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Explore the power of
Self-Directed Solo 401(k)

Your retirement, your rules.

Smart entrepreneurs and freelancers are discovering Self-Directed Solo 401(k), a powerful tool for tax-advantaged retirement investment with high contribution limits.

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Solo 401(k) Benefits

Why Consider a Self-Directed Solo 401(k)?

A Self-Directed Solo 401(k) is ideal for owner-only businesses, providing a unique blend of flexibility, higher contribution limits, and diverse investment options. These plans allow for both traditional and Roth contributions, catering to various tax planning strategies.

With checkbook control, plan participants can invest directly in a wide range of assets including real estate, private equity, and much more. This setup simplifies the investment process, enabling quick and autonomous investment decisions without the usual custodian involvement.

Higher Contribution Limits

Maximize savings with annual contributions up to $66,000, plus a $7,500 catch-up contribution for those over 50.

Checkbook Control

Enjoy direct control over investments with the ability to write checks for investment purchases.

Roth Provision

A built in Roth provision is included which can be contributed to without any income restrictions.

Loan Capability

Borrow up to $50,000 or 50% of your account value (whichever is less), tax and penalty free, for any purpose. Loans must be paid back within 5 years.

Diverse Investment Options

You can invest in real estate, private lending, limited liability companies, precious metals, tax liens, and much more!

Tax Advantages

Benefit from tax-deferred or tax-free growth, optimizing your retirement savings.

Hardship Withdrawal Choice

Our Self-Directed Solo 401(k) plan gives you the option to withdraw from your Solo 401(k) under certain conditions, should you find yourself in financial hardship.

UDFI Exemption

With a Self-Directed Solo 401(k) plan, you can use leverage to purchase real estate, which may be exempt from UBTI tax.

Essential Information

What is a Solo 401(k)?

A Solo 401(k), also known as a Self-Directed Solo 401(k) or Individual 401(k), is a retirement plan tailored for self-employed individuals and small business owners without full-time employees (other than the owner and their spouse). This plan combines the high contribution limits of traditional 401(k)s with the flexibility of self-directed investing, making it ideal for entrepreneurs and freelancers seeking to maximize their retirement savings.

Distinct features of a Solo 401(k) include its generous contribution limits, allowing both employee and employer contributions, and the option for tax-deferred or Roth contributions. Additionally, participants can access loan provisions, borrowing against their account balance under specific conditions. With its straightforward administration and potent savings potential, the Solo 401(k) is a powerful tool for self-employed professionals looking to secure their financial future.

One of the key bene­fits of a Solo 401(k) is its high contri­bution limit, allowing partici­pants to contri­bute signifi­cantly more than tradi­tional IRA limits.

Key Facts

Flexible retirement plan for self-employed individuals and business owners with higher contribution limits.

The Self-Directed Solo 401(k) is a versatile retirement plan that offers self-employed individuals significant tax advantages and investment freedom.

  • High Contribution Limits: Allows combined employee and employer contributions, significantly higher than traditional IRAs.
  • Tax Flexibility: Offers both tax-deferred and Roth contribution options, providing flexibility in tax planning.
  • Loan Provisions: Participants can borrow up to 50% of their account balance under certain conditions.
  • Investment Freedom: Enables a wide range of investment choices, far beyond traditional stocks and bonds.
  • Easy Administration: Less regulatory complexity than traditional 401(k) plans, making it easier to manage.

Other Resources

Explore further with these Solo 401(k) resources from the Turnkey IRA blog and beyond.

irs.gov
IRS Guidelines on One-Participant 401(k) Plans
Official IRS guide on Solo 401(k) plans, crucial for understanding rules and regulations.
Guide
Self-Directed IRA LLC Guide
If a Solo 401(k) isn't for you, our Self-Directed IRA LLC are accessible to a broader range of investors
Turnkey Blog
Automating Your Self-Directed Solo 401(k) Investments
Tips for automating investments in Self-Directed Solo 401(k) plans.

Solo 401(k) Explained

How it Works

The Solo 401(k) plan is a powerful retirement tool designed for self-employed individuals and small business owners. It offers the flexibility to invest in a variety of assets while providing significant tax benefits. This section will guide you through the key features and how to effectively utilize this plan for your retirement goals.

