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Solo 401K – Too Good to be True?

For over thirty years, the IRS approved Solo 401K Plan has been used by hundreds of thousands of small business owners and self-employed individuals.

A Solo 401K Plan was designed by the IRS to be a cost effective 401(k) profit sharing plan exclusively for the self-employed or small business owner with no employees. The Solo 401K Plan has many of the same advantages of a conventional 401K Plan, however, it is far easier to administer and does not require any IRS filings if the plan assets do not exceed $250,000.

Prior to the establishment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) in 2002, there was not much incentive for a self-employed individual to adopt a Solo 401K Plan since the same benefits were available with a SEP. EGTTRA allowed for a business with no employees to put more money aside for retirement and to operate a more cost effective, less complex 401(k) Plan.

EGTRRA provides some key changes that led to the popularity of the Solo 401K Plan:

  • EGTRRA increased the deductible profit sharing contribution limit from 15% to 25% of employee compensation.
  • EGTRRA increased the annual limit participant to the lessor of an annual maximum dollar amount of $49,000 ($54,000 for those over the age of 50) or 100% of the participant’s compensation.
  • EGTTRA created the designated Roth contribution program. Solo 401K Plan participants may designate all or a portion of their employee deferral contributions as Roth contributions. The Roth earnings grow tax-free if they are distributed as of a qualified distribution.
  • EGTTRA expanded the loan feature of 401(k) Plans to the self-employed

The Solo 401K is perfect for any self-employed individual or small business owner with no non-owner employees. One of the most notable benefit of the Solo 401k Plan is that it does not require the participant to hire a bank or trust company to serve as trustee. This flexibility allows the Solo 401K Plan Participant (you) to serve in the trustee role. This means that all assets of the Solo 401K trust are under the sole authority of the trustee, you.. A Solo 401(k) plan allows you to eliminate the expense and delays associated with an IRA custodian, enabling you to act quickly when the right investment opportunity presents itself.

With a Solo 401K Plan, also know as an Individual 401K or Self Directed 401K, you will be able to invest in almost any type of investment opportunity that you discover, including real estate. you are only limit is your imagination. The income and gains from these investments will flow back into your 401K Plan tax-free.

To learn more about the benefits of a Solo 401K Plan, please contact a Solo 401K expert at 800-472-0646 or visit

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