About Solo 401k
With tax-deferred savings of up to $53,000 for 2016 ($59,000 if you are age 50 or older) and $54,000 for 2017 ($60,000 if you are age 50 or older), and the invaluable choice to pick your own investments, make pretax, roth and after-tax contributions, and take solo 401k participant loan, our solo 401(k) is the perfect retirement vehicle.
A Solo 401(k) is for owner-only businesses or those with only part-time employees. Self-employed businesses include sole proprietorships, closely held family businesses, LLC’s, partnerships and corporations.
The Solo 401(k) retirement plan allows for salary deferrals found in 401(k) plans, and employer contributions found in profit-sharing plans. You can make annual contributions of both salary deferral and profit-sharing contributions, empowering you to save up to $53,000 in 2016 ($59,000 if you are more than 50 years old), tax-deferred. The Solo 401k annual contribution limit increased by $1,000 for tax year 2017 to $54,000 and $60,000 for those 50 or older.
The process starts by us collecting information via our on-line application to draft the solo 401k plan documents, obtain the EIN for the solo 401k and draft the transfer forms.
You have the option to fund the Solo 401(k) plan with annual contributions or transfers from other retirement accounts. You will have the freedom of investing those contributions through the investment vehicle of your choice. You can use any bank or brokerage account of your choice to establish a checking account for your Solo 401(k), and we will assist you in completing the paperwork for the solo 401k checking account.
Since we never have access to your funds, you are responsible for monitoring the balance in your Solo 401(k) account and notifying us when the balance reaches $250,000 at any year-end.
Reason being, you are required to complete an IRS Form 5500-EZ, which we can assist you with, once your balance reaches $250,000.
If you would like us to complete the form for you, no additional fees will apply. Remember, this form is only required if your Solo 401(k) balance reaches $250,000.
No annual tax reporting is applicable until your assets reach $250,000. At that point, you must file a Form 5500-EZ. Form 5500-ez support is included in our annual fee for those who notify us of their solo 401k balance.
However, you must always file a Form 1099-R with the IRS should you take a distribution of your plan assets upon plan termination or during participating in the plan. Form 1099-R also applies to in-plan Roth solo 401k conversion of both after-tax and pretax funds. Form 1099-R preparation is included in our annual fee.
The deadline to establish your Solo 401(k) plan is December 31st.
For Sole Proprietors:
Employee and profit-sharing contributions must be funded by your tax-filing deadline plus timely filed business extension, provided your plan was adopted by December 31.
For Incorporated business:
Employee and profit-sharing contributions must be funded by your business tax-filing deadline, provided the plan was established by the end of the previous year. To learn more about the various funding deadlines, CLICK HERE.
Step 1: We need to collect information to draft the solo 401k plan documents and to get the tax identification number for the solo 401k trust. Complete our on-line application by CLICKING HERE, or call us to walk you through the on-line application.
Step 2: Once we receive your solo 401k on-line application, we will start the solo 401k establishment process by drafting the solo 401k establishment documents, and we will e-mail them to you the next business day for your signature.
Step 3: Once we receive copy of your signed Solo 401(k) plan establishment documents, we will obtain the tax identification number (EIN) from the IRS for your new solo 401k trust, prepare the transfer forms if you plan to transfer IRA and/or former employer funds to the new solo 401k. We will also proceed with assisting you in establishing the bank or brokerage account for the Solo 401(k) so you can start making investments right away.
NOTE FOR FUNDING BOTH ROTH, AND AFTER-TAX CONTRIBUTIONS: If you plan to make both Roth, and after-tax contributions, you MUST open up additional identical checking accounts. Reason being, this is an IRS requirement, plus this will help in segregating pre-tax vs after-tax, and Roth contributions.
We can usually adopt your solo 401k plan by the next business day that you decide to sign up. This will allow for immediately commencing the bank or brokerage account setup as well as the completion of the transfer forms for your IRA or former employer plan transfers.
No, we will need to help you obtain a separate EIN (Employer Identification Number) for the solo 401k from the IRS since a solo 401k is a retirement trust not a business.
This depends on the type of plan or account from which you are intending to roll/transfer the funds.
If the funds are in a rollover or conduit IRA, Traditional IRA, SEP IRA, TSP, 457b, pension, a profit-sharing or a former employer 401(k) plan, they can be rolled into the Solo 401(k) as long as you did not make any after-tax contributions to those IRAs.
While SIMPLE IRAs can also be transferred to a solo 401k plan, if you have a SIMPLE IRA that has been in existence for less than 2 years, please e-mail us at info@MyISolo401k.net or call us at 800-489-7571 to discuss what you can do.
