The solo 401(k) plan, often termed the single 401(k), individual 401(k) plans, or solo(k), offers a unique path for self-employed professionals to secure their future retirement. Exclusively crafted for business owners without full-time employees (with the exception of a spouse), this plan is an exceptional alternative to other retirement-investing avenues. Its essence combines the desirable attributes of personal 401(k) plans and the ease and flexibility of traditional ones, positioning it as a prime pick for sole proprietors, consultants, freelancers, and any business owner operating without full-time staff.
Ubiquity’s offerings are called the Single(k)® and Single(k) Plus® plans.
A sole participant 401(k) plan, also known as a one-participant 401(k) or individual 401(k), is designed for business owners who have no employees other than themselves and perhaps their spouse. This retirement savings plan allows them to set aside more money for retirement compared to other plans like a traditional or Roth IRA. It combines the features of a traditional 401(k) and a profit-sharing plan, enabling business owners to act both as the employee and employer.
As of 2023, the contribution limits are as follows:
These numbers can change, so you should check the most recent guidelines for current figures.
Some solo 401(k) plans offer a Roth option, which allows for after-tax contributions. While contributions to a Roth solo 401(k) are not tax-deductible, qualified distributions are tax-free.
Some solo 401(k) plans offer a loan feature, allowing you to borrow from your account under specified terms.
Setting up a solo 401(k) generally involves the following steps:
Consulting a tax advisor or financial planner for personalized advice is generally recommended, as solo 401(k) rules and regulations can be complex.
Who Can Participate
Business owner, business partner OR spouse (maximum of 2 people)
Eligibility
Immediate or 12-months (1,000 hours) of service
Employee Contributions
Pretax and Roth (optional Mega Backdoor Roth)
Employer Contributions
Profit-Sharing
Vesting
Full and immediate
Loans
Permitted
In-Service Withdrawals
Available to participants over age 59½
Salary Deferral Contribution
Up to $22,500
Profit-Sharing Contribution
Up to 25% of income
Up to 20% of income for self-employed
Annual Limit Per Participant
Lesser of 100% of salary or $66,000
Catch-Up Contributions (if age 50 or older)
$7,500
For additional details on contribution limits, click here.
A business owner has the best of both worlds with a solo 401(k). They have the flexibility to contribute as much as they want from year-to-year (up to the standard limits), plus, they do not have to worry about limiting their salary deferrals based on failed nondiscrimination tests caused by employees with low savings rates. They also get all the benefits of a big business 401(k), such as tax deductions and loans.
Solo 401(k) benefits
Because there are no employees, plan administration is extremely low maintenance. There are no nondiscrimination tests, and business owners are not required to file annual reports with the IRS until the plan reaches $250,000 in assets or the plan terminates.
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Learn more with Single(k)® FAQs or schedule a free consultation with a retirement expert or schedule a free consultation with a retirement expert.
To establish a plan for a tax year, the business owner must sign a plan document by the last day of the business’s tax year to contribute for that year (e.g., December 31 for a calendar-year business). The document must be signed by December 31 to make contributions for that year. All contributions must be made by the business’s federal income tax return due date, including extensions. Plan may be set up for the prior year if they sign up by their tax deadline (no extensions).
A Ubiquity Single(k) plan follows most of the same rules as a regular 401(k) plan, with a few exceptions.
Questions? Our experts are here to help
Pre-tax and Roth contributions
A business owner has the option to make either pre-tax or post-tax Roth salary contributions. Pre-tax contributions are not included in income when calculating taxable income for the year. Taxes are paid on these amounts, and any investment earnings when the person retires and starts taking an income from their 401(k) plan. Post-tax Roth contributions are included in taxable income. These amounts are tax-free when distributed from the plan. Any investment earnings on the Roth contributions will also be distributed tax-free if the distribution is qualified.
Eligibility requirements
Although solo 401(k) plans are not intended for businesses with employees, the business owner may want to set eligibility requirements in the plan document in case they add employees at some future date. Care must be taken to not exclude the business owner from the plan if selecting eligibility provisions.
Coverage and nondiscrimination tests
Because there are no employees, the compliance tests designed to ensure that lower paid workers receive a proportionate share of the plan contributions, do not apply. This simplifies plan operations and lowers administrative costs.
Reporting and disclosures
Solo 401(k) plans are not subject to most of the annual reporting and participant disclosure filing requirements that apply to 401(k) plans covering employees. Once solo 401(k) plan assets reach $250,000 or more or the plan terminates, the owners must file a Form 5500-EZ, Annual Return of One-Participant (owners and their spouses) Retirement Plan with the IRS.
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If you are a small business owner and need a retirement plan for yourself and your company, only Ubiquity offers flat-fee plans plus free expert advice.
We will fully customize your plan to meet the specific needs of your small business.
Setting up a 401(k) can be complicated. Only Ubiquity gives small business owners access to retirement experts in addition to industry-leading, low, flat fees1. Each sales expert has over a decade of experience assisting business owners in 401(k) plan design. Take advantage of this free benefit.
Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.
1 Decimal, Inc. charges flat fees for recordkeeping and administrative services. Third-party service providers may assess asset-based fees to customers. We advise Plan Sponsors to review all service agreements with providers, such as investment advisors, custodians, and broker-dealers, to evaluate the total cost of the plan.
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44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357
© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357