Etrade Solo 401k Guide for Self-Directed Retirement Plans

The Etrade Solo 401k is a self-directed retirement plan that allows you to take control of your investments and potentially earn higher returns. It's a great option for self-employed individuals and small business owners.

With an Etrade Solo 401k, you can invest in a variety of assets, including real estate, stocks, and mutual funds. This plan allows you to diversify your portfolio and potentially earn higher returns than a traditional 401k.

One of the benefits of an Etrade Solo 401k is that it allows you to borrow up to 50% of your account balance for business or personal expenses. This can be a huge advantage for self-employed individuals who need to finance their business.

A Solo 401(k) 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, though you can use the plan to cover both you and your spouse.

You can open a Solo 401(k) at most online brokers, such as Etrade, though you'll need an employer identification number. The broker will provide a plan adoption agreement for you to complete, as well as an account application.

For those looking to get the most out of their retirement savings, the Solo 401(k) is the best option currently available. You can contribute up to $66,000 annually, more if you're 50 or older, and invest in any asset allowed by the IRS.

The Solo 401(k) is a retirement plan account that's very attractive when managing taxable income. It allows you to contribute a significant amount to your retirement savings each year.

To qualify for an Etrade Solo 401(k), you must be a business owner with no employees other than your spouse. This includes sole proprietorships, partnerships, and corporations.

You can earn income from self-employment, such as W-2 wages, profit sharing, or IRS form 1099 income as an independent contractor. The business entity can be a sole proprietorship, partnership, LLC, or a closely-held corporation (C or S).

To contribute to an Etrade Solo 401(k), you must receive a salary or wage from self-employment. The business must be the only retirement plan maintained by the business, and the plan must be established by the last day of the business's tax year.

Here are the types of business entities that can set up an Etrade Solo 401(k):

Note that all business owners who participate in the Etrade Solo 401(k) plan must pay self-employment tax.

To qualify for a Solo 401(k), you must have self-employment income from your business efforts, which can be full-time or part-time.

You can earn W-2 wages from self-employment, profit sharing, or IRS form 1099 income as an independent contractor. This type of income is key to setting up a Solo 401(k) plan.

The business entity can be a sole proprietor, a partnership, a Limited Liability Company (LLC), or a closely-held corporation (C or S). All that matters is that all the business owners, who are participants in the Solo 401k plan, pay self-employment tax.

To be eligible, the business must have no employees other than the owner's spouse. In a partnership, the only employees permitted are the self-employed partners and their spouses.

Here are the types of business entities that can set up a Solo 401(k):

A spouse can also contribute to a Solo 401(k) if they work for the business and earn self-employment income. This can double the maximum contribution limits for the couple.

For a standard 401(k) plan, the vesting schedule may take three to five years for the employee to benefit from the employer’s retirement plan contributions for highly compensated employees.

A Solo 401(k) plan, on the other hand, has immediate vesting up to the contribution limit because the employer and employee are one and the same.

This means that with a Solo 401(k) plan, you get to enjoy 100% of the plan contributions right away.

The contribution limit for a Solo 401(k) plan is the key to understanding when you're fully vested, as it determines the maximum amount you can benefit from immediately.

The plan limits and rules of an eTrade Solo 401(k) are designed to help you save for retirement while also providing flexibility and financial benefits.

The IRS establishes annual contribution limits for a Solo 401(k), which include both employee salary deferrals and up to 25% of your compensation for the pre-tax profit-sharing portion.

You can contribute up to $23,500 as an employee salary deferral, and an additional $70,000 as an employer profit-sharing contribution for a total of $93,500 in 2025.

If you're 50 or older, you can take advantage of catch-up contributions, which allow you to contribute an additional $31,500 as an employee salary deferral and $77,500 as an employer profit-sharing contribution for a total of $109,000 in 2025.

Additionally, if you're between the ages of 60 and 63, you may be eligible for super catch-up contributions, which allow you to contribute an additional $34,750 as an employee salary deferral and $81,250 as an employer profit-sharing contribution for a total of $116,000 in 2025.

It's worth noting that loan restrictions apply to Solo 401(k) plans, and loans must follow IRS guidelines, with a maximum loan amount of typically 50% of your account balance, up to $50,000.

Here are the key contribution limits for 2024 and 2025:

Keep in mind that these limits are subject to change, and you should always check the IRS website for the most up-to-date information.

The contribution deadline for a Solo 401(k) plan is December 31st of each year, and you must establish the plan by this date to make contributions for the current year.

It's also important to note that required minimum distributions (RMDs) must be taken from your Solo 401(k) once you reach age 73, and the amount of your RMD is based on your account balance and is subject to income tax.

A Solo 401(k) offers tax advantages, allowing you to pick your tax advantage between traditional and Roth options.

You can opt for the traditional 401(k), which reduces your income in the year the contributions are made, or the Roth solo 401(k), which offers no initial tax break but allows you to take distributions in retirement tax-free. The IRS has strict rules about when you can tap the money you put into either type of account, with few exceptions allowing distributions before age 59 ½.

Contributions to a Solo 401(k) are made with pre-tax dollars, allowing you to reduce your taxable income in the year the contributions are made. This provides an immediate tax benefit, as your savings grow tax-deferred.

Distributions from a Solo 401(k) are taxed as ordinary income when withdrawn, typically after reaching age 59½. If you withdraw funds before 59½, those distributions may be subject to income tax and an additional 10% early withdrawal penalty unless exceptions apply.

A Solo 401(k) does not pay tax on Unrelated Debt-Financed Income (UDFI) from leveraged real estate, as long as the real estate loan meets the requirements under section 514 of the IRS Code.

Here are some key tax and deductibility facts to keep in mind:

The IRS allows a spouse to be covered under a solo 401(k) plan if they earn income from the business.

You can effectively double your contribution limits as a family, depending on your income, by having your spouse make elective deferrals as your employee.

Your spouse would make elective deferrals as your employee, up to the employee contribution limit, plus the 50-and-older catch-up provision if applicable.

As the employer, you can then make the plan's profit-sharing contribution for your spouse, of up to 25% of compensation.

With a spouse also working for the same company and participating in the solo 401(k) plan, you can essentially double the maximum limits of each contribution type.

The pre-tax/tax-deferred contribution types for a solo 401(k) plan for each spouse of a business owner is the same amount, including the salary deferral and the business contribution up to the total maximum annual limit of $61,000 in 2022.

Contributing the same maximum amount for a spouse doubles the maximum contribution limit for a couple who work together in a business to $102,000 in 2022.

A solo 401(k) plan allows a qualified self-employed small business owner to contribute both the employer's and the employee's share to the plan for themselves and their spouse.

This special 401(k) retirement plan for self-employed individuals and their spouses became commonly known as a solo 401(k) or solo 401(k).