How to Setup a Solo 401k

Setting up a Solo 401k is easy. To get started, choose a provider that offers Solo 401k plans. Next, open an account with them and choose your plan options. You’ll need to decide on things like how much you want to contribute and how you want to invest your money. Once you’ve set up your account, you’ll need to make regular contributions to your Solo 401k. You can contribute up to the annual contribution limit, which is $61,000 for 2023. To fund your Solo 401k, you can make contributions from your self-employment income or from your business. If you’re self-employed, you may also be able to make deductible contributions to your Solo 401k.

Determining Eligibility and Requirements

Before proceeding with setting up a Solo 401k, it is crucial to establish your eligibility and ensure that you meet the specific requirements.

To be eligible for a Solo 401k, you must:

  • Be self-employed and have no employees other than your spouse.
  • Earn self-employment income (e.g., from a business, freelance work, or consulting).

Additionally, you may need to consider the following age and income requirements:

  • Age: You must be at least 18 years old and not yet reached age 73 before the end of the calendar year.
  • Income: You must have self-employment income during the year in which you contribute to your Solo 401k.
Contribution Limits (2023)Types of Contributions
$66,000Employee Elective Deferrals (traditional/Roth)
$7,500Employer Match (Profit Sharing)
$66,500Combined Total (Employee and Employer Contributions)
$7,500Catch-up Contributions for Individuals Age 50+ (Employee Deferrals only)

Choosing a 401(k) Provider

Select a reputable provider specializing in solo 401(k) plans. Consider factors such as fees, investment options, customer service, and online account management tools.

  • Research online reviews and compare provider offerings.
  • Inquire about account setup costs, annual fees, and investment expense ratios.
  • Look for providers that offer a wide range of investment options to suit your goals.

Document Preparation

Prepare the necessary documents to establish your solo 401(k) plan. This typically includes a trust agreement, plan document, and adoption agreement.

  1. Contact the provider to obtain the required forms.
  2. Fill out the documents accurately and in accordance with the provider’s instructions.
  3. Sign and notarize the documents as required.

Funding Your 401(k)

Once the plan is established, you can start contributing to it. Solo 401(k) plans offer two types of contributions:

Contribution TypeContribution Limit
Employee Elective Deferrals$22,500 for 2023 ($30,000 for age 50 or older)
Employer Profit Sharing25% of net self-employment income, up to the maximum limit

Opening a Solo 401k

To open a solo 401k, you can follow these steps:

  1. Choose a custodian: Select a reputable financial institution to hold your solo 401k.
  2. Complete application: Fill out the application form provided by the custodian, including your personal and business information.
  3. Provide documentation: Submit necessary documents such as your business license, EIN (Employer Identification Number), and proof of self-employment.
  4. Finalize account: Once your application and documents are approved, your solo 401k account will be opened.

Funding the Account

There are two ways to fund your solo 401k:

  • Employer contributions: As the employer, you can make pre-tax contributions up to the annual limit set by the IRS. These contributions reduce your current taxable business income.
  • Employee contributions: As the employee, you can also make after-tax contributions. These contributions are not deductible from your current income but can be withdrawn tax-free during retirement.
Contribution TypeDeductibleLimit
Employer Contributions (Traditional)YesUp to $66,000 in 2023
Employee Contributions (Roth)NoUp to $22,500 in 2023


A Solo 401(k) is a retirement savings plan that is available to self-employed individuals and small business owners who have no full-time employees other than a spouse. To establish a Solo 401(k), you must meet the following requirements:

  • Be self-employed or own a business with no full-time employees (other than a spouse)
  • Have net self-employment income
  • Be under age 72

Contribution Limits

The contribution limits for Solo 401(k) plans are higher than those for traditional IRAs. For 2023, the contribution limit is $66,000 ($73,500 if you are age 50 or older). This includes both employee and employer contributions.

As the business owner, you can make two types of contributions to your Solo 401(k):

  • Employee contributions: These are deducted from your self-employment income. The maximum employee contribution limit for 2023 is $22,500 ($30,000 if you are age 50 or older).
  • Employer contributions: These are made by your business. The maximum employer contribution limit for 2023 is $61,000 ($67,500 if you are age 50 or older).

Investment Options

Solo 401(k) plans offer a wide range of investment options, including:

  • Mutual funds
  • Exchange-traded funds (ETFs)
  • Individual stocks
  • Bonds
  • Real estate

The investment options available to you will depend on the provider you choose.

Withdrawal Rules

Solo 401(k) plans are subject to certain withdrawal rules. You can generally withdraw funds from your Solo 401(k) without penalty after you reach age 59½. However, there are some exceptions to this rule, including:

  • Substantially equal periodic payments (SEPPs): You can take SEPPs from your Solo 401(k) before age 59½ without paying a penalty. However, the payments must be made over your life expectancy or for a period of at least five years.
  • Hardship withdrawals: You can take a hardship withdrawal from your Solo 401(k) before age 59½ if you have an immediate and heavy financial need. However, you will have to pay a 10% penalty on the amount withdrawn.


Solo 401(k) plans offer tax-deferred growth. This means that you do not pay taxes on your investment earnings until you withdraw the money. However, you will have to pay taxes on the money you withdraw when you retire.

There are two ways to take money out of your Solo 401(k):

  • Traditional withdrawals: Withdrawals are taxed as ordinary income.
  • Roth withdrawals: Qualified withdrawals from a Roth Solo 401(k) are tax-free.
Type of WithdrawalTax Treatment
Traditional withdrawalsTaxed as ordinary income
Roth withdrawalsQualified withdrawals are tax-free

Well, there you have it, folks! Setting up a solo 401k can be a bit of a rollercoaster ride, but with the right info and a touch of determination, you can get it rolling. Remember, it’s all about taking control of your financial future and securing your golden years. So, give yourself a well-deserved pat on the back for making this smart move. If you have any more questions or just want to chat about money, hit me up anytime. And don’t be a stranger – come back and visit me later for more financial tips and tricks. Cheers to your financial freedom!