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Understanding Contributions

The Solo 401(k) is a versatile retirement savings tool, particularly beneficial for business owners, freelancers, and the self-employed. It allows for two types of contributions: elective deferrals as an employee and profit-sharing as an employer. Elective deferrals are contributions made from your salary before taxes, reducing your taxable income for the year. In 2023, the total contribution limit for the Solo 401(k) is $66,000, or $73,500 for participants aged 50 or older. This includes both employee and employer contributions, offering a substantial avenue for retirement savings.

For employee contributions, the limit in 2023 is $22,500. If you are 50 or older, the plan allows an additional catch-up contribution of $7,500, raising the potential employee contribution to $30,000. This arrangement enables individuals approaching retirement to accelerate their savings.

Employer contributions, on the other hand, are a form of profit-sharing. If you're self-employed or own a business, you can contribute up to 25% of your compensation to your Solo 401(k) as the employer. This allows you to save significantly more than you could as an employee alone.

In 2023, the overall contri­bution limit is $66,000, or $73,500 for those 50 or older, inclu­sive of both empl­oyee and empl­oyer contri­butions.
irs.gov
Contribution Limits for Self-Directed Solo 401(k)
IRS details on Solo 401(k) contribution limits for financial planning.
FAQ
Turnkey Contributions FAQ
Learn more with our comprehensive FAQ on Solo 401(k) contributions.
Contribution Key Facts

The Solo 401(k) is a tax-advantaged retirement plan valued for its high contribution limits.

  • Structure: Contributions can be made as both employer and employee. Flexibility in how contributions are allocated between these roles.
  • 2023 Contribution Limits: Up to $66,000 for under 50, and $73,500 for those 50 and over.
  • Employee Contributions: Up to $22,500, plus an additional $6,500 catch-up for those aged 50+.
  • Employer Contributions: Up to 25% of compensation, within the overall limit.
  • Roth Contributions: Post-tax contributions allowed, subject to the same limits.
  • Spousal Contributions: If a spouse earns income from the business, they can also contribute.

Spousal Contributions

Spousal contributions in a Solo 401(k) open further opportunities for retirement savings. If your spouse is involved in your business and earns an income, they too can contribute to the Solo 401(k). Their contribution limits mirror yours, allowing for a combined increase in retirement savings. This is especially beneficial for couples looking to maximize their retirement investments.

Roth Contributions

Roth contributions in a Solo 401(k) represent a different approach to retirement savings. Unlike traditional pre-tax contributions, Roth contributions are made with after-tax dollars. The benefit here is that while there's no immediate tax deduction, withdrawals during retirement are tax-free, assuming certain conditions are met. This feature is particularly advantageous if you anticipate being in a higher tax bracket during retirement.

Other Funding Methods

Apart from contributions, the Solo 401(k) also allows for rollovers from other retirement accounts like traditional 401(k)s, 403(b)s, or governmental 457(b) plans. This does not include Roth IRAs. Rollovers don't count towards your annual contribution limit, offering a flexible way to consolidate and manage your retirement savings in one account. This flexibility makes the Solo 401(k) an attractive option for individuals with existing retirement funds looking to streamline their investments.

Participant Loans

One of the standout features of a Solo 401(k) plan is the ability to borrow from your retirement savings. This capability is particularly beneficial for entrepreneurs and business owners, offering a unique avenue to quick funding for growth. Tapping into your retirement savings judiciously can empower you to expand your business, explore new ventures, or capitalize on investment opportunities that might otherwise be restricted due to the self-dealing limitations of a 401(k).

Loan Regulations

Solo 401(k) loans are governed by specific tax code regulations mandating that the terms of any loan adhere to defined criteria. You're permitted to borrow either $50,000 or 50% of your plan account value, whichever is less. The loan must be paid back within five years, and their interest rate is required to be comparable to the market rate. This is a rate that a commercial lender would charge under similar circumstances, often a bit above the prime rate. Unlike conventional loans, the interest paid on a Solo 401(k) loan is paid back into your own retirement account, which can be a more financially palatable scenario than paying interest to a third party.

A participant loan allows borrow­ing up to $50,000 or 50% of the plan acc­ount value, adding an impor­tant finan­cial tool to the Solo 401(k) frame­work.
irs.gov
IRS on Solo 401(k) Loan Regulations
Comprehensive IRS guidelines on Solo 401(k) loan limits and requirements.
FAQ
Solo 401(k) Loans FAQ
Explore our detailed FAQ on various aspects of Solo 401(k) loans.
Participant Loan Essentials

Solo 401(k) loans are valued by entrepreneurs for their accessibility and flexibility, and can be a powerful tool provided their pitfalls are understood and considered.