IMPORTANT: if you have contributed to a SIMPLE plan this year, you can only establish a Solo 401(k) for the next calendar year, as regulations do not allow you to contribute to a SIMPLE and establish a 401(k) in the same year. Call us and we can shed more light on this.
If you receive the funds in the form of a rollover instead of a direct-rollover, you have 60 days from the day you receive your rollover check to roll your funds over. To learn about a rollover vs a direct-rollover, CLICK HERE.
No, your stocks and alternative investments (e.g., real estate, notes, etc.) can be transferred in-kind, which means that they will be transferred as is to your new plan.
You can sign up for a Solo 401(k) only if all of your employees are working part-time (that is,. fewer than 1,000 hours per year).
If you have full-time employees, you can contact us at info@MySolo401k.net or 800-489-7571.
If your spouse performs services and is compensated from the business, this person can participate in the same Solo 401(k) plan. The maximum amount your spouse can save also depends on his or her income, salary and age. A solo 401(k) is for business owners and their spouses.
Since Solo 401(k) is for owner-only businesses, partners are eligible to participate as well as family members if they are also partners in the same business. In other words, solo 401k plans are only for owner-only businesses with no full-time W-2 employees who are not owners of the business sponsoring the solo 401k plan.
Prior to hiring any full-time employees, we recommend that you get in touch with us by e-mail at info@MySolo401k.net or by phone800-489-7571 to find out how we can assist you with additional retirement plan services that will support your company’s growth.
Note that once you hire a full-time employee, you will no longer be eligible to maintain a Solo 401(k). It is very important that you get in touch with us at that time to discuss your options.
You can contribute up to $53,000 in 2016 and $54,000 for tax year 2017 (including an additional catch-up contribution of $6,000 if you are age 50 or older). The maximum amount you can contribute depends on your income or profit in any given year.
Contact us at info@MySolo401k.net or 800-489-7571 and we can help you calculate the contribution amount.
No because a solo 401k is for owner-only employees not common-law employees.
No, there is not. You are not required to contribute to the plan every year.
If you are age 50 or older, you can contribute an additional $6,000 (for 2016) into your Solo 401(k) plan. The $6,000 catch-up also applies for tax year 2017.
For details of how much more you can stash away this year, please contact us at info@MySolo401k.net, or visit our on-line solo 401k contribution calculator.
No, the profit sharing contribution limits apply separately to each employer plan. The profit-sharing contribution cannot exceed 25% of gross income from a corporation, or 20% of net earned income for sole proprietors/partners. To learn about the rules surrounding making profit sharing contributions to multiple plans, VISIT HERE.
No you do not need to deposit your Solo 401k contributions by year-end. Per the IRS publication covering the rules for Solo 401k plans and other owner-only retirement plans (IRS Publication 560), both employee and employer contributions can be made by the due date of the tax return for your self-employed business including timely-filed extensions. Specifically, the chart titled “Key Retirement Plan Rules” on page 3 the publication states that both employee and employer contributions can be made up until the tax return is due (including extensions). VISIT HERE, to learn more about this often misunderstood rule.
A solo 401k also referred to as Solo 401k Real Estate or, 401k Real Estate, allows you to invest in any security or alternative investment such as real estate, private investments, private loans, metals, tax liens, equities and much more. For a sample list of solo 40k investments, VISIT HERE.
Roth 401k and After-Tax Contributions
A solo 401(k) allows for both Roth and after-tax contributions. While a Roth IRA also allows for Roth contributions, a solo 401(k) allows for sharply higher annual Roth contribution amounts for the employee deferral election than a Roth IRA of up to $18,000 ($24,000 if age 50 or older) in the 2017 tax year versus just $5,500 ($6,500 if age 50 or older), for a Roth IRA.
Yes, you can make contributions to both; however, the combined amount contributed in any one year is limited to $18,000 for 2017 (plus an additional $6,000 in catch-up contributions if you age 50 or older).
Yes, the combined amount contributed to all Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited to $18,000 for 2017 (plus an additional $6,000 in catch-up contributions if you are age 50 or older).
Our solo 401k plan already allows for all three types of contributions: pretax, Roth and after-tax. Therefore, when we setup your solo 401k plan, you will simply need to open separate bank or brokerage accounts for each solo 401k contribution component. A separate holding account is required for reporting purposes.
Also, since you have already been taxed on Roth contributions, it is imperative that you record these contributions. At year-end and upon distribution, you will want to disclose to the government what contributions have already been taxed.
You should track all deposits made into your pre-tax (profit-sharing), Roth and after-tax accounts for reporting purposes on year-end tax filings and at the point of distribution. We can assist you with this.
