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These terms all mean the same thing:
Solo 401(k) | Individual 401(k) | Self Employed 401(k)
There are no differences in these terms. Over the course of time, different people and companies have used different terms to describe the same thing.

A Solo 401(k) plan is a type of qualified retirement plan as defined

in the Internal Revenue Code, Section 401, Paragraph k. The sole purpose of the Solo 401k plan is to provide a vehicle for reducing taxable income that can be invested into a wide range of assets in order to provide retirement income at the appropriate time.

What is a Solo 401(k) plan designed to do?

The Solo 401k plan is designed for a small business owner who has no full-time employees other than themselves or a spouse.  The plan may be self-administered by the business owner, making him or her the “trustee” and thereby eliminating the need to engage a third party to handle administration or investments.

Initial Funding

Initial funding of the plan, may come from rolling over any of the following retirement plans: traditional or rollover IRA, SEP IRA, SIMPLE IRA, 401(k) from a previous employer, profit sharing plans, defined benefit plans, and most other pension and retirement plans. Roth IRAs may not be rolled into a Solo 401k plan, but a Roth account can be created inside the plan.  Rolled funds, or future contributions, once received by the plan, can be converted to a Roth account.

Plan Set Up

Set up of the plan can be accomplished in 3 simple steps:

  • Step 1: Fill out a simple questionnaire in order to have plan documents produced.
  • Step 2: Plan documents are delivered and paperwork is executed.
  • Step 3: A bank account is established by the plan trustee to receive rollover funds

Once funds have been rolled over into the checking account for the Solo 401(k) plan from other qualified retirement plans, the trustee can make investments simply by writing a check.

Solo 401(k) Contributions

Like any full-blown 401k plan, for any sized company, the Solo 401k has two parts:  employee deferral and employer profit sharing.  Since the small business owner is both employee and employer, he/she can decide how to fund both sides of the equation or not to fund it at all (since there is no requirement to do so). In 2013, depending upon the income level of the business, a combination of employee deferral and profit sharing could equal as much as $53,000 (or $59,000 if age 50 or older).

Personal Loan Provision

A distinguishing feature of the plan from other types of self-employment plans is that the small business owner is able to take out a personal loan (for any purpose) from the plan. Loan limits are 1/2 the value of the assets, or a maximum $50,000.  The loan is paid back over a 5 year period.  For many self-employed persons, this is a valuable benefit of the plan since traditional loans may not be available.

Solo 401k Plan Administration

Administration of the Solo 401k plan is also quite simple. Annual paperwork to maintain the plan is minimal and inexpensive. The only IRS filing that is required is when the assets in the plan exceed $250,000. At that point, you, or your accountant, will fill out an IRS Form 5500EZ which is purely informational. No other filings are required.

To Sum It Up

The Solo 401k is the best option for anyone who is self-employed (with no full-time employees other themselves or a spouse) and would like to maximize contributions to their retirement plan or take advantage of the loan provision.

Your Next Step

For immediate analysis of your situation and the best strategy for your investment interests, call us today at 877-229-9763

Solo 401k Contribution Limits
Who Qualifies for a Solo 401k Plan?