A solo 401(k) plan, also called an individual 401(k), is a plan for the self-employed by which you act as both the sponsoring employer and employee. You can actually contribute more than in a traditional 401(k) because you can match your own contributions. In order to qualify you must run a business where there are no employees beyond yourself and your spouse, if applicable.
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Solo 401(k) Plan FAQs
A Solo 401(k) Plan is a qualified retirement plan specifically designed for self-employed individuals or small business owners with no full-time employees other than the owner and his/her spouse.
Your Solo 401(k) Plan allows you to invest in almost any type of investment, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate investment trusts (REITs), and more.
No, you don't need a special account to set up your Solo 401(k) Plan. Any existing brokerage or bank accounts that are IRS compliant can be used. However, it is important to check with your financial institution first before investing any funds into a Solo 401(k) Plan.
Contributions to a Solo 401(k) Plan can help reduce your taxable income, potentially lowering your taxes and increasing your retirement savings. Furthermore, withdrawals taken from a Solo 401(k) Plan after age 59 ½ may be free from federal income tax. Additionally, Roth contributions allow you to contribute post-tax dollars and receive tax-free growth.
Most financial institutions will charge set-up and maintenance fees for administering the plan, but these fees tend to be much lower than the cost of setting up and maintaining a traditional 401(k). Additionally, some fund companies may charge additional fees for their services. It is important to speak with your financial institution to understand all associated costs.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
