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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

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

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.

What is a SEP IRA and how does it work for small businesses?

A Simplified Employee Pension, or SEP IRA, is an employer-funded retirement arrangement for self-employed individuals and businesses. Employers make discretionary contributions to SEP-IRAs established for eligible employees, including eligible business owners. Contributions are immediately vested, and the employer may generally decide each year whether to contribute.

Who is eligible to set up a SEP IRA?

A business of any size may establish a SEP IRA, including a sole proprietorship, partnership, limited liability company, S corporation, or C corporation. SEP IRAs are commonly used by self-employed individuals and businesses with few employees, but they are not limited to owner-only businesses.

What are the SEP IRA contribution limits for 2026?

For 2026, employer contributions for an eligible employee are limited to the lesser of 25% of eligible compensation or $72,000. Special calculations apply when determining the allowable contribution for a self-employed business owner.

Are SEP IRA contributions tax-deductible for small business owners?

Employer SEP IRA contributions are generally deductible as a business expense, subject to applicable deduction limits and tax rules. Investment earnings generally grow tax-deferred until they are distributed from the account.

Can employees contribute to their own SEP IRA accounts?

Employees cannot make salary-deferral or catch-up contributions under a standard SEP plan because SEP contributions are funded by the employer. However, an employee may be able to make a regular annual Traditional IRA contribution to the same SEP-IRA when permitted by the financial institution, subject to the normal IRA contribution rules.

What are the main benefits of a SEP IRA for small businesses?

SEP IRAs offer relatively high contribution limits, flexible annual employer funding, immediate vesting, straightforward setup, and generally lower administrative requirements than many qualified retirement plans. Employers normally do not file an annual Form 5500 for a SEP plan.

How are SEP IRA contributions allocated among employees?

Under a standard SEP arrangement, an employer generally contributes the same percentage of eligible compensation for every eligible participant, including the business owner. Contributions must follow the allocation formula in the SEP plan document and applicable compensation limits.

What investment options are available in a SEP IRA?

IRA Club SBS supports traditional investment options and integration with iFlip for AI-powered investing. Permitted alternative investments may include 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.

When is the deadline to set up and fund a SEP IRA for the previous tax year?

A SEP plan may generally be established for a tax year as late as the due date of the business's federal income tax return, including extensions. Employer contributions intended to be deducted for that year generally must also be made by the applicable tax-return due date, including extensions.

What are the withdrawal rules and penalties for SEP IRAs?

SEP IRA withdrawals are generally taxable as income. A distribution taken before age 59½ may also be subject to a 10% additional tax unless an exception applies. SEP IRA owners generally must begin required minimum distributions after reaching the applicable RMD age, which is currently age 73.

What is a Safe Harbor 401(k) and how does it work?

A Safe Harbor 401(k) is an employer-sponsored retirement plan that uses required employer contributions and other safe-harbor provisions. When the applicable requirements are satisfied, the plan is generally exempt from the annual ADP and ACP nondiscrimination tests that apply to traditional 401(k) plans.

What are the employer contribution requirements for a Safe Harbor 401(k)?

A traditional Safe Harbor 401(k) generally uses either a nonelective contribution of at least 3% of compensation for eligible employees or a qualifying matching formula. A common basic match is 100% of the first 3% an employee defers plus 50% of the next 2%. Other qualifying enhanced matching or automatic-enrollment safe-harbor formulas may also be available.

What are the 2026 Safe Harbor 401(k) contribution limits?

For 2026, employees may make combined traditional and designated Roth 401(k) elective deferrals of up to $24,500. If the plan permits catch-up contributions, participants age 50 or older may contribute an additional $8,000. Eligible participants ages 60 through 63 may use the higher $11,250 catch-up contribution instead. The combined employee and employer contribution limit is generally the lesser of 100% of compensation or $72,000, excluding eligible catch-up contributions.

How does a Safe Harbor 401(k) benefit small business owners?

A Safe Harbor 401(k) can reduce the risk of ADP and ACP testing failures, provide more predictable employer contribution requirements, and make it easier for owners and highly compensated employees to contribute without corrective refunds caused by those tests. It can also help businesses offer a competitive employee retirement benefit.

How is a Safe Harbor 401(k) different from a traditional 401(k)?

