Solo 401k

The solo 401k setup process


Over the last four decades, 401k plans including solo 401k plans for the self-employed have evolved into on of the most popular employee benefits. A Solo 401k plan may be a stand-alone plan or can contain a profit sharing feature. Another way to refer to a solo 401k plan that also allows for profit sharing contributions is a cash or deferred arrangement (CODA).

A solo 401k plan offered by My Solo 401k Financial allows for both employee and employer profit sharing contributions so it falls under the CODA umbrella.

Solo 401k is for owner-only businesses or those with part-time employees only.

Business types such as sole proprietorships, closely held family businesses, partnerships and corporations can take advantage of what the Solo 401k has to offer–maximized savings at a low cost and the flexibility to invest in traditional and alternative investments tax free or by deferring taxes.

Why a Solo 401k?

There are a number of features of the Solo 401k that make it the qualified retirement plan of choice to owner-only businesses.

Alternative Assets & Equity Investments

In addition to investing in stocks and mutual funds, our Solo 401k allows you to invest in many types of investments such as real estate, private equity, hedge funds, gold, private loans, and much more–all by writing a check. For a list of investment options click here.

Access to Participant Loans

Solo 401k permits you to take a loan or borrow from your retirement funds. This comes in handy if you have a growing company. Loans can be processed from the Solo 401k at 50% of the account balance but cannot exceed $50,000. To find out more about the loan option visit: Solo 401k Loan​ and Solo 401k Loan Facts.

For example, Gary has an account balance of $200,000. Fifty percent of his account is $100,000; however, the maximum loan that can be taken from a plan is $50,000.

Also, after the loan option has been exhausted, you may qualify to take a hardship withdrawal from the plan, provided certain criteria dedicated by the IRS are met. Please contact us at 800-489-7571 or e-mail us at to find out more about this option.

Roth-Solo 401k

Our Solo 401k permits Roth contributions-taxes are paid going in but not going out. Also, Roth 401k contributions can be made regardless of income level, thereby affording taxpayers who would not otherwise be eligible to take advantage of the Roth component. For 2019, you can also contribute up to $56,000 to your Solo 401k, of which $19,000 can be allocated as Roth contributions. For 2020, you can also contribute up to $57,000 to your Solo 401k, of which $19,500 can be allocated as Roth contributions.

CLICK HERE to learn more on how to maximize Roth sol0 401k contributions by making voluntary after-tax solo 401k contributions.

Voluntary After Tax  Contributions-Solo 401k

A solo 401k from My Solo 401k Financial also allows for voluntary after-tax contributions which can then allow you take advantage of the “mega back  door roth” transaction.

Following are some of the rules regarding this type of contribution:

  • Voluntary after-tax solo 401k contributions fall under the employee (salary deferral) contribution umbrella.
  • This type of contribution is not considered employer (profit sharing) contributions, so the contribution is not tax deductible because it is considered made with post-tax dollars.
  • When voluntary after-tax solo 401k contributions are converted to a Roth IRA or the Roth Solo 401k, the conversion has to be documented in writing by completing a conversion Form ( the IRS will expect to see a copy of this form upon request), and a Form 1099-R has to be issued to report the conversion whether taxable or not.  This reporting is covered by our annual service and fee.
  • Voluntary after-tax solo 401k contributions can be distributed and thus converted at any time. This is why the conversion of voluntary after-tax solo 401k contributions has been dubbed the “mega-backdoor Roth solo 401k.”
  • There is a lesser known rule called the “overall 415 limits.” The overall 415 limit for 401(k) plans including solo 401k plans. For 2019, the overall limit is $56,000. The overall limit looks at the total annual additions to all of a participant’s accounts in plans maintained by one employer and includes not just their salary deferrals, but also matching contributions, allocations of forfeitures and other amounts. Voluntary after-tax solo 401k contributions are subject to the overall annual limit (“The 415 Limit) $56,000 for 2019, and $57,000 for 2020.

To learn about the differences between Roth solo 401k contributions and voluntary after-tax contributions VISIT HERE.

Solo 401k Contribution Types

  1. Employer profit sharing contributions
  2. Pretax employee salary deferral contributions
  3. Roth designated employee contributions
  4. Employee voluntary after-tax contributions

To learn about the 4 (four) solo 401k contribution types, CLICK HERE.

 Solo 401k Checking Account Question:

How do you guys handle check writing privileges for these accounts? Do i have to go open an account with the bank?


With our solo 401(k) plan, we will handle getting it set up with an account at the bank and/or brokerage of your choice where you will have checkbook control.

Our customers have their solo 401(k) accounts at hundreds of different banks, credit unions, etc. as well as brokerage firms such as Fidelity and Schwab just to name a couple.

