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.
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 invest in areas outside of the 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.