A traditional 401(k) may be subject to annual ADP and ACP nondiscrimination testing. A Safe Harbor 401(k) uses required employer contributions and satisfies additional safe-harbor rules so that it can generally avoid those tests. Traditional safe-harbor contributions are generally fully vested when made, while certain QACA safe-harbor contributions may use up to a two-year vesting schedule.

When is the deadline to start a Safe Harbor 401(k) plan for 2026?

For certain new calendar-year plans using a matching safe-harbor design, October 1, 2026 is generally the practical latest effective date because the first safe-harbor plan year must usually operate for at least three months. Different deadlines and amendment rules apply to nonelective safe-harbor designs, existing plans, QACA arrangements, and other circumstances, so employers should confirm the applicable deadline with their plan administrator.

Can I offer a Safe Harbor 401(k) with automatic enrollment or Roth options?

Yes. A Safe Harbor 401(k) may include automatic enrollment, and a qualified automatic contribution arrangement, or QACA, is a specific safe-harbor design with automatic enrollment requirements. The plan may also permit both traditional pre-tax and designated Roth 401(k) employee contributions when those options are included in the plan document.

How do AI-powered and alternative investments integrate with a Safe Harbor 401(k)?

IRA Club SBS describes integration with iFlip for AI-powered investing and may support permitted alternative investment arrangements depending on the plan's design and investment platform. Available investments are subject to the plan document, applicable fiduciary requirements, and participant eligibility. IRA Club SBS does not provide investment or structuring advice.

What are the compliance advantages of Safe Harbor 401(k) plans?

When all safe-harbor requirements are satisfied, the plan is generally exempt from annual ADP and ACP nondiscrimination testing. A Safe Harbor 401(k) is not automatically exempt from every compliance requirement. A top-heavy exemption may apply when the plan consists solely of qualifying safe-harbor contributions and meets the applicable conditions.

How much does it cost to set up and maintain a Safe Harbor 401(k)?

IRA Club SBS lists its customized Safe Harbor 401(k) service as starting at $2,950 annually, plus an active participation fee. Final pricing may depend on the plan design, number of participants, administration requirements, payroll integration, and selected services.

What is a Traditional or Roth 401(k) plan and how does it work?

A 401(k) is an employer-sponsored retirement plan that allows eligible employees to save through payroll deductions. Traditional 401(k) contributions are generally made before federal income tax, while designated Roth 401(k) contributions are made after tax. A plan may offer one or both contribution options.

How can a Traditional or Roth 401(k) help my small business and employees?

A 401(k) can help a business attract and retain employees, provide higher contribution limits than individual IRAs, and give employees a structured way to save for retirement. Employer contributions may also be deductible, subject to applicable tax rules and plan limits.

What are the annual contribution limits for a Traditional or Roth 401(k)?

For 2026, employees may make combined Traditional and designated Roth 401(k) elective deferrals of up to $24,500. If permitted by the plan, participants age 50 or older may contribute an additional $8,000. Eligible participants ages 60 through 63 may use the higher $11,250 catch-up contribution instead. Combined employee and employer contributions are generally limited to the lesser of 100% of compensation or $72,000, excluding eligible catch-up contributions.

Who is eligible to participate in a Traditional or Roth 401(k) plan?

Eligibility is defined in the plan document and must comply with federal participation rules. A plan may offer immediate eligibility or generally require employees to reach age 21 and complete up to one year of service before making elective deferrals. Additional rules may apply to eligible long-term part-time employees.

What are the tax benefits of a Traditional or Roth 401(k)?

Traditional 401(k) elective deferrals generally reduce current federal taxable income, and earnings grow tax-deferred until distributed. Designated Roth 401(k) contributions are made after tax, and qualified distributions of contributions and earnings may be received tax-free when applicable requirements are satisfied.

Can my business match employee contributions?

Yes. A business may make matching contributions based on employee elective deferrals or use another employer contribution formula allowed by the plan. Employer contributions may generally be deductible, subject to applicable limits, and may follow a vesting schedule unless the plan requires immediate vesting.

What happens if an employee withdraws funds early?

A taxable 401(k) distribution received before age 59½ may be subject to ordinary income tax and an additional 10% tax unless a specific exception applies. A hardship distribution may permit access to plan funds, but hardship status alone does not automatically exempt the distribution from the additional 10% tax.

