1099 Solo 401k: A Comprehensive Guide to Retirement Savings

If you're a 1099 worker, you're likely no stranger to the idea of retirement savings. However, traditional employer-sponsored plans may not be an option for you.

The 1099 solo 401(k) plan is a great alternative, offering a way to save for retirement while also providing tax benefits. This plan allows you to contribute up to 20% of your income, with a maximum contribution limit of $57,000 in 2022.

As a solo 401(k) plan, it's designed for self-employed individuals and small business owners. This means you can set up a plan that's tailored to your specific needs and business structure.

You might enjoy: Solo 401k S Corporation

A solo 401(k) is a great option for self-employed individuals, offering tax advantages and investment opportunities similar to a traditional 401(k).

To participate in a solo 401(k), you'll need to earn income from your own business, whether as a freelancer, consultant, or small business owner.

You can contribute up to $23,000 in 2024 (or $23,500 in 2025) as an employee deferral, and make an employer contribution of up to 25% of your net earnings from self-employment.

For another approach, see: Solo 401k Self Directed

The solo 401(k) allows you to contribute as both an employer and an employee, providing flexibility in terms of contribution limits and tax deductions.

You can set up a solo 401(k) at most online brokers, such as Charles Schwab and Fidelity Investments, which don't charge a fee to set it up or an ongoing maintenance fee.

Here are the key benefits of a solo 401(k):

A solo 401(k) plan is an individual 401(k) designed for a business owner with no employees.

You can't contribute to a solo 401(k) if you have full-time employees, but you can use the plan to cover both you and your spouse.

A solo 401(k) is a type of retirement plan that allows business owners to save for their future on a tax-deferred basis.

This plan is designed to be used by self-employed individuals or business owners with no employees, making it a great option for those who want to save for retirement on their own terms.

A unique perspective: Solo 401k Plan Document

A retirement plan is a type of savings plan that helps you prepare for your golden years. You can think of it as a way to set aside money for the future, so you can live comfortably when you're no longer working.

A Solo 401(k) is a popular type of retirement plan designed for self-employed individuals or business owners with no employees. It offers the same tax advantages and investment opportunities as a traditional 401(k) plan.

Self-employment income from a business you own is required to be eligible for a Solo 401(k) plan. This includes freelancers, consultants, sole proprietors, and small business owners.

You can't have full-time employees, other than yourself and your spouse, to be eligible for a Solo 401(k) plan. Part-time employees who work less than 1,000 hours per year can be excluded from the plan.

A Solo 401(k) plan allows for higher contribution limits compared to other retirement plans. You can contribute up to $22,500 as an employee deferral/contribution, and your employer (that's you) can contribute another $43,500 into the plan for a total of $66,000.

For another approach, see: Individual Retirement Account

A Solo 401(k) is a retirement savings plan designed for self-employed individuals or business owners with no employees, except for a spouse.

You can contribute up to $23,000 in 2024 (or $23,500 in 2025) as an employee deferral, and as much as 25% of the business's income as an employer contribution.

The Solo 401(k) offers tax breaks, tax-deferred growth, and tax-free growth with a Roth option.

You can set up a Solo 401(k) at most online brokers, such as Charles Schwab and Fidelity Investments, which don't charge a fee to set it up or an ongoing maintenance fee.

To be eligible for a Solo 401(k), you must be self-employed or have self-employment income from a business that you own, and not have any full-time employees, other than yourself and your spouse.

A Solo 401(k) allows you to contribute as both an employer and an employee, potentially allowing you to save more for retirement.

You might enjoy: Solo 401k for Spouse

You can make pre-tax (or "Traditional") contributions to a Solo 401(k), which are tax-deferred, or Roth contributions, which don't receive a tax deduction up front but grow tax-free.

The employer contribution to a Solo 401(k) cannot exceed the total 401(k) limits for the given year, which is $69,000 in 2024 (or $70,000 in 2025).

You can make lump sum contributions to a Solo 401(k) at any time as long as you meet the contribution deadlines mentioned earlier.

Here are the contribution limits for a Solo 401(k):

It's essential to keep track of your contributions and maintain accurate records to report your contributions on your tax returns.

Distributions from a Solo 401(k) are generally subject to income tax if they are pre-tax contributions and may be subject to early withdrawal penalties if taken before the age of 59 1⁄2.

If this caught your attention, see: Solo 401k after Tax Contributions

A solo 401(k) is a great option for self-employed individuals, and understanding its key features and rules is essential to making the most of it. You can contribute up to $23,000 in 2024 (or $23,500 in 2025) as an employee deferral, and as much as 25 percent of the business's income as an employer contribution.

To be eligible for a solo 401(k), you must be self-employed or have self-employment income from a business that you own, and you must not have any full-time employees, other than yourself and your spouse. You can set up your solo 401(k) to make contributions on a pre-tax basis like a traditional 401(k), or contribute after-tax funds while enjoying tax-free growth and withdrawals like a Roth 401(k).

