New Plan New Customer
(FIRST TIME SOLO(K) CUSTOMER)
$600 Record Keeping +
$595 Plan Document +
$35 Setup =
YEAR TWO ONWARD:
$1,195 ANNUALLY
- One Time Setup
- Plan Document
- Record Keeping
Move On Over
(EXISTING SOLO(K) CUSTOMERS ON ALTERNATE PLATFORMS)
$600 Record Keeping +
$295 Plan Document +
$35 Setup =
YEAR TWO ONWARD:
$895 ANNUALLY
- One Time Setup
- Plan Document
- Record Keeping
Compare to other Providers
| 401(k) Feature Comparison | SEPira(k) | Other Providers |
|---|---|---|
| Plan Creation Perform Government Required Tests and Generate your Specific 401(k) Plan |  | |
| Plan Trust Document/Basic Plan Document Also known as the "Basic Plan Document" this document contains all rulles pertaining to features available to adopt for the 401(k) plan | | |
| Adoption Agreement The document a plan sponsor/employer completes that contain the features adopted from the Plan Trust Document | | |
| IRS Opinion Letter IRS approval letter showing the 401(k) document is compliant | | |
| Plan Updates/Good Faith Amendments Plan updates are "good faith amendments" to incorporate new legislative changes that affect the operations of a plan. | | |
| Ammendments Amendments on other hand could be changes made by an employer to their existing adoption agreement Ex. changing whether the plan allows for Designated Roth contributions, or adding a loan feature. | |  |
| Unlimited Participants Employees who are eligible to participate in the plan. These are employees who have satisfied the age and service requirements for plan participation | | |
| Spouse(s) Included A spouse of the owner is considered an owner and may contribute if they have earned income from the business. | | |
| Partner(s) Included Partners are considered owners therefore can contribute if they have earned income from the business. | | |
| Per Asset Fee Self-directed IRA administrators charge a per asset fee when it comes to record keeping. To qualify what self-directed means, it investments such as real estate, private placements, notes, and others. Since most of the transactions are adminsitered in a manual fashion, its more labor intensive which warrants higher fees. | | |
| Unlimited Beneficiaries Named individuals or entities that will inherit the assets of a deceased participant | | |
| IRS Notices Quick IRS guidance/pronoucements on how to handle certain events or transactions | | |
| Loan Policy Statements Outlines how the plan's loan program works (e.g., interest rate determination, how many loans that plan allows) | |  |
| Loan Documents/Loan Agreements Binding contract signed by the participant regarding loan repayment | | |
| Loan Eligibility Tracking Determines the remaining amount available for loans under a participant's account | | |
| Loan Repayment Tracking Monitors payments made on loan agreements | | |
| Contribution Records Record contributions amounts, type and effecitve dates | | |
| Distribution Records Tracks disbursements from participant accounts | | |
| 1099-R IRS Form Preparation IRS Form filed with the IRS and provided to a participant who took a distribution from their 401(k) account | | |
| 5500-EZ IRS Form Preparation Once the assets of a 401(k) plan reaches $250,000 this IRS Form must be filed with the IRS annually | | |
| 401(k) Plan Transfers None reportable, non taxable event of exchanges of investments within the same plan. | | |
| Plan Restatements For existing 401(k) prototype documents, the document is required to be recompleted every 6 years | | |
| Investment Statements Statements from investment providers | | |
| Record Keeping - Plan Owner Trustee/trustees of the business | | |
| Record Keeping - Plan Participants Participants of the plan | | |
| Timely Alerts and Advisories | | |
| FDIC Insured Account - Deferrals Cash in checking accounts at banks | | |
| FDIC Insured Account - Contributions Cash in checking accounts in banks | | |
| FDIC Insured Account - Match Cash in checking accounts at banks | | |
| FDIC Insured Account - Roll Overs Cash in checking accounts in banks | | |
| Wire Transfers Incoming Dollars wired to investment providers or distributions | | |
| Wire Transfers Outgoing Dollars wired to investment providers or distributions | | |
| Wire Transfers Incoming International Same as "Wire Transfers Incoming" but to international entities | | |
| Wire Transfers Outgoing International Same as "Wire Transfers Outgoing" but to international entities | | |
| ACH Transfers Means of sending cash that is cheaper than wires | | |
| Debit Card Physical Means of accessing plan assets for payment of plan expenses without wiring or ACH or check | | |
| Debit Card Virtual Electronic version of Debit Card Physical | | |
| Physical Checkbook Capability to write checks from plan assets | | |
| Roth Contributions Contributions to the Designated Roth source in the plan | | |
| Fair Market Value Reporting Shows the value of an asset (e.g., real estate, notes, stocks). Can be used for distribution reporting or asset valuation to determine IRS Form 5500-EZ filing | | |
| Documents & Form Storage Repository for proof of documentation of plan documents, investment documents, transactional documentation and others | | |
| Compliance Speed Bump The recordkeeper relies on the plan administrator for direction regarding plan operations. Novice plan adiminstrators do not know all the rules therefore a brief explanation of the rules may be provided for transactions to interevene before non-compliant transactions are executed. | | |
| Seperate Accounting of different sources under the plan As part of the recordkeeping requirements in a 401(k) plan the different sources of contributions (i.e,, deferrals, match, profit sharing, designated Roth, rollovers) must be tracked separately. The income and expenses for each source must also be allocated appropriately to each source. | | |
Frequently Asked Questions
What is a Solo 401(k)?
