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Self-Directed Solo 401(k)

Self-Directed Solo 401(k)

The self-directed Solo 401(k) (also known as Individual 401(k), Self-Employed 401(k), and Solo(k)) is often the most attractive plan to investors, if they qualify, because it combines elements of the SEP and SIMPLE.

The Individual 401(k) is designed for owner-only businesses and spouses. It can be established by both incorporated and unincorporated businesses, sole proprietorships, partnerships, and corporations.

Ultimate Self-Directed Solo 401(k) Guide

Discover all you need to know about the powerful tool that allows small business owners and sole proprietors to contribute, deduct, and invest nearly 10 times the amount they could with other retirement accounts.

Potential Benefits of the Individual 401(k): Higher Contribution Limits

If you qualify, the Individual 401(k) plan offers higher contribution amounts and possible tax deductions.

Two components comprise the maximum Individual 401(k) plan contribution:

  • An employee salary-deferral contribution – not to exceed 100% of the employee’s pay.
    • The employee can contribute up to $23,000 annually through salary deferral in 2024
  • An employer profit-sharing contribution – The annual limit for this is 25% of the employee’s pay (20% for a self-employed person).

The total annual contribution limit from both sources, for those under age 50, is $69,000 in 2024.

  • In 2024, under a “catch-up” provision, individuals age 50 or over may contribute up to $30,500, allowing for a total contribution limit of $76,500.

Learn more about Solo 401(k) contribution limits

Solo 401(k) Pros and Cons

Eligibility Requirements

The Individual 401(k) is for incorporated and unincorporated businesses, sole proprietorships, partnerships, and corporations. The only requirement for contributions to this plan is that you receive a salary or wage.

The business entity must have no additional employees other than the spouse of the proprietor—or, in the case of a partnership, the only employees must be self-employed partners and their spouses.

An Individual 401(k) plan must be the only arrangement maintained by the business that is not included as part of a controlled group under federal tax law.


Deadline

The deadline for establishing an Individual 401(k) plan is the last day of your business’s tax year (December 31, for a calendar tax year).

However, if your business is incorporated, you may want to establish an Individual 401(k) plan early in the tax year to make employee salary deferrals based on the Form W-2 income throughout the year.

This is necessary because you may not defer on compensation that is paid to you from your corporation before you establish the Individual 401(k) plan.


 

What Makes a Solo 401(k) Self-Directed?

When a Solo 401(k) is referred to as a self-directed account, it simply means you can use the account to invest in areas outside of traditional stocks and bonds. That’s the primary difference between a self-directed and traditional retirement account — where you put those investment dollars.

With a self-directed Solo 401(k) or IRA, you can invest in a variety of areas, including:

  • Real estate
  • Private debt like corporate debt offerings, notes secured by deeds of trust or mortgages
  • Private equity-like stock of C-corporations, limited partnerships, LLCs and REITs
  • Precious metals, including gold, silver, platinum, and palladium
  • Cryptocurrency like Bitcoin

If you’re interested in opening a self-directed Solo 401(k), or for more information about this plan, please contact a Specialist at 855-233-4382.


Self-Directed Solo 401(k) and tax treatment


 

Self-Directed Solo 401(k) FAQs

In this session, you’ll learn about:

  • Self-Directed Solo 401(k)s and Your Investment Options
  • Contributing to a Solo 401(k) and the Contribution Limits
  • Solo 401(k) Eligibility
  • Solo 401(k) Rules and Regulations
  • Potential Advantages of a Solo 401(k) or Roth Solo 401(k)
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Let’s talk about your financial future.

Schedule a one-on-one session with an expert alternative investment counselor. We’re here to answer any questions, help guide you through the process, and provide more detailed information and education specific to your journey.

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