Here are the key contribution limits and deadlines to keep in mind:

Remember to establish the plan by Dec. 31 and make your employee contribution by the end of the calendar year, and employer profit-sharing contributions until your tax-filing deadline for the tax year.

The solo 401(k) and SEP IRA are both popular retirement plans for self-employed individuals, but they have some key differences. The main difference between the two plans is their contribution limits, although both plans allow similar amounts to be saved each year.

Both plans offer flexibility in terms of contribution types, with the solo 401(k) allowing both traditional and Roth contributions, while the SEP IRA only allows traditional contributions.

Here are the key differences between the two plans:

The solo 401(k) also offers the ability to contribute as both an employee and employer, which can increase the overall contribution amount. Additionally, solo 401(k)s are not subject to the IRS Pro-Rata rule, making them a good option for Backdoor Roth IRA conversions.

A Solo 401(k) offers flexibility in terms of investment options, allowing you to invest in a wide range of assets, including stocks, bonds, real estate, and even alternative investments like precious metals or cryptocurrencies.

You can diversify and customize your portfolio with a Solo 401(k), which is a major advantage over traditional 401(k) plans. The investment options will depend on the custodian where your investments are held.

The Solo 401(k) also provides a powerful tool for minimizing your tax liability. Pre-tax (or "Traditional") contributions made to a Solo 401(k) are tax-deferred, meaning you don't pay taxes on that income until you withdraw it in retirement.

Suggestion: Is a Rollover from a 401k to an Ira Taxable

Roth contributions don't receive a tax deduction up front but the money then grows tax-free and can be withdrawn tax-free in retirement once eligibility conditions are met.

To make contributions to your Solo 401(k), you can set up automatic transfers from your business bank account to your Solo 401(k) account, or make lump sum contributions as long as you meet the contribution deadlines.

If you're an S-corp business owner, you'll need to report the contributions on your payroll so that your W-2 properly reflects your contributions.

You can make contributions as both an employer and an employee, providing you with the opportunity to maximize your retirement savings. As an employee, you can contribute up to the current year employee max contribution for a 401(k).

Consider reading: Free Solo 401k

Setting up and managing a 1099 solo 401(k) is a relatively easy process that can usually be completed online or in a branch office of your brokerage. You'll need to set yourself up as the plan administrator (employer) side and then treat yourself as a plan participant (employee) side.

You might like: Controlled Group Solo 401k Plan

To start, you'll need to choose a Solo 401(k) provider, such as Vanguard, Fidelity, or Charles Schwab. Each brokerage firm offers a walkthrough on how to establish a new account, and their live chat or customer service numbers can provide additional support if you need help during the process.

You'll need to fill out an application form provided by the Solo 401(k) provider, which will ask for basic personal information and information about your business. You'll also need to provide the plan documents, which can be bundled with the account or provided by a third-party administrator (TPA).

Once your account is set up, you can link a funding account (usually your primary checking account) so you can directly draw funds via ACH for your contributions. You can make contributions throughout the year or in a lump sum at the end of the year or at the beginning of the next year, depending on your income situation.

Here are some contribution options to consider:

Remember to keep track of your contributions and maintain accurate records, which will not only help you stay organized but also make it easier to report your contributions on your tax returns.

You can invest in a wide range of assets within your Solo 401(k) account, including stocks, bonds, mutual funds, and real estate.

It's essential to consider your risk tolerance, investment goals, and time horizon before making investment decisions.

Regular portfolio reviews can help you manage your investments effectively and make adjustments as needed.

Rebalancing your portfolio to maintain your desired asset allocation can also help reduce the impact of market volatility on your portfolio.

Managing your investments is crucial to achieving your financial goals. You have the flexibility to invest in stocks, bonds, mutual funds, real estate, and more within your Solo 401(k) account.

It's essential to consider your risk tolerance and investment goals before making investment decisions. Your time horizon also plays a significant role in determining your investment strategy.

Diversification is key to managing your investments effectively. By spreading your risk across different asset classes, you can reduce the impact of market volatility on your portfolio.

Expand your knowledge: Solo 401k Investment Options

Regularly reviewing your portfolio and making adjustments as needed is crucial to maintaining your desired asset allocation. This may involve rebalancing your portfolio to account for changes in market conditions or your personal circumstances.

If you're not comfortable managing your own investments, working with a financial advisor can be a great option. They can help you make informed decisions and create a personalized investment strategy tailored to your needs.

Recommended read: 401k Portfolio Allocation

TD Ameritrade is a brokerage company that offers a solo 401(k) option.

You can invest in ETFs via its brokerage option, many of which are offered commission-free. The company was founded as Ameritrade in 1971 and combined with TD Waterhouse in 2006.

TD Ameritrade's solo 401(k) allows Roth contributions and IRA rollovers into the plan, but no longer allows 401(k) loans since its merger with Schwab. Its interface is functional and comparable to other brokerage companies.

Those who have used the TD Ameritrade solo 401(k) seem pretty happy with it, despite it not being a popular choice among investors.

