Solo 401(k) Frequently Asked Questions

A Solo 401(k) — also called a One-Participant 401(k), Individual 401(k), or Self-Employed 401(k) — is a traditional 401(k) plan covering a business owner with no common-law employees, or the owner and their spouse. It is not a distinct plan type; it operates under the same Internal Revenue Code rules as any other 401(k).

The defining feature is that the business owner wears two hats: employee and employer. This dual role allows contributions in both capacities, enabling total annual contributions of up to $72,000 in 2026 ($80,000 for ages 50–59 and 64+; $83,250 for ages 60–63 under the SECURE 2.0 enhanced catch-up provision).

Two requirements must be met: (1) the presence of self-employment business activity generating earned income, and (2) the absence of full-time common-law W-2 employees other than a spouse.

Eligible business structures include:

• Sole proprietors and freelancers
• Single-member LLC owners
• S-Corp owners with no full-time employees
• C-Corp owners with no full-time employees
• Partners in an owner-only partnership
• 1099 independent contractors

Part-time employees working fewer than 1,000 hours per year generally do not disqualify the plan, though plan documents should be reviewed carefully.

Yes, provided you have legitimate self-employment income from a separate business activity. However, elective deferral limits apply per person, not per plan. Any deferrals made to your W-2 employer's 401(k) count toward the same $24,500 annual cap in 2026.

You may still make employer profit-sharing contributions to your Solo 401(k) based on your self-employment income, subject to the overall $72,000 annual limit minus deferrals already made across all plans.

Yes. If your spouse earns compensation from the business — either as a W-2 employee or as a co-owner — they may participate in the plan and make their own contributions as an employee. They are also eligible for employer profit-sharing contributions from the business.

This effectively doubles the household's annual contribution capacity, with each spouse subject to their own individual contribution limits based on their respective earned income.

If you hire common-law employees who meet the plan's eligibility requirements (generally, working 1,000 or more hours per year and meeting age requirements), the Solo 401(k) must be converted into a standard ERISA 401(k) plan. Those employees must be offered plan participation.

The plan then becomes subject to full ERISA requirements, including nondiscrimination testing, expanded Form 5500 filing requirements, and ERISA fiduciary obligations.

Mrs401k.com administers ERISA 401(k) plans for employers of all sizes and can assist with this transition at no setup or termination fee.

Contributions are made in two capacities — as employee and as employer — subject to an overall annual limit:

Catch-up contributions allow plan participants who are age 50 or older to contribute above the standard annual deferral limit. For 2026 there are two tiers under the SECURE 2.0 Act:

• Standard catch-up (ages 50–59 and 64+): An additional $8,000 in employee deferrals, for a maximum deferral of $32,500 and a total plan limit of $80,000.
• Enhanced "super" catch-up (ages 60, 61, 62, and 63): An additional $11,250 in employee deferrals, for a maximum deferral of $35,750 and a total plan limit of $83,250. This enhanced limit was introduced by SECURE 2.0 and became effective January 1, 2025.

Note: Starting in 2026, participants with prior-year FICA wages exceeding $150,000 are required to make catch-up contributions on a Roth (after-tax) basis. This Roth catch-up requirement generally does not apply to self-employed individuals who do not receive W-2 wages from their own business (e.g., sole proprietors).

To make employee (salary deferral) contributions for a given tax year, the plan must be established by December 31 of that year. A salary deferral election must also be in place before year-end.

To make employer (profit-sharing) contributions only, the plan may be established up to the business tax return filing deadline, including extensions — generally April 15, or October 15 with an extension for most self-employed filers.

Even though the election must be in place by December 31, the actual funding of both employee and employer contributions may be made up to the business tax return due date, including extensions (generally April 15 or October 15).

This provides significant flexibility — for example, you can assess your business's full-year income before deciding the final contribution amount, then fund the plan in early the following year before filing your return.

The calculation differs by business structure:

• Sole proprietors, single-member LLCs, and partnerships: The employer contribution is effectively limited to approximately 20% of net self-employment income, calculated after deducting one-half of self-employment tax and the contribution itself. (The IRS formula results in approximately 20% rather than the nominal 25%.)
• S-Corp and C-Corp owners paid W-2 wages: The employer contribution may be up to 25% of W-2 compensation paid by the corporation to the owner-employee.

The maximum compensation taken into account for employer contributions is $360,000 in 2026. Full calculation worksheets are available in IRS Publication 560.

Traditional (pre-tax) contributions reduce your taxable income in the year of contribution and grow tax-deferred. Withdrawals in retirement are taxed as ordinary income.