Summary: A solo 401(k) is a retirement plan for self-employed individuals or small business owners with no full-time employees other than the owner(s) and their spouse.
A Solo 401(k), also known as an Individual 401(k), One-Participant 401(k), or Solo-k, is a type of retirement plan designed specifically for self-employed individuals or small business owners with no employees other than the owner and their spouse. It is similar to a traditional 401(k) plan offered by larger companies, but tailored for smaller businesses and self-employed professionals.
The Solo 401(k) allows the business owner to contribute as both the employer and employee, which often results in higher contribution limits compared to other retirement plans like IRAs or SEP IRAs. The contribution limits are subject to annual adjustments by the IRS.
There are two types of contributions that can be made to a Solo 401(k):
Employee (elective) contributions: The business owner can contribute a portion of their earned income (salary or self-employment income) as an employee, up to the annual limit set by the IRS. As of 2021, the limit was $19,500 for individuals under 50 years old and $26,000 for those 50 or older, including catch-up contributions.
Employer (profit-sharing) contributions: As an employer, the business owner can make additional profit-sharing contributions up to 25% of their compensation or earned income. The combined total of employee and employer contributions cannot exceed $58,000 for individuals under 50 and $64,500 for those 50 or older, as of 2021.
A Solo 401(k) plan can be set up as a traditional (pre-tax) or Roth (post-tax) account, or a combination of both, depending on the individual's financial needs and goals. The key advantage of a Solo 401(k) is the potentially higher contribution limits, which can help self-employed individuals and small business owners save more for retirement.
Who is eligible for a Solo 401(k)?
Summary: Self-employed individuals or small business owners with no full-time employees other than the owner(s) and their spouse are eligible for a solo 401(k).
A Solo 401(k) is designed for self-employed individuals and small business owners who meet specific eligibility criteria. To be eligible for a Solo 401(k), you must:
Be self-employed or own a small business: You must have self-employment income, either as a sole proprietor, an independent contractor, or a small business owner (partnerships, LLCs, or corporations). The business does not have to be your primary source of income, but it should generate income.
Have no full-time employees other than yourself and your spouse: A Solo 401(k) is meant for businesses with no full-time employees other than the business owner and their spouse. If your business has any full-time employees who work more than 1,000 hours per year (excluding yourself and your spouse), you generally cannot establish a Solo 401(k) plan. However, part-time employees or independent contractors who work less than 1,000 hours per year do not affect your eligibility.
If you meet these criteria, you may establish a Solo 401(k) plan to take advantage of the higher contribution limits and tax benefits associated with this type of retirement account. Keep in mind that if your business grows and you hire full-time employees in the future, you will need to transition to a different type of retirement plan, such as a traditional 401(k) or a SIMPLE IRA, which can accommodate a larger workforce.
Can I rollover funds from another 401(k) into my solo 401(k)?
Summary: Yes, you can rollover funds from another 401(k) of a previous employer into your solo 401(k) plan.
Yes, you can generally rollover funds from another 401(k) plan into your Solo 401(k), as long as the Solo 401(k) plan document allows for rollovers and the funds are from a qualified retirement plan. Rolling over funds from another 401(k) to your Solo 401(k) can help you consolidate your retirement savings and streamline the management of your retirement accounts.
Here are the steps to rollover funds from another 401(k) into your Solo 401(k):
- Check your Solo 401(k) plan document: Ensure that your Solo 401(k) plan document permits rollovers from other qualified retirement plans. If it doesn't, you may need to amend the plan document to allow for rollovers.
- Contact your previous 401(k) plan provider: Notify the provider of your previous 401(k) plan that you wish to rollover the funds to your Solo 401(k). They will provide you with the necessary forms and instructions to initiate the rollover process.
- Choose the rollover method: There are two methods to roll over your funds to a Solo 401(k):
- Direct rollover (trustee-to-trustee transfer): This is the preferred method, as it involves a direct transfer of funds between the two 401(k) plans without the funds being payable to you. This method generally avoids taxes and penalties.
- Indirect rollover: In this method, the previous 401(k) provider will issue a check payable to you for the amount you want to roll over. You must deposit the funds into your Solo 401(k) within 60 days to avoid taxes and penalties. Note that the IRS requires a 20% mandatory withholding for taxes on indirect rollovers, which you'll need to make up from your own funds when depositing the check into the Solo 401(k) to avoid taxes on the withheld amount.
- Complete the rollover: Follow the instructions provided by both the previous 401(k) provider and your Solo 401(k) provider to complete the rollover process. Once the funds are transferred to your Solo 401(k), they will be subject to the rules and regulations governing Solo 401(k) plans.
Before initiating a rollover, it's a good idea to consult with a tax professional or financial advisor to ensure the rollover is executed correctly and to understand any potential tax implications.
What are the tax benefits of a solo 401(k)?
Summary: Contributions to a solo 401(k) are tax-deductible and the investment earnings grow tax-deferred until withdrawn at retirement. In some cases if the contribution was contributed to a Roth, although the participant forgoes the tax deduction, the earnings on the investment eventually may be distributed tax-free.
A Solo 401(k) offers several tax benefits for self-employed individuals and small business owners, including tax-deductible contributions, tax-deferred growth, and the potential for tax-free withdrawals with a Solo Roth 401(k). Here are the key tax benefits of a Solo 401(k):
- Tax-deductible contributions: Contributions made to a Traditional Solo 401(k) can be deducted from your taxable income, reducing your current tax liability. Both employee (elective) contributions and employer (profit-sharing) contributions are generally tax-deductible.
- Tax-deferred growth: The earnings and gains in a Traditional Solo 401(k) grow tax-deferred, meaning you don't pay taxes on the investment earnings until you take distributions in retirement. This allows your savings to compound over time without the drag of annual taxes, potentially resulting in a larger retirement nest egg.
- Tax-free withdrawals with a Solo Roth 401(k): If you choose to contribute to a Solo Roth 401(k) instead of a Traditional Solo 401(k), you won't receive an upfront tax deduction for your contributions. However, your investment earnings grow tax-free, and qualified withdrawals are tax-free in retirement. Qualified withdrawals from a Solo Roth 401(k) are those made after you have reached age 59½ and at least five years have passed since your first Roth Solo 401(k) contribution.
- Catch-up contributions: If you are age 50 or older, you can make additional catch-up contributions to your Solo 401(k), which can help reduce your taxable income further and boost your retirement savings.
- Potential tax credits: Small business owners may be eligible for a tax credit for setting up and administering a Solo 401(k) plan. The credit can be claimed for up to three years and is equal to 50% of the plan's setup and administration costs, up to a maximum of $500 per year.
It's important to consult with a tax professional or financial advisor to understand the tax benefits of a Solo 401(k) based on your specific financial situation and to develop a retirement savings strategy that optimizes these benefits.
What are the investment options for a Solo 401(k)?
Summary: Solo 401(k) plans typically offer a variety of investment options including mutual funds, exchange-traded funds (ETFs), and individual stocks and bonds. However you are not limited to Securities, as long as you have a robust recordkeeping system you can hold other assets such as real estate, notes, tax liens and others. As a trustee of your plan, you are not limited by what a provider offers.
A Solo 401(k) offers a wide range of investment options, allowing self-employed individuals and small business owners to tailor their retirement portfolio according to their risk tolerance and financial goals. The available investment options for a Solo 401(k) typically include:
Stocks: Individual stocks from publicly traded companies can be part of your Solo 401(k) portfolio.
Bonds: Corporate, municipal, and government bonds can be included in your Solo 401(k) to provide income and diversification.
Mutual funds: These are pooled investment vehicles that invest in a diversified mix of stocks, bonds, or other assets, managed by professional fund managers.
Exchange-Traded Funds (ETFs): These are similar to mutual funds but trade on stock exchanges like individual stocks, offering intraday liquidity and lower expense ratios.
Money market funds: These are low-risk investments that invest in short-term, high-quality debt securities, providing stability and liquidity.
Target-date funds: These funds are designed to automatically adjust their asset allocation over time, becoming more conservative as you approach your target retirement date.
Real Estate Investment Trusts (REITs): These are companies that invest in income-producing real estate properties and can provide a source of diversification and income.
In addition to these standard investment options, you can also consider a self-directed Solo 401(k), which offers even more investment flexibility. With a self-directed Solo 401(k), you can invest in alternative assets, including:
Real estate: Direct investment in residential or commercial properties, land, or real estate development projects.
Private equity: Investments in privately held companies, either through direct investment or private equity funds.
Precious metals: Physical gold, silver, platinum, or palladium, often in the form of coins or bullion.
Tax liens: Investing in tax lien certificates, which are issued by local governments when property owners fail to pay their property taxes.
Private loans or mortgages: Offering loans to individuals or businesses, secured by collateral such as real estate.
Limited partnerships: Investments in businesses structured as limited partnerships, such as oil and gas ventures or film productions.
Certain types of cryptocurrency: Some self-directed Solo 401(k) plans allow investments in cryptocurrencies like Bitcoin or Ethereum, though this may vary depending on the plan provider.
Keep in mind that self-directed investments often require a higher level of expertise and due diligence, as they involve more complex assets and higher risks. It's essential to consult with a financial advisor or tax professional and invest in a record-keeping system that tracks self-directed investments in a Solo 401(k) to ensure compliance with IRS rules and regulations.