A unique perspective: Td Ameritrade 401k Solo

As a solo 1099 business owner, it's essential to understand the contribution limits and deadlines for your solo 401k. The total maximum contribution to your solo 401k each tax year is $69,000 for 2024, and $66,000 for 2023.

You can contribute up to 25% of your net earnings from self-employment, or salary if you operate as an S-corp, but the total contribution made by both you and your employer cannot exceed the annual limit set by the IRS.

Contributions must be made by the tax filing deadline, including any extensions, which is typically April 15th of the following year. If you file for an extension, you have until October 15th to make your contributions for the previous tax year.

You need to contribute to your solo 401k by your tax filing day, which is generally April 15th, but may be March 15th if you have an S-Corporation.

Contributions must be made by the tax filing deadline, including any extensions, to ensure they are valid.

If you file for an extension, you have until October 15th to make your contributions for the previous tax year.

The total maximum contribution limit is a crucial number to know when it comes to your solo 401(k). The IRS sets an annual limit, which varies from year to year.

For 2024, the total maximum contribution limit is $69,000, and for 2023, it was $66,000. This is the combined total of employee and employer contributions.

Individuals 50 and older can still make a catch-up contribution of $7,500, bringing the maximum contribution limit to $76,500 for 2024, and $73,500 for 2023.

Curious to learn more? Check out: Solo 401k Contribution Limits 2023 over 50

If the solo 401k isn't the best fit for you, there are alternative retirement accounts to consider.

One option is a self-directed/ customized/ non-prototype solo 401(k) plan, which can be tailored to your specific needs for a few hundred dollars. These plans offer all the features legally allowed in 401(k) plans, including Mega Backdoor Roth IRA contributions and self-directed investments.

For high-income doctors in their 50s or 60s, a personal defined benefit/cash balance plan may be a good choice, allowing for contribution limits of up to six figures or more per year. However, these plans do require coordination with your solo 401(k) and often come with higher fees and complexity.

Readers also liked: Retirement Plan Hardship Withdrawal for Medical Bills

If you're looking for a more traditional retirement plan, a SEP IRA is another option, with contribution limits of up to 25% of your salary or $69,000 in 2024, whichever is lower.

Here are some key differences between solo 401(k) plans and SEP IRAs:

Keep in mind that while SEP IRAs have higher contribution limits, they don't allow catch-up contributions like solo 401(k) plans do.

As a solo 1099 business owner, it's essential to understand the providers and services available for a 1099 solo 401k. There are many providers to choose from, but some popular ones include Fidelity, Vanguard, and Charles Schwab.

These providers offer a range of services, including investment management, retirement account administration, and loan options. Some providers may charge fees for their services, which can range from 0.10% to 1.00% of the account balance.

If you're looking for a provider that offers low fees and a wide range of investment options, you may want to consider Fidelity or Vanguard. Both of these providers have a long history of providing excellent service to their clients.

A unique perspective: Vanguard Solo 401k Ascensus

You'll want to research and compare different providers to find the one that best suits your needs. Consider the provider's network size and coverage in your area, as some providers have stronger signals in certain regions.

Look for providers that offer a range of plans, including options for individuals, families, and businesses. Some providers also offer specialized plans, such as prepaid or senior plans.

Check the provider's customer service reputation, including their response times and resolution rates for issues. You can also read reviews from other customers to get a sense of their overall satisfaction.

Ultimately, the best provider for you will depend on your specific needs and preferences.

Related reading: Solo 401k Providers

Rocket Dollar is a great option for real estate investments in a solo 401(k). It was an affiliate partner with WCI for many years.

The setup fees with Rocket Dollar are significantly lower, coming in at $360. This can be a big advantage for those looking to get started quickly.

Rocket Dollar's ongoing fees are slightly higher, at $180 per year. This is still a relatively low cost compared to some other providers.

For more insights, see: Solo 401k Fees

A solo 401k plan offers both traditional 401k and Roth 401k options, allowing you to pick your tax advantage. You can opt for the traditional 401k, which reduces your income in the year you make contributions, or the Roth solo 401k, which offers no initial tax break but allows for tax-free distributions in retirement.

The choice between Roth and traditional contributions depends on your income expectations in retirement. If you expect your income to be higher in retirement, a Roth is a better option, as you'll pay taxes now and avoid higher tax brackets later. On the other hand, if you think your income will decrease in retirement, a traditional 401k might be a better choice.

With a Roth 401k, you make after-tax contributions, which means you've already paid income tax on the money. Your funds grow tax-free and you won't be taxed on withdrawals in retirement. In contrast, traditional 401k contributions are made with pre-tax dollars, reducing your taxable income for the year. However, you'll pay taxes when you withdraw the funds in retirement.

For another approach, see: Borrowing from 401k to Pay off Credit Cards

The IRS has strict rules about when you can tap the money you put into either type of account. With few exceptions, you'll pay taxes and penalties on any distributions before age 59 1⁄2. Roth money can be withdrawn tax-free if eligible, typically after age 59 1⁄2.

Here's a quick summary of the key differences between Roth and traditional 401k contributions: