As a freelancer, sole proprietor, independent contractor, or entrepreneur, you can start reducing your taxable income right away with a solo 401(k) plan. Compared to IRAs, this plan allows you to set aside significantly more for retirement. It also permits you to borrow up to $50,000 from the balance and pay yourself back over the course of five years.
You have the best of both worlds with a solo 401(k). You have the flexibility to contribute as much as you want from year-to-year (up to the standard limits), plus, you do not have to worry about limiting their salary deferrals based on failed nondiscrimination tests caused by employees with low savings rates. You also get all the benefits of a big business 401(k), like 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.
“The customer service has been spectacular, and their ability to work with my team to educate them on the importance of retirement savings surpasses any other provider I've used. The team is amazing and their pricing and products are better than all the other providers I compared them against.”
Provider Ubiquity 4.3/51 4.6/5 4.5/5
— Saving for retirement is a long-term project, so choose a provider with 5 star Google Reviews
— We’re here to help make sure you’re on top of all your 401(k) filing requirements.
One of the most important benefits of a self-employed 401(k) is the large amount that can be contributed each year, tax-free.
Maximum employee elective contribution (age 49 and younger)
$23,000
Maximum employee elective contribution (age 50 and older)
Additional $7,500
Maximum employee elective deferral plus catch-up contribution (age 50 or older)
$30,500
Defined contribution maximum limit, employee + employer (age 49 or younger)
$69,000
Defined contribution maximum limit (age 50 or older), all sources + catch-up
$76,500
Highly compensated employees’ threshold for nondiscrimination testing
$155,000
Key employee officer compensation threshold
$220,000
Annual compensation limit for HCEs and key employees
$345,000
A solo 401(k) plan follows most of the same rules as a regular 401(k) plan, with a few exceptions.
Questions? Our experts are here to helpPre-tax and Roth contributions
You have 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 distributions 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 falls under set qualifiers set by the IRS.
Eligibility requirements
Although solo 401(k) plans are not intended for businesses with employees, you may want to set eligibility requirements in the plan document in case you add employees at some future date. Care must be taken to not exclude yourself from the plan if selecting eligibility provisions.
Coverage and nondiscrimination tests
Because there are no rank and file employees, your plan is exempted from nondiscrimination tests designed to ensure that lower-paid employees receive a proportionate share of plan contributions. 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, the owners must file a Form 5500-EZ, Annual Return of One-Participant (owners and their spouses) Retirement Plan with the IRS.
1 An evaluation has been conducted by Decimal, Inc. through its research of independent customer reviews on Google, Trustpilot, and the Better Business Bureau as reported by unaffiliated contributors on or before September 30, 2022, with a revaluation date on January 12, 2023, resulting in an updated evaluation, for four similar small-business 401(k) providers in the marketplace.
2Calculations based on the following scenario: Jennifer and Joshua each have 401(k)s with a value of $50,000. Jennifer’s plan is with Ubiquity Retirement + Savings and her fees are flat $6/month. Joshua’s plan is with another 401(k) provider and his annual employee pricing fee is 0.5%.
Assuming they don’t contribute another penny to the account, and it grows an average of 10% every year, at the end of 30 years Jennifer’s account is worth $862,156, with fees of $1,800 with her Ubiquity 401(k). Joshua’s account is only worth $751,364, with fees of $38,831. Ubiquity’s flat fees could potentially help you end up with $110,792 more over 30 years vs. a competitor’s plan that charges percentage-based fees.
Talk to Sales
Schedule a Free Consultation
Contact Support
Visit our Help Center
support@myubiquity.com
Monday–Friday
6am–5pm PT / 9am–8pm ET
© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Talk to Sales
Schedule a Free Consultation
Contact Support
Visit our Help Center
support@myubiquity.com
Monday–Friday
6am–5pm PT / 9am–8pm ET
© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104
