A solo 401(k) is an individual 401(k) designed for a business owner with no employees.
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If you’re an entrepreneur, a Solo 401(k) plan is a smart money move to increase your wealth, reduce your tax burden, and secure your retirement.
By contributing to a tax-deferred retirement savings account as both employer and employee, it is possible to reach 2022 limits of $61,000 if you’re under 50 or $67,500 if you’re over 50. To qualify for this tax advantage, you’ll need to be self-employed, generate revenue for a profit, and have no employees. There are also several exclusions to consider.
Solo 401(k)s are available for owners and operators of:
Many types of people are considered “self-employed”:
Self-employment can be part-time, and it can coexist with full-time employment elsewhere. If you participate in an employer’s 401(k), you may still have your own Solo 401(k), but you are only able to contribute a maximum of $20,500 total to your accounts as “employee.” Having your own Solo 401(k) will allow you to contribute an extra $40,500 (under 50) or $47,000 (50 or older) as an “employer.”
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If you earn wages, compensation, or self-employment income, you could be eligible for a Solo 401(k). The IRS has no threshold for how much profit a business can make. Rather, they will consider your business “legitimate” if it is operating with the intention of generating profits. If you fail to generate any profits over time, the 401(k) will need to be rolled over into an IRA.
Businesses with passive earnings are not eligible. This may include:
You can collect rental income and still be eligible for a Solo 401(k) if your job encompasses more than simply collecting rent checks. For instance, if you screen potential tenants and arrange for contractors to complete repairs, you can qualify as “self-employed” and “Solo 401(k) eligible” by IRS standards.
Unlike other types of 401(k), you cannot have any employees if you want to open a Solo 401(k). You may have 1099 contractors, part-time workers, and volunteers who do not qualify as true employees of the business. Workers under 21 years of age are not eligible for a 401(k) plan, so they do not count as true employees for Solo 401(k) qualification purposes.
There is one exception to the rule: your spouse may work full-time for your business.
You cannot open a Solo 401(k) if you are:
If you meet the qualifications for a Solo 401(k), Ubiquity is happy to help you set up and maintain your plan. For an initial setup charge and flat, monthly fee, we:
If you have any questions about your account or seek advice, we are happy to assist with that as well. Contact Ubiquity for a small business 401(k) that works for you and doesn’t cut into your retirement savings.