Solo 401(k) – Think You Don’t Qualify? Think Again.

If you hear the term Solo 401k and assume it’s only for full-time entrepreneurs, you may be missing out on one of the most powerful wealth-building tools available. Many high earners—including W-2 employees with side hustles—actually qualify for a Solo 401k and don’t even realize it.

In this episode of the Invest Like a Billionaire podcast, George Blower, co-founder of My Solo 401k Financial, joins hosts Bob Fraser and Ben Fraser to break down who really qualifies, how the contribution buckets work, and why investors may be able to contribute far more than they think—including the famous Mega Backdoor Roth strategy.

Who Actually Qualifies for a Solo 401k?

The eligibility requirements are simpler than most people think. There are only two technical requirements:

What About a Spouse or Business Partner?

The technical term in the statute is a “one-participant plan”—Solo 401k is the marketing term. There are two important exceptions to the one-participant rule:

1. A spouse working in the business can participate—and there’s no requirement for the spouse to be an owner, as long as they report earned self-employment income from the business.

2. Another owner working in the business (a business partner) can also participate. The plan remains streamlined from a regulatory perspective because the rules that apply to large 401k plans exist to protect employees—and with no non-owner employees to protect, those rules don’t apply.

The Contribution “Buckets”: Why Solo 401k Limits Are So High

In the words of the IRS, when you’re self-employed you are both the employee and the employer. That means multiple contribution buckets apply—which is why a Solo 401k has the highest contribution limits of any defined contribution plan available to self-employed individuals.

The S-Corporation Advantage: 100% Dollar-for-Dollar After-Tax Contributions

Many solopreneurs evolve from sole proprietor to S-corporation to reduce self-employment tax. But there’s a tension: the less you pay yourself in W-2 wages, the less you can contribute as an employer, since employer contributions are capped at 25% of W-2 wages.

That’s where voluntary after-tax contributions shine. With a Solo 401k plan that allows them—like the one offered by My Solo 401k Financial—just $72,000 of W-2 wages from your S-corporation supports a full $72,000 after-tax contribution, because you can contribute 100% dollar for dollar of your W-2 wages as after-tax. Then you transfer to Roth. Add a spouse with their own earned income from the business, and you can double it.

The Mega Backdoor Roth: A Two-Step Strategy

The Mega Backdoor Roth strategy is a two-step process. My Solo 401k Financial was the first provider to offer a Solo 401k plan that allows for the Mega Backdoor Roth—and the term itself was reportedly coined by one of its customers.

Step 1: Make a voluntary after-tax contribution, taking advantage of the much higher limits—up to 100% of your compensation, up to the $72,000 overall limit for 2026 (per person, so spouses can each contribute).

Step 2: Transfer the funds to a Roth account—either a Roth Solo 401k or a Roth IRA.

Roth Solo 401k vs. Roth IRA: Where Should the Money Land?

Beyond Contributions: Rollovers and Self-Directed Investing

Contributions are only one way to fund a Solo 401k. Rollovers are the other—and they’re available even to micro-solopreneurs whose businesses aren’t yet generating large income. There’s no minimum income to set up a Solo 401k; income only limits how much you can contribute.

Common reasons to roll over funds from a former employer plan or IRA:

Escape higher fees: Once you leave an employer, your former employer has no incentive to subsidize the fees on your old plan. Invest in what you want: A self-directed Solo 401k gives you checkbook control to invest in alternative investments—real estate, private placements, crowdfunded deals, and more—using accounts at the bank or brokerage of your choice (Fidelity, Schwab, etc.). Facilitate a backdoor Roth IRA: Rolling pre-tax IRA funds into a Solo 401k helps avoid the pro-rata rules that complicate backdoor Roth IRA contributions. Take a 401k loan: Borrow up to 50% of the balance or $50,000 to help fund your business.

The UDFI Exemption: A Big Win for Leveraged Real Estate

If a self-directed IRA invests in leveraged real estate, the income attributable to the debt-financed portion is subject to unrelated debt-financed income (UDFI) tax—reported on Form 990-T and taxed at high trust tax rates.

Here’s the exception: make that same leveraged real estate investment inside a Solo 401k, and the income from real estate subject to acquisition indebtedness is exempt from UDFI tax. The exemption is narrow—it applies to leveraged real estate subject to acquisition indebtedness, not, for example, stock purchased on margin—but for real estate investors it’s a major advantage of the Solo 401k over the IRA.

The SECURE Act Auto-Enrollment Tax Credit: $1,500 Back in Your Pocket

Under the SECURE Act, Congress authorized multiple tax credits to make it easier and more affordable for businesses to establish 401k plans. The startup cost credit isn’t available to solopreneurs (it requires non-highly compensated employees in the plan), but the auto-enrollment credit is.

My Solo 401k Financial was the first Solo 401k provider to offer a Solo 401k plan that enables solopreneurs to claim the auto-enrollment credit—developed by working with IRS legal staff and other stakeholders for about a year before rolling it out at the end of 2023.

How to Get Started

A Solo 401k is a legal entity created by plan documents and sponsored by your business. My Solo 401k Financial uses IRS-approved documents to draft a 401k plan with all the advanced features—Mega Backdoor Roth, alternative investments, participant loans, and the tax credit—while remaining fully portable. The firm never holds or has access to customer funds: you take your documents and open accounts at the bank or brokerage of your choice.