Roth (after-tax) contributions do not reduce current taxable income, but qualified withdrawals in retirement — including all earnings — are completely tax-free. To be a qualified distribution, the Roth account must have been open at least five years and you must be age 59½ or older.

Most Solo 401(k) plans allow both contribution types within the same plan, up to the combined annual deferral limit of $24,500 in 2026 (plus applicable catch-up amounts). The choice between Traditional and Roth generally hinges on your current versus expected future tax rate.

The Mega Backdoor Roth involves making voluntary after-tax contributions to a Solo 401(k) beyond the standard employee deferral limit, then converting those funds to a Roth account. This can be done either within the plan via an in-plan Roth rollover, or by rolling the after-tax funds out to a Roth IRA.

This strategy allows high-income self-employed individuals to move significantly more money into tax-free Roth accounts than standard Roth contribution limits would otherwise permit — potentially up to the full $72,000 annual limit in Roth treatment.

Three conditions must be met for this strategy to work:

• The plan document must specifically permit voluntary after-tax contributions
• The plan must allow in-service distributions or in-plan Roth conversions
• After-tax contributions must be tracked in a separate sub-account

The Solo 401(k) generally provides superior flexibility and contribution capacity, particularly at moderate income levels:

At lower income levels, the employee deferral component of the Solo 401(k) allows significantly higher contributions relative to a SEP-IRA, which is limited to 25% of compensation.

The SECURE 2.0 Act of 2022 made significant changes to retirement plan rules. Key provisions affecting Solo 401(k) plans include:

• Enhanced catch-up contributions (effective 2025): Participants ages 60–63 may contribute up to $11,250 as a "super catch-up," raising the Solo 401(k) total limit to $83,250 in 2026.
• Mandatory Roth catch-up contributions (effective 2026): Participants age 50+ with prior-year FICA wages exceeding $150,000 must make catch-up contributions on a Roth basis. This generally does not affect self-employed sole proprietors who do not receive W-2 wages.
• Increased RMD age: Required Minimum Distributions now begin at age 73 (age 75 for those born in 1960 or later).
• Expanded plan establishment deadline: Employer profit-sharing contributions may now be made up to the business tax return deadline including extensions.

Yes, if the plan document includes a loan provision. The IRS rules are as follows:

• Maximum loan: the lesser of $50,000 or 50% of your vested account balance
• Repayment: within five years, with at least quarterly payments
• Interest rate: must be reasonable — typically prime rate plus 1% (prime rate as of March 2026 is 7.50%, so approximately 8.50%)
• Interest paid goes back into your own account — not to a bank

A properly structured loan is not a taxable event and does not incur the 10% early withdrawal penalty. Failure to repay the loan on schedule results in the outstanding balance being treated as a taxable distribution.

Penalty-free withdrawals from a traditional Solo 401(k) are generally available beginning at age 59½. Withdrawals before that age are subject to ordinary income tax plus a 10% early withdrawal penalty, with the following exceptions:

• Total and permanent disability
• Death of the participant (distributions to beneficiaries)
• Substantially Equal Periodic Payments under IRS Rule 72(t)
• Certain IRS-recognized hardship distributions (if the plan allows)
• Separation from service at age 55 or older (for employer-plan distributions)

For Roth Solo 401(k) funds, qualified distributions are tax-free if the account has been open at least five years and you are age 59½ or older. Roth contributions (not earnings) may generally be withdrawn without penalty at any time, though plan rules may restrict in-service distributions.

Under the SECURE 2.0 Act, Required Minimum Distributions from a Solo 401(k) must begin at age 73 for those who reached that age after December 31, 2022. For those born in 1960 or later, the RMD age is 75.

The annual RMD amount is calculated by dividing your December 31 account balance by an IRS life expectancy factor. Your first RMD may be deferred until April 1 of the following year — but doing so means taking two distributions in that year, which may increase your taxable income.

The penalty for failing to take an RMD is 25% of the amount not withdrawn, reduced to 10% if the error is corrected promptly by filing IRS Form 5329.

Yes. Most qualified retirement accounts may be rolled into a Solo 401(k), including:

• Traditional IRAs
• Other 401(k) plans (from prior employers)
• 403(b) plans
• 457(b) governmental plans
• Pension and profit-sharing plans
• Thrift Savings Plan (TSP)
• SEP-IRAs and SIMPLE IRAs (after the SIMPLE IRA two-year holding period)

Roth IRAs cannot be rolled into a Solo 401(k) under current IRS rules. A direct rollover — where funds move directly between institutions — is strongly recommended to avoid mandatory 20% withholding and the 60-day rollover window.

