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Self-Directed Solo 401(k)

The 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.

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 $19,000 annually through salary deferral in 2019 ($19,500 in 2020)
  • 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 $56,000 in 2019 and $57,000 in 2020.

  • In 2019, under a “catch-up” provision, individuals age 50 or over may contribute up to $25,000 allowing for a total contribution limit of $62,000.
  • In 2020, under a “catch-up” provision, individuals age 50 or over may contribute up to $26,000 allowing for a total contribution limit of $63,500.

Details about the Solo 401(k), SEP and SIMPLE IRA plans, contribution and potential deduction amounts, eligibility, and income requirements

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.


If you’re interested in opening a Solo 401(k), or for more information about this plan, please contact a Senior Account Executive at 440.703.8098.


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)

2019-2020 Contribution Limits

IRA Contribution Limits, Catch Up Provisions and Contribution Deadlines

2020 IRA Contributions & Deductions Infographic

Infographic summarizing IRS contribution limits and catch up provisions for retirement accounts

Learn More