  • Eligibility: Available if the Solo 401k plan includes loan provisions, allowing participants to borrow from their accounts.
  • Maximum Loan Amount: Up to 50% of the vested account balance, not exceeding $50,000. The calculation varies if multiple loans are outstanding.
  • Interest Rate: Must be consistent with rates charged by commercial lenders, generally a certificate deposit rate plus 2%, or prime rate plus 1%.
  • Repayment Terms: Loans must be repaid within five years, with level amortization and at least quarterly payments. Exceptions apply for loans used to acquire a principal residence.
  • Tax Implications: Exceeding loan limits results in the excess amount being deemed a taxable distribution, potentially incurring a 10% early distribution penalty if under age 59½.

Possible Uses

Provided their potential shortcomings are understood and considered, Solo 401(k) loans can be a useful financial tool for business growth. They are valued by entrepreneurs for purposes such as injecting capital into startups or existing businesses, acquiring crucial business equipment, refinancing high-interest debt, or aiding in the down payment of a primary residence. However, it's essential to weigh these benefits against the potential drawbacks of reducing your retirement savings. Solo 401(k) loans should be considered after understanding their impact on your long-term financial health and evaluating other available financing options.

Consequences of Non-repayment or Excess Borrowing

If you fail to adhere to the loan repayment terms, the outstanding balance will be treated as a taxable distribution. If you're under 59½, this distribution will incur an additional 10% tax penalty as an early withdrawal. Similarly, borrowing more than the allowed limit may lead to adverse tax consequences. It's crucial to fully understand and adhere to the loan terms to avoid these risks.

Solo 401(k) Dos and Don'ts

Understanding the "do's and don'ts" of establishing and managing a self-directed Solo 401(k) is crucial for maintaining compliance and maximizing its benefits. In this section, we outline the vital "Do's and Don'ts" that every investor should know.

  • Do: Open a checking account in the name of the Self-Directed 401(k), not your personal name, as it will be considered an immediate and taxable Self-Directed 401(k) distribution.
  • Do: Open multiple Self-Directed 401(k) checking accounts if both Solo 401(k) trustees will be making contributions to the Solo 401(k), and/or one or both trustees will be making both traditional and Roth Solo 401(k) contributions.
  • Do: Deposit gains from the Self-Directed 401(k) investments; for example, real estate gains such as rents or proceeds from the sale of real-estate property.
  • Do: Pay expenses associated with investments held in the Self-Directed 401(k), such as rental property repairs.
  • Do: Make annual Self-Directed 401(k) contributions to the Self-Directed 401(k) checking account(s). Note that if both trustees are participating in the Self-Directed 401(k), each respective trustee's contributions need to be deposited in their respective Self-Directed 401(k) checking accounts.
  • Don't: Deposit personal funds in Self-Directed 401(k) checking account(s) unless they are truly Self-Directed 401(k) contributions from self-employment income and you qualify to make them.
  • Don't: Obtain a credit card in the name of the Self-Directed 401(k) or in your name.
  • Don't: Deposit funds from the Self-Directed 401(k) to your IRA without first checking with your Solo 401(k) provider.
  • Don't: Pay personal expenses with funds from your Self-Directed 401(k) as it’s considered a taxable distribution.
  • Don't: Pay yourself a salary with funds from the Self-Directed 401(k) as it will be considered a prohibited Solo 401(k) transaction.
  • Don't: Commingle Roth Self-Directed 401(k) contributions and investment gains with Traditional Self-Directed 401(k) funds.
  • Don't: Process the Solo 401(k) loan without proper Solo 401(k) participant loan documents and payment schedule.

Investment Types

What Can I Invest In?

The power of self-directed retirement accounts lies in the broad array of investment opportunities they present. Unlike managed IRAs from banks, which typically restrict the available investment options to stocks, bonds and mutual funds, self-directed accounts unlock the potential for investment in real estate, private businesses, precious metals, private lending and many more legally permitted assets.

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A Checkbook Self-Directed IRA LLC provides unparalleled flexibility when it comes to real estate investments. This account structure allows you to make quick decisions, often crucial in the fast-paced real estate market, without needing custodian consent for each transaction. The ability to write a check on the spot can be the difference between securing a great deal and missing an opportunity.

