A solo 401k plan falls under the defined contribution plan umbrella not the defined benefit plan umbrella. As a result, each solo 401k participant’s funds must be separately accounted for. Solo 401k contribution types (i.e., pretax, roth and voluntary after-tax) require separate tracking as well.
The need for separately tracking the participants’ funds and sources under the plan is satisfied through the use of multiple bank or brokerage accounts.
One Participant in the Solo 401k Plan
For example, if the solo 401k plan only has one participant, 1 (one) to 3 (three) separate bank or brokerage accounts may be needed depending on whether or not the participant chooses to make all three contribution types (pretax, roth and voluntary after-tax) or chooses to convert pretax or voluntary after-tax funds to the Roth solo 401k bucket.
For example, if Sarah is the sole participant in her solo 401k plan (the ABC Trust) and she chooses to make all three contribution types, she will need three separate bank or brokerage accounts and they would be titled as follows:
- XYZ Trust (Pretax), Sarah Byrd, Trustee
- XYZ Trust (ROTH), Sarah Byrd, Trustee
- XYZ Trust (After-Tax), Sarah Byrd, Trustee
Two Participants in the Solo 401k Plan
If the solo 401k has 2 (two) participants, a total of 6 (six) participant bank or brokerage accounts may be needed if both participants choose to make all three contribution types (pretax, roth and voluntary after-tax).
For example, if Sarah and her spouse Jack both participate in the solo 41k plan and both choose to make all three contribution types, a total of 6 (six) separate bank or brokerage accounts will need to be opened up and titled as follows:
3 Accounts for Jane
- XYZ Trust (Pretax), Jane Do, Trustee
- XYZ Trust (Roth), Jane Do, Trustee
- XYZ Trust (After-Tax), Jane Do, Trustee
3 Accounts for John
- XYZ Trust (Pretax), John Do, Trustee
- XYZ Trust (Roth), John Do, Trustee
- XYZ Trust (After-Tax), John Do, Trustee
The Same Solo 401k Employer Identification Number (EIN)
Contribute from Personal vs Business Bank Account QUESTION:
It is also acceptable to make contributions from business account.
What is important is you each have the self employment earned income to justify the contributions being made.