Solo 401(k)

Account holders at Directed IRA can use Solo 401(k)s to invest in alternative assets such as real estate, private funds, crypto, and more. A self-directed Solo 401(k) gives self-employed business owners unparalleled control over their retirement planning.

What is a Self-Directed Solo 401(k)?

A Solo 401(k), also known as an individual 401(k) or one-participant plan, is a retirement plan designed for self-employed business owners with no employees (other than spouse, family, partners). If you’re both the business owner and sole employee, you have the flexibility to design the plan as generously as you wish, since all contributions go directly to your own account. A Self-Directed Solo 401(k) lets you invest your account(s) in assets outside of the stock market (real estate, private companies, priviate funds, syndications, crypto). Solo 401(k)s are ideal for self-employed investors looking to contribute more to their retirement account each year. In 2025, the total contribution limit is $70,000 per participant, significantly higher than the $7,000 cap for IRAs. And if you are married and your spouse is an employee, they could also contribute $70,000 to their own solo 401(k) accounts, making total contributions of $140,000 per year. A Solo 401(k) offers the flexibility to maintain both Traditional (tax-deferred) funds and Roth (tax-free) funds in separate accounts. Additionally, you have the option to convert Traditional Solo 401(k) funds into Roth Solo 401(k) funds.

 

  • Tax Advantages: Choose between tax-deferred growth and current year tax deductions (Traditional Solo 401(k)) or tax-free withdrawals in retirement (Roth Solo 401(k)). With a Traditional Solo 401(k), your contributions are tax-deferred, meaning you can reduce your taxable income now and pay taxes when you make withdrawals in retirement. The benefit of the Traditional Solo 401(k) accounts and contributions is the ability to get a current year tax deduction for the amount contributed. With a Roth Solo 401(k), contributions are made using after-tax income (no tax deduction), but withdrawals at age 59 1/2, including investment earnings, are tax-free.
  • High Contribution Limits: Contributions can be made both as an employee and employer, allowing for significant savings. As an employee, you can contribute up to the annual federal limit of $23,500 (2025), with an additional “catch-up contribution” if you’re 50 or older ($7,500). As the employer, you can contribute up to 25% of your compensation up to. $46,500 for 2025. This brings the total contribution limit to $70,000 for those under 50 and to $77,500 for those 50 and older for 2025. Combined, your employee and employer contributions can reach a significantly higher annual cap than Traditional and Roth IRAs.
  • Invest in Alternative Assets: Opening a “self-directed” Solo 401(k) gives unparalleled control over your investment choices. In addition to traditional assets like stocks, ETFs, and mutual funds, you can invest in retirement plan such as real estate, promissory notes, venture & startups, private funds, and even cryptocurrency.
  • Eligibility: You must be self-employed or own a small business with no full-time employees (other than your spouse, certain family, or partner). The self-employment must be in an operating business. An operating business is one that sells goods or services. A company such an LLC that has investment income or rental income does not qualify as a business which can adopt a solo 401(k).

How to Set Up a Solo 401(k)

  • Includes 60-minute consultation with a KKOS Associate Attorney (schedule now)
  • Plan Set-Up with IRS-Approved Documents and Plan EIN
  • How-to Plan Binder
  • Includes Plan Set-Up with IRS Approved Documents and Plan EIN
  • Includes Plan Set-Up with IRS Approved Documents and Plan EIN (as necessary)

Annual Account Fee (first account) — $495
Annual Account Fee (additional accounts) — $295

  • Receipt of IRS Plan Amendments so that your plan stays in compliance with the IRS and the DOL
  • Directed Trust Company will handle record keeping and IRS Filings (5500-EZs & 1099-Rs)
  • You can obtain checkbook control via a Trust Checking Account or Investment Entity

Available Plan

Full Service Custodial

Trustee/Plan Administrator

Client is Trustee and Plan Administrator.

Custodian

Directed Trust Company named as Custodian.

Bank Account Option

Transactions will be made through an account held with Directed Trust Company.

Checkbook Control

Client can have a bank account for checkbook control funded from your Custodial Account.

Record Keeping Responsibilities

Directed Trust Company handles all recordkeeping and IRS filings required of the plan.

Annual Fee

$495 for the first account under the plan,
$295 for subsequent accounts.

Definitions, Deadlines and Funding Options

Form 5500 EZ: Plan administrators must file Form 5500 EZ with the IRS if their Solo 401(k) plan’s combined asset value exceeds $250,000. For plans operating on a calendar year, the filing deadline is July 31st.

