solely as a voluntary after-tax contribution, then convert it to a Roth Solo 401k or Roth IRA — as long as you don’t exceed the overall limit.

2026 Roth Catch-Up Rule for Higher Earners

Starting in 2026, under SECURE 2.0, if your business is taxed as an S-corp, C-corp, or LLC taxed as an S-corp and your prior-year (2025) Social Security wages exceeded $150,000, any catch-up or super catch-up contribution must be made as a Roth Solo 401k contribution rather than pre-tax. Catch-up and super catch-up amounts are made on the employee side and are not part of the voluntary after-tax Mega Backdoor Roth calculation.

Can the Employer Contribution Be Made as Roth?

Yes — under SECURE 2.0, employer profit sharing contributions can be made directly as Roth Solo 401k contributions. However, doing so means treating the contribution as a taxable in-plan conversion on your personal tax return, even though the business still gets the deduction. This may make sense for an LLC taxed as an S-corp looking to save on payroll tax, but that’s typically the only advantage.

Info Highlight: If your real goal is maximizing Roth savings, the Mega Backdoor Roth voluntary after-tax strategy is generally more efficient than an employer Roth contribution, since it’s a dollar-for-dollar calculation rather than a percentage of compensation.

Contributing to a Day-Job 401k and a Solo 401k

Many My Solo 401k Financial clients contribute to a full-time employer’s 401k while also running a self-employed business on the side. Whether contributions must be combined (“aggregated”) across both plans depends on the contribution type.

Contribution Type	Subject to Aggregation Across Plans?
Employee (elective deferral) contribution	Yes — combined limit across all 401k plans
Employer profit sharing contribution	No — calculated separately based on self-employment earned income
Voluntary after-tax (Mega Backdoor Roth) contribution	No — calculated separately based on self-employment earned income

Example: You max out your day-job 401k with a large employer, then also run a self-employed business on the side with $100,000 in W-2 wages under an LLC taxed as an S-corp. You can still contribute 25% of that $100,000 ($25,000) as an employer profit sharing contribution to your Solo 401k — and, separately, you may still be able to make a full $72,000 voluntary after-tax contribution to your Solo 401k and convert it via the Mega Backdoor Roth, even though your day-job 401k is already maxed out.

The $1,500 Auto-Contribution Tax Credit

Under the SECURE Act, eligible small businesses that adopt a retirement plan with an auto-contribution feature can claim a $500 per year tax credit for three consecutive years — a total of $1,500 — filed using Form 8881 with the business tax return. My Solo 401k Financial was the first provider in the solo 401k industry to build this auto-contribution credit into its plan, and regularly helps clients restate existing Solo 401k plans from other institutions to take advantage of it.

Common Mistakes to Avoid

Mistake	Why It’s Wrong
Counting S-corp distributions as earned income	Only W-2 wages/compensation count — distributions don’t qualify for Solo 401k contribution calculations.
Calling the employer contribution a “match”	Matching only applies to traditional full-time employer 401k plans. A Solo 401k employer contribution is a profit sharing contribution — there’s no matching involved.
Assuming all contribution types are aggregated with a day job	Only employee elective deferrals are aggregated. Employer and voluntary after-tax contributions are calculated separately.
Mixing contribution sources in one account	Pre-tax, Roth, and voluntary after-tax funds must be tracked in separate holding accounts under the plan.

One Plan, Separate Holding Accounts

A Solo 401k is a defined contribution plan, meaning each participant has separate holding accounts — pre-tax, Roth, and voluntary after-tax — rather than one pooled account. For a one-participant plan, that means three holding accounts under a single plan sponsored by the business. If a spouse also participates, it’s still one plan, but each spouse maintains their own set of three holding accounts to separately track their respective source of funds.

Why This Matters

Because contribution limits and calculations are based on each participant’s own earned income, keeping funds properly separated by source and by participant is essential for staying compliant and accurately tracking what’s been contributed under each rule.

Ready to Maximize Your Solo 401k Contributions?
Whether you want to maximize employer profit sharing contributions, employee contributions, or the Mega Backdoor Roth strategy, our team can help you structure the right Solo 401k plan for your business.Next Steps:
Get Started Today — or watch more videos and read more posts from My Solo 401k Financial to learn how to grow your retirement account tax-efficiently.

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Solo 401(k) Plan Document Is Not a Commodity: Unlock the Mega Backdoor Roth and Keep Your Brokerage

Solo 401(k) Plan Document Is Not a Commodity: Unlock the Mega Backdoor Roth and Keep Your Brokerage

Can I keep my Fidelity or Schwab account and still get the Mega Backdoor Roth with a Solo 401(k)?

Key Takeaways

What Does the Solo 401(k) Plan Document Actually Control?