What are required minimum distributions for Traditional and Roth 401(k) accounts?

Traditional 401(k) accounts are generally subject to required minimum distributions beginning at the applicable RMD age, which may be age 73 or 75 depending on the participant's date of birth. Some participants in a current employer's plan may delay RMDs until retirement if the plan permits and they are not 5% owners. Designated Roth 401(k) accounts are not subject to lifetime RMDs for the original owner.

How do I get started with a Traditional or Roth 401(k) for my business?

Schedule a consultation with IRA Club SBS to discuss workforce size, eligibility, contribution options, employer matching, investment arrangements, payroll integration, compliance requirements, and the plan structure that may be appropriate for the business.

What is a SIMPLE IRA and how does it work for small businesses?

A SIMPLE IRA is a retirement plan generally available to employers with 100 or fewer employees who earned at least $5,000 during the preceding calendar year. Eligible employees may make salary-reduction contributions, and the employer must make matching or nonelective contributions.

Who is eligible to participate in a SIMPLE IRA plan?

Generally, an employee is eligible if they received at least $5,000 in compensation from the employer during any two preceding calendar years and are reasonably expected to receive at least $5,000 during the current year. Employers may use less restrictive eligibility requirements.

What are the contribution limits for SIMPLE IRAs in 2026?

For 2026, the standard employee salary-reduction contribution limit is $17,000. A higher $18,100 limit applies to certain applicable SIMPLE plans. The general catch-up contribution for eligible participants age 50 or older is $4,000, while a $3,850 catch-up applies to certain plans using the higher contribution limit. Eligible participants ages 60 through 63 may use the higher $5,250 catch-up contribution instead.

How does employer matching work in a SIMPLE IRA?

Employers generally choose between matching employee salary-reduction contributions dollar-for-dollar up to 3% of compensation or making a 2% nonelective contribution for each eligible employee. Certain employers with 26 to 100 employees must provide enhanced employer contributions to use the higher employee contribution limit.

What are the main benefits of a SIMPLE IRA for small business owners?

A SIMPLE IRA is generally less complex and less expensive to establish and administer than many qualified retirement plans. It does not normally require an annual employer IRS return, employer contributions may be deductible, and it provides employees with a structured retirement savings benefit.

How do employees make contributions to a SIMPLE IRA?

Employees elect to contribute a specified dollar amount or percentage of compensation through automatic payroll deductions. These salary-reduction contributions are generally made on a pre-tax basis for federal income-tax purposes and deposited into each employee's SIMPLE IRA.

What investment options are available in a SIMPLE IRA?

IRA Club SBS systems integrate with iFlip for AI-powered investing and 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 conduct due diligence for account holders.

Are SIMPLE IRA contributions tax-deductible?

Employee salary-reduction contributions generally reduce federal taxable income for the year in which they are made. Employer matching and nonelective contributions are also generally deductible as business expenses, subject to applicable tax rules.

What are the rules for withdrawing money from a SIMPLE IRA?

SIMPLE IRA withdrawals are generally taxable. A taxable withdrawal before age 59½ may also be subject to a 10% additional tax unless an exception applies. The additional tax generally increases to 25% when the withdrawal occurs within the first two years of participation.

How do I set up a SIMPLE IRA plan for my small business?

An employer can establish a SIMPLE IRA using IRS Form 5304-SIMPLE, Form 5305-SIMPLE, or an approved financial institution's prototype plan document. The employer must provide required information to eligible employees and establish a SIMPLE IRA account for each eligible participant.

Payroll Deduction IRAs for Small Businesses

Give your team an easy way to save for retirement with a Payroll Deductible IRA. Simple to set up and effortless to manage, it combines self-directed alternative investing and AI-powered trading to help your employees build their future as your business grows.

Why a Payroll Deductible IRA at IRA Club SBS?

Lead Your Team Forward with Protected AI Investing

Empower your employees with access to an AI-powered investing platform built to protect and grow wealth, at a cost that’s up to 6x lower than the industry standard.

Annual pricing: $950 plus $40 per active participant.