Yes, once your Solo 401(k) plan assets exceed $250,000 at the end of any plan year, you are required to file Form 5500-EZ with the IRS annually. The filing is due by July 31 of the following year (or October 15 with an extension).

The penalty for failing to file Form 5500-EZ is $250 per day, up to a maximum of $150,000 per plan year — making timely filing critical once you cross the threshold.

Mrs401k.com provides annual filing reminders and access to our DOL-approved electronic Form 5500 filing software at no additional cost to all clients. We are an approved software provider with the United States Department of Labor.

A Solo 401(k) covering only a business owner (and potentially their spouse) with no common-law employees is generally exempt from most ERISA requirements, including annual Form 5500 filing (until assets exceed $250,000), nondiscrimination testing, and certain plan fiduciary requirements under ERISA Title I.

However, the plan must still comply with the Internal Revenue Code's qualification requirements for 401(k) plans, including proper plan documentation, contribution limits, and distribution rules.

Once common-law employees are hired and included in the plan, the plan becomes subject to full ERISA requirements. 401kAdministrators.com administers full ERISA-governed 401(k) plans for employers of all sizes.

Yes. A properly established Solo 401(k) qualifies as an exempt retirement plan under California's CalSavers Retirement Savings Program. Businesses that sponsor a qualified 401(k) plan are not required to register with or enroll employees in CalSavers.

The exemption must be properly documented. In addition to satisfying the CalSavers obligation, a Solo 401(k) provides substantially greater retirement savings potential than the CalSavers IRA alternative — up to $72,000 per year versus CalSavers' IRA limit of $7,500.

Yes. A self-directed Solo 401(k) permits investment in a broad range of alternative assets including:

• Real estate (residential, commercial, raw land)
• Private equity and private business interests
• Precious metals (gold, silver, platinum, palladium)
• Cryptocurrency and digital assets
• Private lending and mortgage notes
• Tax liens and tax deeds
• Hedge funds and private placements

A self-directed custodian is required to hold these assets. All investments must comply with IRS prohibited transaction rules under IRC Section 4975. The plan document must be drafted to permit alternative investments.

Prohibited transactions are certain dealings between the Solo 401(k) plan and a "disqualified person" — which includes the participant, their spouse, lineal descendants (children, grandchildren, parents), and certain businesses they control (generally more than 50% ownership).

Common prohibited transactions include:

• Purchasing property from yourself and selling it to the plan
• Using plan funds to make a loan to yourself (other than via the formal plan loan provision)
• Using plan-owned property for personal benefit (e.g., living in a property owned by your 401(k))
• Investing in a business in which you or a disqualified person owns more than 50%

Violations are subject to a 15% excise tax on the transaction amount under IRC Section 4975, with an additional 100% tax if not corrected. Egregious violations can result in plan disqualification.

A Pooled Employer Plan (PEP) is a type of ERISA-governed 401(k) plan that allows multiple unrelated employers — of any size — to participate under a single plan administered by a licensed Pooled Plan Provider (PPP). PEPs were authorized by the SECURE Act of 2019 and became available January 1, 2021.

PEPs are ideal for:

• Small and mid-size employers who want to offer a 401(k) but do not want to bear full fiduciary responsibility
• Businesses seeking to reduce plan administration complexity and cost
• Employers who have outgrown a Solo 401(k) by hiring employees
• Professional employer organizations and industry associations

401kAdministrators.com was the very first company to register as a Pooled Employer Plan provider with the United States Department of Labor, following enactment of the SECURE Act. This was recognized in 401k Specialist Magazine. We offer PEP participation with no setup fee and no termination fee to employers.

No. Mrs401k.com charges no setup fee and no termination fee on any 401(k) plan we administer — including Solo 401(k) plans, full ERISA-governed plans for employers with employees, and Pooled Employer Plans.

We also provide our DOL-approved electronic Form 5500 filing software at no additional cost to all clients.

Our standard Solo 401(k) documentation package includes:

• Plan Document — the foundational governing document
• Adoption Agreement — customized to your specific plan elections
• Plan Trust Document — establishes the plan trust

Optional addenda available at no additional cost:

• Roth Account Addendum — enables Roth and Mega Backdoor Roth contributions
• Loan Provision — enables participant loans up to $50,000

All documents are prepared by Craig Lewis Gillooly, Esq., J.D., an attorney licensed to practice in good standing in California and New York. Most clients receive completed plan documents within 24 hours of completing their consultation.