Please note: Due to the pre-tax vs. after-tax component of the different source types, pre-tax and employer profit-sharing contributions should be deposited into the same bank account and tracked each year. The Roth 401(k) contributions, and after-tax contributions must be held in separate bank accounts and tracked separately.
However, if you roll over a distribution from a designated Roth account to a Roth IRA, you should keep track of the amount rolled over in accordance with the instructions to Form 8606, Nondeductible IRAs.
If you receive a distribution from your Solo 401(k) account, you may be responsible for filing a Form 1099-R to report the distribution to the government. When you request the distribution from your investment company, confirm whether they are going to file the 1099-R or not.
Yes, you can roll your Roth 401(k) account over, but only to Roth 401(k) account of another employer, or to your personal Roth IRA.
If you do not roll your Roth account over as described above, the previously-untaxed earnings will be treated as an early distribution from a qualified plan (and consequently subject to the taxes and penalties for any such early distribution) UNLESS you had this Roth account for more than five years.
Yes. At the time that you establish your Solo 401k checking account or when you are ready. The key is that you have to segregate the regular (pre-tax) contributions from the Roth (post-tax) contributions by establishing two checking accounts under the name of your Solo 401k. When you are ready just gives a call and we can assist you with this.
If you already have a Solo 401k plan with us, you will need to open up an additional checking account with your bank provider for your Roth contributions.
To find out how to set up a Roth account with us if you already have a Solo 401k account, please contact us.
Yes. Solo 401k allows for participant loans.
You can borrow up to 50% of the account balance from your Solo 401(k) just no more than $50,000 (minimum of $1,000).
For example, Earl has a vested account balance of $150,000. Fifty percent of his account is $75,000, however the maximum loan that can be taken from a plan is $50,000.
The interest and principal is paid to the Solo 401k and payment is required to be made at least quarterly. There is a five-year term for a general loan. The interest rate used is prime plus 1%.
It is recommended that when funding your approved loan, you ONLY take the proceeds from either the pre-tax or Roth (after-tax) account. This will make it easier to track the loan and repayment amounts more easily, especially when reporting account activity to the government.
IMPORTANT: you will be responsible for tracking all distributions and payments made back to the loan on either a Pre-tax or Roth (after-tax) basis. Please consult with your tax professional for more information.
It takes about two business days to process the loan.
Yes you can take multiple loans up to the 50% of your solo 401k account balance not to exceed $50,000 in aggregate. To learn more about the solo 401k participant loan limits, CLICK HERE.
If you are terminating your solo 401k plan, a final Form 1099-R and Form 5500-EZ will need to be filed with the IRS. Both of these reports are included in our annual fee.
MORE SOLO 401K FAQs
Ink-Kind Distribution QUESTION:
What if I later want to remove the solo 401k owned real estate from the solo 401k and into my personal name?
Distributions from a solo 4o1k are not required to be in the form of cash; therefore, provided you meet a solo 401k distribution triggering event, the solo 401k owned property can be distributed in your name and taxes will apply on the value of the property at time of distribution.
Partial Rollover/Transfer QUESTION:
Can I rollover IRAs into the solo 401k plan in piecemeal (partial IRA rollovers)?
Yes the solo 40k rules allow for incoming partial rollovers and/or direct rollovers. The same is true for transfers from other 401k plans or qualified plans–that is, they can be fully or partially transferred to the solo 401k plan.
Bank or Brokerage Firm Role QUESTION:
What is the role of bank or brokerage firm as it relates to my self-directed solo 401k?
With our Solo 401k plan, the role of the bank or brokerage firms is to simply provide a holding account for the solo 401k & not to provide any tax reporting/record-keeping nor oversee the account.
Types of Real Estate QUESTION:
Are we able to utilize the money from the solo 401k funds to buy investment real estate, to include: commercial, industrial, multi family and single family home
Yes the solo 401(k) rules allow for these types of investments. Therefore, our solo 401(k) plan also allows for these types of real-estate investments. To learn more CLICK HERE.
Alternative Investment Types QUESTION:
Are we able to utilize the money to buy physical gold and silver, stocks, bonds, tax liens, hold mortgages and purchase auction properties
Yes the solo 401(k) rules allow for these types of alternative investments. Therefore, our solo 401(k) plan also allows for these types of alternative investments.
When it is time to take required minimum distributions (RMDs), how will my solo 401k investments in real estate facilitate the RMD? Do I have to sell assets in order to make the solo 401k RMD? If cash flow from the real estate investments are adequate, I prefer to simply draw from the cash flow without liquidating the assets, if possible.