		Wealth Manager	Robo Advisor	Online Broker
Investments managed with AI	✓	✓
Can choose market index strategy	✓			✓
Low minimum investment ($500)	✓
Ability to pay 0% in fees	✓
Built with protection in mind	✓	✓
Intuitive online experience	✓	✓	✓	✓
Choose individual stocks or ETFs	✓	✓	✓	✓

Alternative Investment Options With a Payroll Deduction IRA

With IRA Club SBS, your employees can access alternative investment options beyond traditional stocks and bonds, including:

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What is a payroll deduction IRA, and how does it work?

A payroll deduction IRA is a streamlined retirement savings option where employees open a Traditional or Roth IRA with a financial institution and authorize automatic contributions directly from their paycheck. This makes saving simple and consistent — contributions are deducted before or after tax (depending on the IRA type) and deposited into the employee’s individual account each pay period.

Who is eligible to participate in a payroll deduction IRA?

Any employee who performs services for the company can participate if the employer offers a payroll deduction IRA program. Employers must offer it uniformly; it cannot be limited by job title, tenure, or classification. This flexibility makes it ideal for small businesses seeking an easy retirement benefit.

What are the contribution limits for payroll deduction IRAs?

For 2026, the annual IRA contribution limit is $7,500 for individuals under age 50 and $8,100 for those age 50 and over (including the $1,100 catch-up contribution). Traditional and Roth IRAs share this combined limit, regardless of how the contributions are made (through payroll or direct deposit). These limits are set by the IRS and typically adjust annually for inflation.

What's the difference between a payroll deduction IRA and an employer-sponsored IRA?

A payroll deduction IRA allows only employee contributions via payroll; employers do not contribute funds. Employers simply facilitate the withholding and remittance of employee-authorized contributions. An employer-sponsored IRA plan (like a SEP or SIMPLE IRA) may include employer contributions and has additional IRS reporting or matching requirements.

Can my team and I choose between a Traditional IRA and a Roth IRA with payroll deduction?

Yes. Employees select whether their payroll deductions go into a Traditional (pre-tax) IRA or a Roth (after-tax) IRA based on their personal tax strategy and eligibility. Employees may also change their choice during the year as long as payroll instructions are updated.

How do I set up and manage payroll deduction IRA contributions?

Employees open an IRA with IRA Club SBS, then authorize their employer to deduct a chosen amount from each paycheck. Contribution amounts can be changed or stopped at any time by notifying the employer or payroll provider.

What investment options are available in a payroll deduction IRA at IRA Club SBS?

At IRA Club SBS, our systems integrate with iFlip, an AI-powered investing platform that adapts to today’s unpredictable markets, letting you and your team invest confidently without timing the market or paying high advisor fees. Additionally, alternative investments such as real estate, private equity, precious metals, cryptocurrencies, tax liens, and private loans are permitted. IRA Club SBS is not licensed to provide investment or structuring advice or make recommendations; employees must find their own alternative investments and conduct their own due diligence. See “alternative investing” for details.

Are payroll deduction IRA contributions tax-deductible?

Traditional IRA contributions may be tax-deductible, offering immediate tax benefits. Roth IRA contributions are made with after-tax dollars and grow tax-free, but are not deductible.

How do withdrawals and penalties work for payroll deduction IRAs?

Withdrawals from a Traditional IRA before age 59½ are subject to income tax and a 10% early withdrawal penalty. Roth IRA contributions can be withdrawn penalty-free at any time, but unqualified earnings withdrawn before 59 ½ may incur taxes and penalties.

Why should I, as a small business owner, offer payroll deduction IRAs to employees?

Payroll deduction IRAs are easy to set up, require minimal administration, and help employees save for retirement. They offer a valuable benefit without employer contributions or complex reporting requirements, making them ideal for small businesses. Contact our onboarding specialist at IRA Club SBS here.

Does a payroll deduction IRA satisfy a state retirement mandate?

A payroll deduction IRA may or may not satisfy a state retirement mandate. Each state defines which employer arrangements qualify for an exemption, and some programs may not treat an employee-owned payroll deduction IRA as a qualifying employer plan. Your state program determines whether your arrangement qualifies and what exemption steps apply. A [SIMPLE IRA] is an employer-sponsored plan, but its treatment must also be confirmed under the applicable state rules.

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