Solo 401(k) FAQs | IRA Club SBS

Question 1

What is a Solo 401(k) and how does it work for self-employed individuals?

Accepted Answer

A Solo 401(k), also called a one-participant 401(k), is an employer-sponsored retirement plan for a self-employed business owner with no eligible common-law employees other than a spouse. The owner may contribute in both employee and employer capacities, subject to annual contribution and compensation limits.

Question 2

Who is eligible to open a Solo 401(k)?

Accepted Answer

A self-employed individual or owner-only business may establish a Solo 401(k) when the business has no common-law employees who meet the plan's eligibility requirements, other than the owner's spouse. Eligibility depends on the business structure, earned compensation, employee status, and terms of the plan document.

Question 3

What are the Solo 401(k) contribution limits for 2026?

Accepted Answer

For 2026, an owner may make employee elective deferrals of up to $24,500, subject to compensation and the combined individual deferral limit across applicable plans. Total employee and employer contributions are generally limited to the lesser of 100% of eligible compensation or $72,000, excluding catch-up contributions. Participants age 50 or older may contribute an additional $8,000, for a potential total of $80,000. Eligible participants ages 60 through 63 may use the higher $11,250 catch-up contribution instead, for a potential total of $83,250. Special contribution calculations apply to self-employed individuals.

Question 4

Can I make both pre-tax and Roth contributions to a Solo 401(k)?

Accepted Answer

Yes, when permitted by the plan document. Employee elective deferrals may be made as traditional pre-tax contributions, designated Roth after-tax contributions, or a combination of both. The combined contributions remain subject to the same annual employee elective-deferral limit.

Question 5

What investment options are available in a Solo 401(k)?

Accepted Answer

Available investments depend on the Solo 401(k) plan document, trustee, custodian, and investment platform. IRA Club SBS supports integration with iFlip for AI-powered investing and may support permitted alternative investments such as real estate, private equity, precious metals, cryptocurrency, tax liens, and private loans. IRA Club SBS does not provide investment or structuring advice, make investment recommendations, or perform due diligence for account holders.

Question 6

Can I take a loan from my Solo 401(k)?

Accepted Answer

A Solo 401(k) may permit participant loans when loan provisions are included in the plan document. The maximum loan is generally the lesser of 50% of the participant's vested account balance or $50,000. Loan repayment and other requirements must be followed to prevent the outstanding amount from being treated as a taxable distribution.

Question 7

How do I set up a Solo 401(k) for my business?

Accepted Answer

To establish a Solo 401(k), the business adopts a written plan document, selects a trustee or plan provider, opens the plan account, and completes the required employer and participant documentation. IRA Club SBS onboarding specialists can assist with plan design, account setup, contribution options, and administrative requirements.

Question 8

What are the tax benefits of a Solo 401(k) for self-employed individuals?

Accepted Answer

Traditional employee elective deferrals are generally made on a pre-tax basis, while eligible employer contributions may generally be deductible subject to applicable limits. Designated Roth contributions are made after tax, and qualified Roth distributions may be received tax-free when the applicable requirements are satisfied.

Question 9

Can I roll over other retirement accounts into a Solo 401(k)?

Accepted Answer

A Solo 401(k) may accept eligible rollover distributions when the plan document permits them. Eligible sources may include pre-tax assets from a Traditional IRA, SEP IRA, former employer 401(k), 403(b), governmental 457(b), or another qualified retirement plan. Roth IRA assets cannot be rolled into a Solo 401(k). Designated Roth assets from another employer plan may be accepted into the plan's designated Roth account when permitted.

Question 10

What happens if I hire employees after opening a Solo 401(k)?

Accepted Answer

If the business hires common-law employees who satisfy the plan's eligibility requirements, those employees generally must be included in the plan. The plan will no longer operate solely as a one-participant plan and may become subject to nondiscrimination testing, participant notices, reporting, and other standard 401(k) requirements unless an applicable exemption or safe harbor applies.

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