Who is eligible for a Solo 401k?
The Solo 401(k) is the best option for an individual who is either self-employed, or plans to be self-employed, with no full-time employees other than themselves or a spouse.
Solo 401k Qualified Parties:
The following list, while incomplete, is a good example of self-employed categories that should consider setting up a Solo 401(k) plan:
- IT Consultant
- Engineering Consultant
- Financial Consultant
- Freelance Writer
- Real Estate Professional
- Health Care Providers
- Internet Based Business
- Web Designer
- Legal and Tax Professionals
- Sales Representative
- Artists and Graphic Designers
- At-Home Contract Work
- Hair Stylist
- Home Based Business
- Gardening & Landscaping
- Construction Subcontractor
- Home Stager
- Music Teacher
Are W-2 Employees Qualified Parties?
Even if someone is a W-2 employee, they can still set up a Solo 401(k) for a side business as long as there is an intent to earn income. A good example would be someone who works 40 hours a week as a full-time employee and then operates a blogging website that produces income.
In this circumstance, an individual can set up a Solo 401(k) plan in order to rollover a 401(k) or some other pension or retirement plan from a former employer, or move funds from an IRA account.
In other words, the individual can operate both 401(k) plans and enjoy the benefits of investing outside the stock market with the Solo 401(k) while being forced to invest in the stock market by a current employer 401(k) or other pension or retirement plan.
Solo 401k Qualified Parties Summary:
The Solo 401(k) is an extremely flexible plan that allows the self-employed individual the opportunity to make a wide range of investment choices.