Here are a few of the diverse ways our clients use their self-directed IRA or 401(k) to build a profitable real estate portfolio.

  • Single-family homes: These properties can be rented out for steady income.
  • Multi-family properties: Apartment buildings and duplexes provide multiple streams of rental income.
  • Commercial properties: Office buildings, retail spaces, and warehouses can offer substantial returns.
  • Raw land: Purchasing undeveloped land can be profitable, especially in areas likely to see growth.
  • Real Estate Investment Trusts (REITs): These trusts allow you to invest in large-scale, income-producing real estate.
  • Private mortgages: Act as the lender and earn interest on loans to real estate buyers.
  • Fix-and-flips: Purchase properties below market value, renovate them, and sell for profit.
  • Rental condos: Condominiums can be lucrative rental properties in the right market.
  • Mobile home parks: This niche investment can generate high yields.

Establishing Your Account

Setup Process

Setting up a Self-Directed Solo 401(k) involves several key steps, starting with the creation of a personalized plan that complies with IRS regulations. This plan includes formation of a trust and the appointment of the account holder as its Trustee, which grants them authority over investment decisions. Following this, a checking account is established for the trust at a chosen bank, which will be used for investment transactions.

The Solo 401(k) is then funded by either direct contributions or by rolling over funds from existing retirement accounts. With the setup complete, the account holder is free to invest in any asset not prohibited by law.

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  • 1

    Plan

    We compose a customized (IRS approved) Self-Directed Solo 401(k) Plan (also called Self-Directed 401k) for you.

  • 2

    Trust

    The Plan that we compose contains a Trust, which appoints you as the Trustee of your Self-Directed Solo 401(k) – allowing you to make all investment choices.

  • 3

    Create a Checking Account

    You establish a checking account (in the name of the Trust) at any bank of your choosing. This checking account will be used for placing all investments or loans for your Self-Directed Solo 401(k) (we assist you through this process, but never have access to your account or funds).

  • 4

    Funding/Rollover

    You will fund your Self-Directed Solo 401(k) by making an initial tax-deductible contribution or by transferring funds from one or more of your existing retirement accounts or IRA into the new checking account. After you open a Solo 401(k), we can facilitate the movement of funds to your new account at no extra cost.

  • 5

    Make Your First Investment

    You can begin investing your retirement funds directly into alternative (and traditional) investments - by simply writing a check.

Solo 401(k) Setup ×1

The industry's best all-inclusive Solo 401(k) setup and maintenance service for a single LLC

$ 895

One-time setup fee

$ 150 /y *

Maintenance and servicing fee

Adoption Agreement Basic Plan Document Summary Plan Description Appointment of Trustee Beneficiary Designation Loan Procedure Loan Documentation Transfer Request Forms for incoming funds transfer IRS Registered Tax ID (EIN) with Tax Exempt Status
Expert Client Support Assistance with filing of tax forms 5500-EZ and 1099-R (if required) Maintenance of Plan Documents to ensure IRS-compliance Provide Transfer/Rollover Forms Assistance with Rollover/Transfer Interim Plan Amendments as required by the IRS Assistance Establishing Solo 401(K) Bank Account

* Annual fee covers annual plan document fees as well as future IRS required plan updates.

Solo 401(k) Costs

One Plan, One Price, No Extras.

Our Self-Directed Solo 401(k) pricing is simple. You pay a one-time fee covering the complete establishment of your Solo 401(k). This includes everything from drafting necessary plan documents to forming the trust and obtaining an EIN for your account.

You will receive plan documents, which are compliant with government regulations, and an IRS Determination letter confirming that this is a 401(k) plan that meets the requirements of a qualified plan.

For a low annual maintenance fee we ensure your Solo 401(k) remains in compliance with IRS regulations, and provide access to an expert support team who are on hand to answer questions and offer any assistance you need.

Open an Account

Let us show you how easy this can be.

With the right support, setting up a Solo 401(k) is a breeze. Schedule a free 15-minute exploration call today and get your questions answered by an industry veteran.

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Frequently Asked Questions

Solo 401(k) FAQ

If you have a question not answered here, feel free to reach out to info@turnkeyira.com or call us on (828) 608-0539.