If you want a brokerage account, we will prepare all the forms that the brokerage firm needs to open a free account (i.e. there are no account opening or maintenance fees and the brokerage firm only charges trading and wire transfer fees) and many firms (including Fidelity and Schwab) offer a free checkbook feature.

If you want a bank account, we will prepare a packet (including banking guide, certificate of trust, EIN letter, etc.) that you can use to open an account at the bank of your choice. We will also be available to speak with your banker if he or she has any questions.

Closing Down the Solo 401k Question:

If in a few years I wanted to close down my solo 401k and move all assets out to an IRA/Roth IRA elsewhere, would I be able to do that?  Are there any fees or penalties for doing so or for closing the account? 


Specific IRS rules apply when closing down a retirement plan including a solo 401k plan. When you are no longer self-employed or decide to terminate the plan, the plan funds can be transferred to the respective IRAs. We would prepare the final Form 1099-Rs and Form 5500-EZ to formally close the solo 401k plan with the government. The closure of the solo 401k plan is covered in our annual fee and no additional fees apply.

The Mega Back Door Roth Solo 401k Strategy Question:

If I do the mega back door Roth/Voluntary After-Tax  Solo 401k Contributions, is it true that I can do those to the full amount possible without having to worry about the employer contribution 25% of Net Earnings rule?  Meaning the Employer non-elective contributions up to  25% of compensation rule.  That is as long as I have business income up to the full 37K I can contribute that full amount as a voluntary contribution?


Your understanding is correct that the solo 401k rules allow for just making voluntary after-tax contributions without having to make pretax solo 401k contributions.

Open Solo 401k Past Age 72 Question:

I am thinking about setting up a Solo 401K and have a question:

My business will still be making money after I am 72, can I continue to yearly fund my 401K?  I realize that at 72 I must start taking distributions.


While you will still be required to make required minimum distributions (RMDs) from the solo 401k plan, correct that you can still open and continue to make annual solo 401k contributions based on your net self-employment income past age 72.

Naming the Solo 401k Plan Question:

Does my business name have to match the solo 401k plan name?


Th name of the self-employed business will not impact the Solo 401k plan. The plan has a separate name and EIN number.  We will be able to assist with the EIN if you prefer. You will Provide the name that you would like to assign to your new solo 401k trust. For example, if you are a sole proprietor or a contractor, a common method of naming a solo 401k is to to use a fictitious name followed by “Trust.” For example, “Media Street Trust.” Alternatively, if you have a business name, the whole or the first two parts of the business name is commonly used followed by “Trust” (but it doesn’t have to as noted above).

Voluntary After-Tax Contributions Even if Contribute to My Day Time W-2 Job 401k Plan Question:

For 2019, I’m a W2 employee at Eastern Airlines and I can contribute to my 401k there as well, but the after tax of $56,000 that I can add to my solo 401k is not impacted by that.


Correct – you can contribute voluntary after-tax contributions to the solo 401k plan without regard to contributions made to w-2 employer sponsored plan.  See more below:
  • The voluntary aftertax contribution limit is 100% of your self-employment compensation not to exceed the overall limit (IRC Section 415(c)) which is $56,000 for 2019 REDUCED BY any salary deferrals or profit sharing contributions made to the Solo 401k.
  • The 415c limit is applied on a per employer basis (assuming that the employers are not related).
  • This means that the fact that you made employee contributions (salary deferrals) to a 401k plan sponsored by an unrelated employer (via a day job) you can still make voluntary aftertax contributions up $56K to the Solo 401k (assuming that you have the self-employment income to justify such contributions).

Coronavirus (COVID-19) Question:

I just received an email from my Tax accountant that due to coronavirus (COVID-19) we will be able to move 100K out of our 401K’s without a distribution penalty and pay taxes on it over three years.

Have you had a chance to determine if that 100,000 could be moved into a Roth 401K?


Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to assist the millions of Americans including those who participate in 401k plans including solo 401k plans affected by the outbreak.

However, in order to make withdrawals from retirement plans including solo 401k plans, the coranavirus-related distribuion (CRDs) must be satisfied which make up the following:

  1. is diagnosed with COVID-19, with a CDC-approved test;
  2. whose spouse or dependent is diagnosed with COVID-19, with a CDC-approved test;
  3. who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  4. other factors as determined by the Treasury Secretary.

For a full breakdown VISIT HERE.  And VISIT HERE for FAQs.

If you do qualify for the $100,000 CRD exception, not the funds can not be deposited back to the Roth solo 401k if they are originally distributed from the pretax solo 401k; instead, they would need to flow back to the pretax solo 401k account.

SOLO 401(K)