Feature Comparison: Discount Brokerage Plan vs. Advanced Plan Document

How the Full Roth Toolkit Works in a Solo 401(k) Plan

Mega Backdoor Roth: The Two-Step Process

2026 Catch-Up Contributions and the $150,000 Roth Threshold

Solo 401(k) Participant Loans: How the $50,000 Loan Feature Works

Investment Freedom: What a Truly Advanced Solo 401(k) Plan Document Unlocks

Keep Your Brokerage and Your Advisor: How the Model Works

Advanced Compliance Support: Form 5500-EZ, Form 1099-R, and the $1,500 Tax Credit

Form 5500-EZ: The $250-Per-Day Penalty Most Solopreneurs Don’t Know About

Form 1099-R for Roth Conversions

The $1,500 Solo 401(k) Tax Credit

Attendee Questions from the Webinar

Mike’s Question: Do I Need to Do Anything at Fidelity Besides Renaming the Accounts?

Manisha’s Question: C-Corp W-2 Wages, Mega Backdoor Roth Timing, and SEP IRA RMDs

Key Terms Defined

Frequently Asked Questions

Can I get the Mega Backdoor Roth if my Solo 401(k) is at Fidelity?

What is the 2026 Solo 401(k) Mega Backdoor Roth contribution limit?

Can I take a loan from my Solo 401(k) at Fidelity or Schwab?

Ready to Unlock the Full Solo 401(k) Feature Set?

Self-Directed IRA Prohibited Transactions (IRC 4975)

Self-Directed IRA Prohibited Transactions: Why $100K in Wine Means a 1099-R

Key Takeaways

What Investments and Transactions Are Prohibited in a Self-Directed IRA?

Two Investments an IRA Can Never Own

Collectibles: Art, Wine, Coins, and Gems

Are Gold and Precious Metals Prohibited in a Self-Directed IRA?

Can a Self-Directed IRA Own Real Estate?

Can a Self-Directed IRA Invest in Private Equity?

Who Is a Disqualified Person Under IRC Section 4975?

What Common Actions Trigger a Self-Directed IRA Prohibited Transaction?

Can You Borrow Money From a Self-Directed IRA?

What Happens If You Trigger a Self-Directed IRA Prohibited Transaction?

Frequently Asked Questions

What investments are prohibited in a self-directed IRA?

Are gold and precious metals prohibited in a self-directed IRA?

Does the collectibles rule apply the same way as a prohibited transaction?

Can a self-directed IRA own physical real estate?

Who counts as a disqualified person for a self-directed IRA?

Can I borrow money from my self-directed IRA?

Can a self-directed IRA invest in a private company?

What happens if I engage in a self-directed IRA prohibited transaction?

Glossary of Self-Directed IRA Terms

Solo 401(k) Participant Loan: How to Borrow Up to $50,000 From a Rolled-Over Former Employer Plan

Solo 401(k) Participant Loan: How to Borrow Up to $50,000 From a Rolled-Over Former Employer Plan

Can I borrow from my old 401(k) after rolling it over to a Solo 401(k)?

Key Takeaways

Why Former Employer 401(k) Plans Block Participant Loans

Why Rolling to an IRA Doesn’t Solve the Loan Problem

The Fix: Roll Over to a Solo 401(k) That Allows Participant Loans

Discount Brokerage Solo 401(k) Plans Don’t Allow Loans

Who Qualifies for a Solo 401(k)?

Requirement 1: Self-Employment Income

Requirement 2: No Non-Owner, Non-Spouse Full-Time W-2 Employees

Solo 401(k) vs. Former Employer Plan vs. Traditional IRA: Side-by-Side

How the Direct Rollover Works: Step by Step

Tax Reporting of the Rollover

Timeline: How Long Before the Loan Is Available?

Solo 401(k) Participant Loan Terms: What to Expect

Additional Features Unlocked by the Solo 401(k) Rollover

Mega Backdoor Roth Solo 401(k) Contributions

SECURE Act Tax Credits: $500/Year for Three Years

Alternative Investments and Checkbook Control

Investing in Real Estate Through a Solo 401(k) — An Attendee Question

Form 5500-EZ and 1099-R Support

Definitions

Frequently Asked Questions

Can I borrow from my old 401(k) if I no longer work at that company?

Why can’t I just roll my old 401(k) into an IRA and take a loan?

How much can I borrow from a Solo 401(k)?

Do I need a credit check or income verification to take a Solo 401(k) loan?

Can I qualify for a Solo 401(k) if I still have a W-2 day job?

How long does it take to access loan funds after rolling over my old 401(k)?

Can I use a Solo 401(k) loan and also make Mega Backdoor Roth contributions at the same time?