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General FAQs

Who can open a Self-Directed Solo 401(k) plan? Any business, regardless of its legal form, can adopt a Self-Directed Solo 401(k) plan. This includes self-employed business owners, partnerships, limited liability companies (LLCs), and all types of corporations, including Sub-chapter S corporations.
When does the Self-Directed Solo 401(k) have to be opened? The plan must be established by the end of the tax year for which a tax deduction is sought. For businesses operating on a calendar-year basis, this means completing the plan documentation no later than December 31 of that year.
Do I need to set up an account by the end of the year? If you are self-employed, opening a Self-Directed Solo 401(k) plan by the end of the year allows you to defer contributions until the following year. You can contribute up to the current annual limit, plus an additional catch-up contribution if you are 50 or older.
If I switch to being paid through an LLC, does this affect my existing Self-Directed Solo 401(k)? Switching to an LLC payment structure in a new year won't affect your existing Self-Directed Solo 401(k) set up under a sole proprietorship. The plan can be updated to reflect your new business structure, while maintaining the same plan name and bank account. Contributions will be based on your new self-employment income.
If I have an existing individual 401(k) at a brokerage, can I adopt a Self-Directed Solo 401(k) plan as a restatement of my existing plan? Yes, you can restate your existing individual 401(k) to a Self-Directed Solo 401(k) plan. This change needs to be made within the current tax year to preserve the right to make Roth and/or after-tax contributions by your tax return deadline in the following year.