When taking the RMD, Uncle Sam simply cares that you are paying taxes on the required RMD amount. In other words, the required minimum distribution can be in the form of cash, cash and assets, or just assets. If satisfied by distributing in-kind part of an asset such as real estate, the property will need to be appraised by a third-party to determine that value, then the whole or part of the property gets assigned in your name and you pay taxes on that amount.
Unwind If Employees QUESTION:
Eight months ago I started my own engineering business – an S corporation which I own 100% . I am the only employee of the corporation. In a few weeks, I will hire a technician on an hourly basis using a W-2. I am pretty sure that this employee will work under 1000 hours per year but I am not absolutely sure. I am very interested in the benefits of a solo 401k even if they last a couple of years but I don’t know how difficult it will be to unwind if the employee works more than 1000 hours or if I end up hiring other employees.
In that scenario, you would either have to amend the plan to a 401k plan that supports non-owner employees or shut down the 401k.
Shutting Down Solo 401k QUESTION:
How difficult/costly is it do this conversion or shut down the solo 401k?
The difficulty in shutting down the solo 401k plan depends on the circumstances. If you have alternative assets (e.g. real estate), those would need to be transferred to an IRA that allows you to hold such assets. If you have a solo 401k loan, the loan would need to be either paid back in full or the outstanding amount would be considered a distribution.
Converting the plan would include amending the plan documents & making the plan available to eligible W-2 employees.
We offer an IRA LLC that would allow to hold real estate (in the even that you need to transfer alternative assets as described above).
Specific Bank or Firm QUESTION:
If I do this through your firm, do you work with a specific bank or do I choose my own institution to hold the Solo 401k funds?
The account will be opened at the financial institution of your choice (e.g. bank, brokerage, etc.). If you go the brokerage route, we will prepare the required account opening documents as part of our services for no additional charge. If you go the bank route, we have a banking guide and will stand ready to assist and answer any questions for your banker. To learn more about the solo 401k bank account and the brokerage account similarities and differences (note that both come with checkbook control), VISIT HERE.
You are little more expensive than your competition but you appear to provide a better service. I will sleep on it but I am fairly certain I will go with your firm. Thanks again.
Bank Account and Brokerage Account QUESTION:
Can a Writer Open a Solo 401k QUESTION:
Rollover My IRA QUESTION:
I Already Have a Solo 401k QUESTION:
One Property Self-Employment QUESTION:
Take Distributions QUESTION:
Contribute to Multiple 401k Plans QUESTION:
I have a questions about my plan. Can my business hires someone for a period of 3 months temporary assignment? Will the company have to meet the 401K matching requirements for such employee?
I remember when I started the plan I had selected an option for Eligibility Service Requirement as One Year of Service. Does this mean that before my business offers someone a 401K benefit, the person has to be employed for one year prior?
Promissory Note Investment QUESTION:
While we don’t require any forms since we are not the trustee of the plan (you are the trustee of the solo 401k plan), you will need to make sure to document the promissory note investment. For example, a promissory note is required (i have attached a sample copy). You can also use the note investment form located on the following link to further document the note investment, as it is important to properly document all solo 401k investments. https://www.mysolo401k.net/learn/forms/
The following promissory note investment sample procedure may be helpful.
Also, the following link explains more how a promissory note works.
And the following link is a good Q and A on the promissory note investment rules.
Industry Practice for Transfers/Rollovers QUESTION:
Is it the industry practice not to transfer funds electronically when transferring funds from an IRA or former employer 401k plan to a new employer plan such as a solo 401k plan?
Excellent question. We have found that most former employers will not transfer employer plans such as 401k plan’s, TSP’s, 457b’s, 43b’s and Pensions electronically. Instead, they will issue the transfer check made payable in the name of the solo 401k trust. We suspect that they proceed in this fashion because they want to further affirm the transfer was processed correctly since the check is made payable in the name of the solo 401k. We have also found the same to be true for transfers from IRAs unless the funds can be transferred internally (that is, the IRA funds are transferred internally to the solo 401k bank or brokerage account).
Solo 401k for Friends QUESTION:
Quick questions. Most of my friends have a full time job and do not have their own businesses. Is there a way for them to setup a self-directed solo 401k account? The primary purpose is to be able to invest in real estate.
Good question. In order to participate in a self-directed solo 401k plan, part-time self-employment activity at minimum is required. Note that participating in your day-time employer 401k will not preclude you from also opening a solo 401k for your self-employed business.
