A Comprehensive Guide to Guideline Solo 401k Plans

Guideline Solo 401k plans are designed for self-employed individuals and small business owners, allowing them to save for retirement and reduce taxes.

These plans offer higher contribution limits than traditional IRAs, with a maximum annual contribution of up to $57,000.

They also provide flexibility in investment options, including real estate and cryptocurrencies.

A Solo 401(k) is an individual 401(k) designed for a business owner with no employees, allowing you to contribute both as an employee and as an employer.

You can contribute up to $22,500 ($30,000 if 50+) into the plan as an employee deferral/contribution, and your employer (that's you) can contribute another $43,500 into it for a total of $66,000 ($73,500 if 50+).

This plan is perfect for self-employed individuals or small business owners with no full-time employees, aside from a spouse.

The Solo 401(k) offers the same benefits as a traditional 401(k), including tax-deferred growth and the ability to make substantial contributions each year.

You can use the plan to cover both you and your spouse, and it provides significant flexibility with contribution limits.

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To qualify for a solo 401(k), you must be a business owner with no employees. This means you can't have any non-spouse employees or partners who would qualify to use the 401(k).

You can have a spouse participate in your solo 401(k), and you can each have a separate account within the same 401(k).

To contribute to a solo 401(k), you must receive a salary or wage from self-employment, and the business entity cannot have any employees other than the owner's spouse.

In a partnership, the only employees permitted are the self-employed partners and their spouses.

A solo 401(k) must be the only retirement plan maintained by the business.

Here are the key eligibility requirements for a solo 401(k):

You'll need an EIN (Employer Identification Number) to open a solo 401(k) account, which can be obtained online, by fax, or by mail.

Contributions to a solo 401(k) plan are subject to annual limits, which include both employee salary deferrals and employer profit-sharing contributions. The IRS establishes these limits, which vary depending on your age and income.

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The standard contribution limit for employee salary-deferral contributions is $23,500 for 2025, or $23,000 for 2024, if you're under 50. If you're 50 or older, the catch-up contribution limit is $31,500 for 2025, or $30,500 for 2024.

You can also make employer profit-sharing contributions, which are limited to 25% of your compensation. The total contribution limit, including both employee and employer contributions, is $70,000 for 2025, or $69,000 for 2024.

Additionally, if you're 60-63 years old, you can make super catch-up contributions, which are limited to $34,750 for employee salary-deferral contributions in 2025, or $81,250 for both employee salary-deferral and employer profit-sharing contributions in 2025.

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Contribution limits are a crucial aspect of solo 401(k) plans. The IRS sets annual contribution limits, 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 from your salary if you're younger than 50 years old, and up to $31,500 if you're 50 or older. Additionally, you can contribute up to 25% of your net self-employment income as an employer contribution.

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The standard contribution limit for employee salary-deferral contributions is $23,000 for 2024, and $23,500 for 2025. The standard contribution limit for employee salary-deferral and employer profit-sharing contributions is $69,000 for 2024, and $70,000 for 2025.

If you're 50 or older, you can also make catch-up contributions. The catch-up contribution limit for employee salary-deferral contributions is $30,500 for 2024, and $31,500 for 2025. The catch-up contribution limit for employee salary-deferral and employer profit-sharing contributions is $76,500 for 2024, and $77,500 for 2025.

For those 60-63 years old, there's a super catch-up contribution limit. Starting in 2025, the super catch-up contribution limit for employee salary-deferral contributions is $34,750. The super catch-up contribution limit for employee salary-deferral and employer profit-sharing contributions is $81,250.

Here's a summary of the contribution limits for 2024 and 2025:

Keep in mind that these limits are subject to change, and it's essential to consult with a tax advisor to ensure you're in compliance with IRS regulations.

Let's take a look at a real-life example of how a 401(k) loan can work in practice.

Steve borrowed $40,000 from his Solo 401(k) plan to fund a flip project, and he made monthly payments of $759.44 for 4 months.

He was able to sell the home and return the remaining principal balance of $37,646 to the plan, which earned him $684.61 in interest on the loan.

By borrowing from the plan, Steve was able to self-fund his flip and avoid much higher borrowing costs of a hard money loan.

Here's a breakdown of the loan terms:

If you're considering a 401(k) loan, it's essential to understand the rules and limits, as outlined in the IRS guidelines and plan documents.

A solo 401(k) offers you the flexibility to choose between a traditional 401(k) and a Roth solo 401(k) for your tax advantage.

You can opt for the traditional 401(k) to reduce your income in the year you make contributions, but you'll pay taxes on distributions in retirement.

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With a Roth solo 401(k), you won't get an initial tax break, but you can take distributions in retirement tax-free.

Experts say a Roth is a better option if you expect your income to be higher in retirement and/or expect tax brackets to be higher in the future.

If you think your income will go down in retirement, or you expect tax brackets to remain the same or lower, opt for the tax break today with a traditional 401(k).

Contributions to a solo 401(k) are made with pre-tax dollars, reducing your taxable income in the year they're made.

This provides an immediate tax benefit, allowing your savings to 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, you may be subject to income tax and an additional 10% early withdrawal penalty.

Required minimum distributions (RMDs) begin at age 73, but you can delay them until age 72 if you're still working.

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You can open a solo 401(k) at most online brokers, 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.

If you want to make a contribution for this year, you must establish the plan by Dec. 31 and make your employee contribution by the end of the calendar year. You can typically make employer profit-sharing contributions until your tax-filing deadline for the tax year.