Contributions FAQs

Can my spouse and I each contribute up to the maximum in Type 2 contributions into our respective Solo 401(k) plans? Yes, you and your spouse can each contribute up to the current maximum limit in Type 2 contributions to your respective Solo 401(k) plans, provided you each have sufficient net self-employment income to meet these contribution amounts.
Does my spouse need to be paid a salary from the business before making a Type 2 contribution? Yes, to make a Type 2 contribution to a Self-Directed Solo 401(k) plan, your spouse must have net self-employment income from the business. This applies to both employee and employer contributions.
If my spouse has maxed out her/his Type 1 contribution at her/his day job, can I still make the maximum annual contribution entirely as a Type 2 contribution? Your spouse's contributions to other plans do not affect your Solo 401(k) contribution limits, as they are determined per participant. If your spouse has maxed out their employee contribution (Type 1) at their day job, they can only make profit-sharing contributions (Type 2) to the Solo 401(k), based on their net self-employment income. You can contribute both employee (Type 1) and profit-sharing (Type 2) contributions to the Solo 401(k) if you have sufficient net self-employment income.
What is the minimum contribution required each year to maintain my Self-Directed Solo 401(k) in good standing with the IRS? There is no mandatory annual contribution requirement to maintain your Self-Directed Solo 401(k) plan in good standing with the IRS. Contributions are flexible and can be adjusted based on your financial situation each year.
Do I need to make equal Self-Directed Solo 401(k) contributions for me and my spouse, or can they be different? Equal contributions are not required in a Self-Directed Solo 401(k) plan, as it is intended for owner-only businesses. Therefore, contributions can vary based on each spouse's self-employment income, allowing for one spouse to contribute while the other may not.
As a W-2 employee already participating in an employer's 401(k), how much can I contribute to our Self-Directed Solo 401(k) plan each year? The contribution to a Self-Directed Solo 401(k) for a spouse who is also a W-2 employee will depend on their self-employment income. Contributions are calculated by reducing the income on the K-1 by half of the self-employment tax. The total contribution is subject to the current annual IRS limits.
Can I make contributions to my Self-Directed Solo 401(k) this year? If you haven't made any Simple IRA contributions for the year, you are eligible to contribute to your Self-Directed Solo 401(k). IRS rules prohibit simultaneous contributions to both a Self-Directed Solo 401(k) and a Simple IRA in the same year for the same self-employed business.
I set up the Self-Directed Solo 401(k) bank account and deposited funds for annual contribution. Do you need any information on this? While contributions to 401(k) plans are not reported to the IRS by the plan provider, it's advisable to document the type of contribution (salary deferral or employer contribution) for accurate record-keeping on your account statements. IRS reporting will occur when you file your tax returns.
Can guaranteed payments from a partnership be counted for Self-Directed Solo 401(k) contribution calculations? The eligibility of guaranteed payments for Solo 401(k) contributions depends on their classification on the K-1 form. Contributions must be based on earned income from self-employment activities, not passive or investment income.
We are an LLC taxed as an S-Corp. Can I make a Solo 401(k) contribution for myself and my spouse based on W-2 income? Yes, for an LLC taxed as an S-Corp, both employee and profit-sharing contributions to a Solo 401(k) are based on W-2 wages. Each spouse, if receiving W-2 wages from the self-employed business, can make contributions to the Self-Directed Solo 401(k).
I am a CPA with a client who missed including a Solo 401(k) deduction in a filed return. Can the contribution still be made during the extension period? Yes, if a timely business tax return extension was filed, the Solo 401(k) contribution can still be made by the extended deadline. Contributions of both employee and employer can be made by September 15 if an extension is timely filed, as per IRS guidelines.
As we are not contributing to our Self-Directed Solo 401(k) plan, are our IRA contributions tax deductible? Even without active contributions to a Self-Directed Solo 401(k), you are still considered "covered by a retirement plan at work." Traditional IRA contribution deductions may be reduced based on your adjusted gross income (AGI), in accordance with IRS phase-out ranges.
We can have all contributions vest immediately in a Self-Directed Solo 401(k), correct? Yes, in a Self-Directed Solo 401(k) plan, all contributions are fully vested immediately. This plan is not subject to safe harbor rules as it is intended for owner-only businesses with no common law employees, thus offering full flexibility in contributions and vesting.
I've already paid all my payroll taxes through an employer. Does this affect my Solo 401(k) contribution calculation? Having paid your payroll taxes through a W-2 employer does not impact the Solo 401(k) contribution calculation. The contribution still requires the reduction of half of the self-employment tax, irrespective of the payroll taxes paid through your day job.
Are contributions to a Self-Directed Solo 401(k) tax exempt for state and local income tax purposes? Pre-tax contributions to a Solo 401(k) are generally exempt from federal taxes and most state and local taxes. However, it's advisable to consult with your state and/or local tax agencies for specific regulations in your area.
In an S-corporation, do Solo 401(k) contributions have to come out of payroll, or can they be made from my personal bank account? For an S-corporation, what matters for a Solo 401(k) is that the contributions, both employee and employer, are made based on W-2 wages. The source of funds, whether from the corporation or personal account, is not critical as long as the contributions comply with IRS rules.
My LLC filed for a tax extension. Does this affect the contribution deadline for my Solo 401(k)? Yes, the deadline for Self-Directed Solo 401(k) contributions extends if a tax return extension is filed. The specific deadlines vary based on your business entity type, with typical deadlines being April 15 or October 15 for a Sole Proprietorship and March 15 or September 15 for an LLC taxed as an S-Corporation.
Do direct-rollovers from an IRA to a Self-Directed Solo 401(k) affect annual contribution limits? Direct rollovers from an IRA to a Self-Directed Solo 401(k) do not count towards the annual contribution limits. You can rollover funds from an IRA to a Solo 401(k) without impacting your ability to make regular annual contributions to the Solo 401(k).
Can I perform a Mega Back Door Roth contribution through my Solo 401(k) if I contribute to my employer's 401(k) plan? Yes, you can perform a Mega Back Door Roth contribution through your Solo 401(k). The overall contribution limits apply on a per-employer basis for unrelated employers. The elective deferral limit applies to elective deferrals and does not impact after-tax contributions.
Can guarantee payments from a partnership be included for Solo 401(k) contribution calculations? Whether guarantee payments from a partnership can be included in Solo 401(k) contribution calculations depends on how they are reported. To be eligible, these payments must be reported as earned income from self-employment activities on the K-1 form, not as passive or investment income.
As an LLC taxed as an S-Corp, do we need to take W-2 income from the company to make Solo 401(k) contributions? Yes, for an LLC taxed as an S-Corp, both the employee and profit-sharing contributions to a Solo 401(k) are based on W-2 wages. To make Solo 401(k) contributions, each spouse must receive W-2 wages from the self-employed business.
If a Solo 401(k) deduction was missed on a filed tax return for an S-Corp, can it still be amended during the extension period? Yes, if a timely business tax return extension was filed for an S-Corp, the return can be amended to include a missed Solo 401(k) deduction. Contributions can be made by September 15 if the tax return extension is filed on time, in line with IRS guidelines.
If my spouse and I don't contribute to our Self-Directed Solo 401(k), are our IRA contributions still tax deductible? Even if you don't actively contribute to your Self-Directed Solo 401(k), you're still considered "covered by a retirement plan at work." Therefore, your eligibility for tax-deductible IRA contributions may be reduced, subject to your adjusted gross income (AGI) and IRS phase-out ranges.
I've paid all my payroll taxes through my employer; how does this affect my Solo 401(k) contribution calculation? Paying payroll taxes through a W-2 employer doesn't impact the calculation of Solo 401(k) contributions. Solo 401(k) contributions require the consideration of half of the self-employment tax, regardless of the payroll taxes already paid through your W-2 employment.
Can I adopt a Self-Directed Solo 401(k) plan as a restatement of my existing individual 401(k)? Yes, you can adopt a Self-Directed Solo 401(k) plan by restating your existing individual 401(k). To preserve the right to make Roth and/or after-tax contributions, this change should be made within the current tax year.
Are Solo 401(k) contributions exempt from state and local income taxes? Pre-tax contributions to a Solo 401(k) are generally exempt from federal taxes and are often also exempt from most state and local taxes. However, it's recommended to consult with state and local tax agencies for specific regulations and exemptions.
In an S-corporation, can Solo 401(k) contributions be made from a personal bank account? For an S-corporation, Solo 401(k) contributions can be made from either the corporation's bank account or a personal bank account, as long as they are based on W-2 wages. The key is compliance with IRS rules regarding the source and basis of the contributions.