Invest in Friends’ Real Estate LLC QUESTION:
The question I wanted to ask that I couldn’t remember was about the private company investment that I want to do. As I mentioned, my friends formed an LLC last week to invest in real estate properties. So my Solo 401K will be a 5th investor in the LLC with a 20% share. They haven’t established an Operating Agreement yet. Is there anything to prevent my Solo 401K from being added as a member of the LLC, and be included in the Operating Agreement?
I saw you write that Solo 401k’s get an exemption from section 514c(9) of the tax code….I was wondering about how far that goes….Do we pay tax on income that is generated from a leveraged purchase of real estate within my 401k or is the income from the property also deferred from the 514c exception as well.
You appear to be describing UDFI, which does not apply to solo 401k plans, but does apply to IRAs. See the following:https://www.mysolo401k.net/ubit-and-udif-differences/
Private Equity Investment QUESTION:
I wrote a check to purchase an equity interest in a private investment. Does there need to be a record of this transaction made by the solo 401k trust?
Use Business Bank Account for Solo 41k QUESTION:
Remitting the 20% Mandatory Federal Tax Question
I’m contemplating taking a distribution from the my solo 401k. Am I responsible for remitting the 20% Federal withholding or will your company initiate that for me?
Because we don’t have access to our client funds, the client is responsible for submitting the 20% mandatory federal tax to the Department of the Treasury by the 15th of the following month.
See the following for more information: https://www.mysolo401k.net/making-solo-401k-distributions/
Also, statutory rules apply when taking distributions from a 401k including a self-employed solo 401k. Please see the following.
- If you are over age 59 1/2, you can distribute any amounts.
- If you are not over age 59 1/2, you can generally only distribute any amounts that were transferred/rolled over to the solo 401k from other retirement plans and/or IRAs.
Will You Issue the Form 1099-R QUESTION:
Will you also produce the Form 1099-R in January to report the taxable distribution from my solo 401k plan?
Yes we will prepare the Form 1099-R once you submits our solo 401k distribution form.
No Paycheck QUESTION:
Can I make a contribution from my business to the solo 401k without taking a paycheck?
Beneficiary IRA QUESTION:
Yes you can transfer retirement plans and/or IRA to a Solo 401k or a self-directed IRA since you inherited the retirement plan or IRA from your spouse. This option is only afforded to spouse’s. The following link is useful in describing the similarities and differences between a solo 401k and an IRA.
Transfer funds from current employer 401k that were rolled over from another employer 401k QUESTION:
I have additional funds in a 401k with my current employer, but half the funds there were rolled-in from a former employer 401k. If I want, can I also request that the FORMER employer funds be moved from the current employer’s 401k, into the Solo401k ? What would you need to facilitate that transfer?
Good question, and yes those funds from the former employer 401k that are currently held in the existing employer 401k can certainly be transferred to the solo 401k plan as long as the current employer’s plan allows for it. It is a tricky situation because even though the rules allow for it, the current employer can restrict the transfer of funds transferred into the plan from a former employer 401k plan. We strongly recommend getting a copy of the existing employer’s 401k plan Basic Plan Document or Summary Plan Description Agreement as specific language will be embedded in these documents regarding this topic. We will gladly review those documents for you once you obtain them from your current employer 401k provider.
Rollover to IRA QUESTION:
Can a Solo 401(k) be rolled over into IRA if I ever shut down my business? I don’t know if I’m using the right terminology.
Yes the solo 401k can be transferred to an IRA once you shut down the self-employed business that sponsors the solo 401k plan. In fact, an IRA is where most transfer their former employer 401k plan including a solo 4o1k plan.
IRA or Solo 401k QUESTION:
I assume Solo 401(k) is the better option in my case, as opposed to a Self-directed IRA, as I would like the ability to make alternative investments such as real estate, private businesses, etc… is this a valid assumption?
ANSWER:They both allow for investing in alternative investments including real estate, but the solo 401k is generally more advantageous. For example, the contributions limits are higher for a solo 4o1k plan, you can borrow from a solo 4o1k plan, and the ongoing fees are also generally much less. See the following link for more on this.https://www.mysolo401k.net/self-directed-solo-401k-vs-self-directed-ira/
Pursuing self-employment activity QUESTION:
I do not have a solo 401k nor self employment income. My plan is to generate some self employment income, create a solo 401k, then roll my previous 401k over into the solo 401k.
Taking RMD from Roth and Pretax Solo 401k Funds QUESTION:
How Easy to Amend/Restate From Brokerage House QUESTION:
Transfer Checkbook IRA/ IRA LLC to Solo 401k QUESTION:
Thank you for reaching out. If you are self employed, which appears to be the case, then you could transfer the existing SEP IRA and traditional 401(k) (assuming it is a former employer 401k plan) into a solo 401(k).