In order for a Solo 401k to exist, it must have a sponsoring business. A small business, whose owner has no full-time employees other than themselves or a spouse, can be the sponsor. The small business can be organized as a sole proprietorship, LLC or Corporation.
The plan is typically self-administered by the business owner and is therefore known as a “self-trusteed” plan. This means the business owner wears numerous hats. He/she is both the employee and the employer of the business, and also the “trustee” of their own 401k plan.
Set Up of a Solo 401k Plan:
Solo 401k plans are set up by a qualified provider such as a third party administrator (TPA), a brokerage company or an attorney. Ongoing support for these plans is critical and they should be set up and supported by the same person or entity to insure continuity and compliance.
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 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.
Learn More About Solo 401k Plans:
- Solo 401k Overview.
- Solo 401k Educational Video
- What is a Solo 401k?
- Who is eligible for a Solo 401k?
- What is the process of setting up a Solo 401k?
- How can you get a Solo 401k Plan?