Participant Loan FAQs

Who may borrow money from his or her Self-Directed Solo 401(k) plan? Assuming the Self-Directed Solo 401(k) plan contains loan provisions that allow for participant loans, as the Turnkey plan document does, as trustee you are permitted to borrow from your Solo 401 (k).
What is a reasonable rate of interest for Solo 401(k) loans? As long as the Self-Directed Solo 401(k) loan interest rate is consistent with the interest rate charged by commercial lenders for a loan made under similar conditions, the interest rate is considered reasonable. Rates considered reasonable by the DOL for loans secured by a participant’s Solo 401(k) account balance range from a certificate deposit rate plus 2 percent to the prime rate plus 1 percent.
Should the Self-Directed Solo 401(k) plan loan interest rate be reviewed each time a new Solo 401(k) loan is made? Yes. The DOL regulations require that the reasonable rate of interest standard must be reviewed each time a loan is originated, renewed, renegotiated or modified. A Self-Directed Solo 401(k) plan sponsor cannot simply choose a loan rate at the time the plan is set up and use that rate continuously. Loan rates must be reviewed and updated as often as needed to confirm that they remain uniform with commercial lending practices.
How is the Self-Directed Solo 401(k) participant loan secured? Up to 50% of the present value of a participant's account balance can be used to secure a loan. This is determined at the time the Self-Directed Solo 401(k) loan is made. Therefore, if a Solo 401(k) participant borrows one half of his or her account balance and then takes a Solo 401(k) hardship distribution before the loan is repaid, he or she will still be in compliance with this rule.
Must the Self-Directed Solo 401(k) administrator examine the creditworthiness of each Solo 401(k) borrower? No, the DOL does not require plan administrators to review financial statements or other indications of creditworthiness of each Self-Directed Solo 401(k) participant who wants a loan.
Are there any restrictions on how a Self-Directed Solo 401(k) loan is used by a participant? No, there are no restrictions on how a Self-Directed Solo 401(k) loan is used by a participant, as long as the employer does not place any restrictions on the use of the loan that would benefit itself, a fiduciary, or other party in interest.
Does the DOL impose any other restrictions on Self-Directed Solo 401(k) participant loans? Yes, the parties to a Self-Directed Solo 401(k) loan agreement must intend to repay the loan. It is important that the plan administrator is diligent in ensuring amounts due on participant loans are timely made.
How may taxation of Self-Directed Solo 401(k) participant loans be avoided? To avoid taxation of a participant loan at the time the loan is made, the following three conditions must be met: (1) The loan must be paid in full within five years unless it's used to acquire a principal residence. (2) The loan must require substantially level amortization of principal and interest with payments required at least quarterly. (3) The loan is limited to a dollar limit equal to the lesser of $50,000 or one half of the participant's vested accrued benefit.
What is the maximum Self-Directed Solo 401(k) Loan Amount? Generally, the maximum amount an employee may borrow at any time is one-half the present value of his/her vested account balance, not to exceed $50,000. The calculation differs if an individual has more than one outstanding loan from the plan.
What happens if the Self-Directed Solo 401(k) Loan amount exceeds the allowed amount? If the principal loan amount exceeds the allowed amount, the excess will be deemed a distribution and thus taxable to the participant. It will be subject to a 10% early distribution penalty if the employee is under age 59 1/2.

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