Some popular online brokers for opening a solo 401(k) include Vanguard, Fidelity, Schwab, eTrade, and TD Ameritrade. These companies also serve as custodians for many customized plans.

Here are some factors to consider when choosing a solo 401(k) provider:

As a solo 401(k) owner, you're not just a participant, but also an employee of your own business, which makes you an employee fiduciary. This means you have a responsibility to act in the best interest of your retirement plan and its participants, including yourself.

You'll need to choose a solo 401(k) provider that offers a plan that aligns with your business needs and provides a level of management that suits you. When selecting a provider, consider factors such as costs, level of management, and investment flexibility. Some providers may offer hands-on management for a monthly or annual fee, while others may not actively administer solo 401(k) plans.

You can expect to pay fees for your solo 401(k) provider, which may include setup fees, annual fees, and investment management fees. Be sure to compare the fees of multiple providers to find the most affordable plan that meets your needs.

Here are some key factors to consider when evaluating a solo 401(k) provider:

By taking your time to research and evaluate different providers, you can find a solo 401(k) plan that meets your business needs and helps you achieve your retirement goals.

Jade, a consultant, borrowed $15,000 from her Solo 401(k) to cover startup costs and provide a cushion for her business.

The loan was at an interest rate of 5.25%, and Jade made quarterly payments of $854.37 as required.

Jade's borrowing limit was $45,000, the lesser of 50% of her participant account value or $50,000.

She borrowed the maximum allowed, but could have taken out multiple loans up to the borrowing limit, as long as the total amount didn't exceed the limit.

Jade's experience shows that a 401(k) loan can be a viable option for business owners who need to fund their startup costs.

Here are the key terms of Jade's loan:

Jade's story highlights the importance of planning and budgeting when taking out a 401(k) loan.

You'll need to establish your Solo 401(k) plan by the last day of your business's tax year, typically December 31, to make contributions for the current year. This includes setting up the plan adoption agreement and account application.

You'll also be responsible for managing the participant loan process as the trustee and administrator of your Solo 401(k) plan. This involves creating the proper paper trail, including a loan document and promissory note, which can be found in your plan documents.

As the administrator, you can take out a loan from your plan trust account by writing a check to yourself, and then make monthly or quarterly payments back into the plan account in accordance with the loan terms.

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As the trustee and administrator of your Solo 401(k) plan, you manage the participant loan process.

You'll need to create the proper paper trail, which includes a loan document and promissory note, according to your plan documents.

There is no 3-party approval or review required, and no additional fees for using the loan feature of your plan.

When you take out a loan, you'll simply write a check from the plan trust account to yourself.

You'll need to make monthly or quarterly payments back into the plan account in accordance with the terms of the loan.

Your dedicated Safeguard Advisor can help you put your loan in place.

You can typically make employer profit-sharing contributions until your tax-filing deadline for the tax year, allowing you to make additional contributions to your plan.

To avoid any issues, be sure to make employee contributions by the end of the calendar year if you want to make a contribution for that year.

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Completing plan documents and disclosures is a crucial step in setting up your solo 401(k) account. You'll receive an "employer kit" or "employer application" from your provider, which includes a collection of documents to help you set up your plan.

These documents need to be completed, and they include things like a client agreement, external transfer form, participant application and designation of beneficiary, establishing a qualified retirement plan (QRP), and a Section 408(b)(2) disclosure.

You'll also need to review and complete other documents, such as rates and fees, QRP amendment kit, ERISA 404(c) plan information, summary cash balance form, privacy statement, QRP basic plan document, and adoption agreement.

These documents will provide you with disclosures and instructions on how to remain compliant and make initial investment choices. You can change these choices at any point in the future.

The primary disclosures for a solo 401(k) plan include general 401(k) disclosure, details about your plan, and employee rights and responsibilities.

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Here are the key employee rights and responsibilities disclosures:

A Solo 401(k) is a powerful retirement plan designed for self-employed individuals and small business owners. Contributions are tax-deductible, and withdrawals are taxed in retirement.

There are two main types of Solo 401(k) plans: Traditional and Roth. The main difference between them is the tax treatment of contributions and withdrawals.

Here's a comparison chart to help you decide which plan is right for you:

Ultimately, the choice between a Traditional and Roth Solo 401(k) depends on your individual financial goals and circumstances.

When deciding between a Traditional Solo 401(k) and a Roth Solo 401(k), it's essential to understand the tax implications of each.

Traditional Solo 401(k) contributions are tax-deductible, and withdrawals are taxed in retirement.

The key difference between the two plans lies in their tax treatment.

In a Traditional Solo 401(k), both employee and employer contributions are pre-tax, but withdrawals are taxed as ordinary income in retirement.

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On the other hand, a Roth Solo 401(k) allows both employee and employer pre-tax contributions, but employee deferrals are after-tax; employer contributions are pre-tax, and withdrawals are tax-free if requirements are met.

Here's a comparison of the two plans:

By considering these factors, you can determine which plan aligns best with your retirement needs.

Solo 401(k)s are not ERISA accounts for asset protection purposes, which means they don't offer the same level of protection as "real" 401(k)s.

In many states, solo 401(k)s receive the same protection as IRAs, which can be unlimited protection in bankruptcy, but some states provide more limited or no protection at all to your creditors in bankruptcy.

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