Owning your own business can be incredibly rewarding. However, being an entrepreneur requires different considerations for retirement than just being an employee.

Placing your retirement funds in a Solo 401(k) or self-directed 401(k) can offer many benefits including the freedom to invest what you want as you do in your business.

Find out how a Solo 401(k) differs from traditional retirement plans and why it might make sense for your business.

What Is a Solo 401(k)?

A Solo 401(k) plan is a retirement account designed for business owners who own a business with no employees.

Solo or Individual 401(k)s allow business owners to deduct savings from their paycheck and contribute to a qualifying 401(k) structured account.

Solo 401(k)s are only reserved for self-employed business owners, as they cannot legally contribute to a Solo 401(k) if they have any employees.

However, you can use the Solo 401(k) plan to save for your and your spouse’s retirements.

Solo 401(k) Structure and Contribution Limits

Solo 401(k)s enable employers to contribute in two ways:

  • Elective Deferrals: Self-employed individuals can contribute up to 100% of their compensation into the fund up until contribution limits: ($22,500 in 2023 for ages under 50 or $30,000 for ages 50 and older).
  • Employer Nonelective Contributions: Contribute up to 25% of your employee compensation (defined by the plan) or a special amount calculated for self-employed individuals (calculated here).
  • Total contribution limits for Solo 401(k) plans total $66,000 in plan year 2023 with a catch-up rate of $7,500 for anyone 50 or older.

Benefits of a Solo 401(k)

Different types of investment vehicles have different benefits. For example, unlike Roth IRAs, 401(k)s don’t have income limits, meaning anyone, including business owners, can contribute to one.

While Solo 401(k) plans have their own rules and regulations, they are also ripe with benefits.

  • Tax-Benefits. Choose between making contributions via a Roth plan, tax-deductible through a traditional plan, or using a hybrid of the two methods.
  • Large Contributions. You can put more money in this plan, in excess of $63,000 each year per person. For investors who are age 50 or older, there is a catchup contribution option that will allow them to contribute an additional $7,500 in 2023.
  • Choose Your Tax Benefit. Contributions can be made via Roth, tax deductible (traditional) or both.
  • No Income Limits. You can make Roth contributions directly to the plan even if you are a high income earner.
  • Flexible Contributions. You have the flexibility to change your contributions from year to year based on your income and profitability.
  • Personal Line of Credit. You can create a personal or business “line of credit” by personally taking loans from your Individual (k) and paying the interest back to your account.
  • Tax Free Loans. Access the money in your retirement account when you need it by taking out a loan from your 401(k) without paying taxes or penalties, just interest to yourself.

Why Invest with Horizon Trust?

  • Complete Control. The ability to self-direct your individual(k) account. You can invest in traditional investments like stocks and mutual funds but also can invest in real estate, FOREX, trust deeds, notes, tax liens, precious metals and virtually anything else you can imagine.
  • One call does it all. Horizon Trust is the only company you will need to call to answer questions and service your account. No more calling your custodian and your administrator to get things done.
  • Flexible Fee Payment Options. Unlike other plans that require you to write a check upfront for all your fees, you can choose to pay your fees by check, credit card or have them deducted from your account once it is set up.*
  • Simplified paperwork. Our qualified plan application is short and straightforward unlike most Indi(k) paperwork.
  • Save Money. We offer the most competitive fees in the industry. Now, everyone can afford to have an Individual(k).

*If you choose to pay your fees from inside your account simply pay the set-up fee of $350. All other fees will be deducted once your plan is established and your transfer, rollover or contribution is received.

Individual 401(k) FAQs

What’s the difference between a 401(k) and Solo 401(k)? 

Solo 401(k)s are designed specifically for sole proprietors of businesses and are classified by the IRS as One-Participant 401(k) Plans. Further, Solo 401(k)s offer much more investment freedom and are not restricted by what individuals can invest in.

Who can open a Solo 401(k)?

Business owners who have zero employees are eligible to invest in a Solo 401(k).

How do I qualify for a Solo 401(k)?

To qualify for a Solo 401(k), you need to be an established business owner, under the tax code, and have no full-time employees.

Can I list my spouse on my Solo 401(k)?

Yes, you can also involve your spouse with your Solo 401(k).

Are there any restrictions on what I can rollover to my Solo 401(k)?

The IRS allows you to rollover any funds from an existing retirement account, except for a Roth IRA.

What can I invest in with a Solo 401(k)?

Similarly to traditional retirement accounts, you can invest in stocks, bonds, and mutual funds with your Solo 401(k). However, you can also invest in real estate and other non-traditional investments. There are fewer limitations on Solo 401(k) accounts.

Is there a limit on the funds I can transfer to a Solo 401(k)?

No, there is no limit on the funds you can transfer without triggering a tax.

How much money do I need to start a Solo 401(k)? 

There is no minimum income requirement to start a Solo 401(k).

America’s #1 most trusted self-directed custodian




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