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How it Works

How the Solo 401(k) Works

Solo 401(k) Plan (also known as the Individual 401(k) Plan or Self-Employed 401(k) Plan) is an IRS approved type of qualified plan. It’s a popular plan created by the Congress and IRS. The purpose of this plan is explicitly to benefit any business with zero employees except for the owners. The owner can establish their business as a sole proprietorship, LLC, corporation or partnership.

You may also know of this retirement plan as the “one-participant plan 401(k).” This isn’t new. In fact, it’s just like the Traditional 401(k), except it only covers one person. It became more popular in 2002 when the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) came about.

Prior to that tax law change, people who were self-employed, generated a portion of their total income through self-employment activities and small business owners had no reason to establish a 401(k). They received the same advantages as with an IRA.

Today, the Solo 401(k) Plan is the most popular plan for small business owners and the like. First, it adds the employee deferral feature. This is an investment you place into a retirement account. You make the investment before taxes and the money goes into your account and builds interest. Because of the employee deferral feature, this retirement plan offers the highest contribution benefits to self-employed individuals. Essentially, it allows you to increase your maximum contribution.

Is the Solo 401(k) the Ultimate Retirement Plan for the Self-Employed?

This is the best retirement plan for sole proprietors, small business owners, consultants or independent contractors. You know all about the Self-Directed IRA LLC? Well, a Solo 401(k) offers the same abilities as a Self-Directed IRA LLC but excludes the need for a custodian or LLC. With this retirement plan, you roll over your existing IRA or 401(k) funds into your new Solo 401(k).

It is the “ultimate retirement plan” if you fall under one of the following categories:

Solo 401(k)You can easily see why it’s the best retirement plan for the above individuals when you review the benefits of a Solo 401(k) Plan.

Of course, you don’t have to use a self-directed IRA company to establish a Solo 401(k). You can also use a traditional financial institution, such as Vanguard. However, we don’t recommend this alternative, and here’s why:

IRA Financial Solo 401(k) vs Vanguard Solo 401(k)

  • At Vanguard, you can only make traditional investments – you can’t invest in cryptocurrency, real estate or any other alternative asset
  • There is no loan feature at Vanguard – at IRA Financial Group, you can borrow up to $50,000 or 50% (whichever is less) from your IRA
  • IRA Financial Group’s Solo 401(k) allows you to use nonrecourse leverage tax-free when you make real-estate investments with plan assets


Judy, The IT Consultant

To better understand how this retirement plan works, let’s look at the example of Judy, the IT Consultant from Solo 401(k) in a Nutshell (Second Edition).

Judy is a 33-year-old IT consultant. Recently, she got a divorce which hurt her financially. However, since then, she began her own business providing IT support and software development services to small and midsize corporations. Her business is doing well, and she wants to expand. However, she knows that an increase in her income means higher taxes.

To better inform herself, she goes to a conference and learns about retirement plans such as SEI and SIMPLE IRAs. She also learns about the Solo 401(k) Plan. After a little research, she realizes that a Solo 401(k) is ideal for her current position. Also, she loves the benefits of this retirement plan.

Advantages of the Solo 401(k)

Solo 401(k)As a single member LLC with no full-time employees, Judy is eligible to adopt a Solo 401(k) Plan. Additionally, it fits her needs perfectly.

Will the Solo 401(k) retirement plan fit your needs? Contact IRA Financial Group today. Our team has a process that ensures speed and compliance. Your funds will be ready to invest into your new Solo 401(k) Plan within 24 hours.

How to Start a Solo 401(k)

A Solo 401(k) is a very cost-effective plan that's easy to administer. At IRA Financial Group, our 401(k) will help you start a Solo 401(k) plan and provide you with all documentation within approximately 48 hours.

To get started, you must fill out an application with your information, such as the adopting employer. From there, you will be assigned to a 401(k) specialist who will work with you one-on-one. A trust is created and IRA Financial group will obtain a tax ID # for that trust. Our team will create all of your plan documents based on the information you provide in the application.

We will send the information to you through email and provide you with instructions on how to open a bank account for your plan. You can do this at your local bank. At that point, when your account is open, you can instruct the previous custodian to rollover the funds to the new account. Additionally, you can make personal contributions to the Solo 401(k) based on your self-employment. From there, you can begin investing in non-traditional assets, like real-estate and private funding.

We wrote the book on the Solo 401(k)

A simple, yet informative handbook, Going Solo: America’s Best-Kept Retirement Secret for the Self-Employed was written to help small business owners and self-employed individuals discover the many advantages of establishing a Solo 401(k) Plan.

In an effort to eliminate the complexity of how one can establish an individual 401(k) plan, Adam Bergman wrote Solo 401(k) in a Nutshell. The book “…simplifies the process (of establishing a Solo 401(k) while…providing everything one needs to maximize their retirement assets” and gain financial freedom.

Learn more about the books →

Get in Touch

Do you still have questions about the Solo 401(k) plan, such as how to start a Solo 401(k)? Contact IRA Financial Group directly at 800-472-0646. You can also fill out the form to speak with an on-site 401(k) specialist. He or she is available to answer all of your questions.

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