Form 1099-R: This form is issued whenever funds are withdrawn from a retirement plan or during a Roth conversion. The filing deadline is January 31st.

Participant Loan: Solo 401(k) participants can take out a loan up to $50,000 or 50% of their available account balance, whichever is less. The interest rate is set at Prime +2%. Loans must be repaid within 5 years, with payments made at least quarterly.

New Solo 401(k) Set-Up Deadline: For S-Corp owners the deadline to make employee and employer contributions is Dec 31 of the tax year. You can set-up by April 15 (plus extensions) of the following year and still make employer contributions. For sole proprietors, the deadline to establish a solo 401(k) for the prior year is April 15. So for 2024 contributions the deadline to establish the plan is April 15, 2025 (no extensions).

Employee Contribution Reporting Deadline: Employee contributions must be reported via Form W-2, which is due by January 31st. However, contributions can be made up until the company’s tax return is filed (including extensions).

Contribution Deadlines: By staying on top of these deadlines and requirements, you can ensure your Solo 401(k) is properly managed and compliant. Coordinate with your accountant or CPA as to the deadlines, qualifications, and reporting to ensure compliance.
• Sole Proprietorship, Single-Member LLC, or C-Corporation: Employee and Employer Contributions are due by April 15th, with the option to extend by filing a tax extension.
• S-Corporation or Partnership LLC: Employee and Employer Contributions are due by March 15th, with the option to extend by filing a tax extension. Keep in mind the employee contributions are report on form W-2 due by Jan 31 so those need to be accounted for earlier than when the funds are due to be contributed.

Frequently Asked Questions

How does a Solo 401(k) structure work?

A Solo 401(k) is a retirement plan set up by a business owner to benefit its employee(s). For example, if Sally Smith owns and operates Sally Smith, Inc., she can establish a Solo 401(k) for herself as the sole employee. If her spouse works for the business, they can also participate and have their own account under the same plan. Here’s how Sally can set up a Solo 401(k):

 

  1. Adopt an Approved Solo 401(k) Plan: Sally Smith, Inc. must adopt an IRS-approved Solo 401(k) plan. Sally can work with a provider like Directed IRA who offers compliant, pre-approved plan documents. Solo 401(k) plans typically designate the business owner as the trustee, giving them control over investment decisions, contracts, and financial transactions. Start your self-directed Solo 401(k) application.
  2. Confirm the Plan Supports Self-Direction: Sally must ensure the Solo 401(k) plan allows self-directed investments. Many brokerage Solo 401(k)s plans only allow traditional investments like stocks and mutual funds, but true self-direction permits alternative assets like real estate or private businesses. Some brokerage plans may also lack check-writing capabilities, which are essential for flexibility. Sally should work with a provider experienced in self-directed investments if she plans to invest in real estate, notes, private companies, private funds.
  3. Obtain an EIN: The Solo 401(k) needs its own Employer Identification Number (EIN) for opening a bank account, processing rollovers, and handling tax reporting for investment income or losses.
  4. Checkbook Control Option with Trustee Controlled Checking Account: Every custodial Solo 401(k) account has an account at Directed which can be used to direct investments and we provide recordkeeping and tracking of funds with statements for this custodial account. However, a solo 401(k) owner can get checkbook control with their solo 401(k) account with a checking account owned by their Solo 401(k). Our banking relationships will facilitate this, and this allows the solo 401(k) owner to have checkbook control access of the Solo 401(k) account (with checks and on-line wires) without having to establish an LLC. This allows the Solo 401(k) account owner to direct funds for new investments or expenses themselves. As the trustee, Sally will have “checkbook control” to directly manage the funds. If there are multiple participants, such as a spouse, each will need their own separate account. Separate accounts are also necessary for Roth and Traditional funds within the plan. While an LLC isn’t required for checkbook control, some investors choose to set one up for added protection or partnership purposes.

The Solo 401(k) is designed exclusively for business owners with no full-time employees, apart from the owner(s) and their spouse. Companies may employ part-time staff (working fewer than 1,000 hours per year) or individuals under the age of 21 without jeopardizing their eligibility for a Solo 401(k). However, if any employee aged 21 or older works more than 1,000 hours in a calendar year, the Solo 401(k) will no longer qualify (or even a part-time employee who has worked past 3 years). At that point, the plan must either be converted into a standard group 401(k) with ERISA protections and made available to all employees, or the Solo 401(k) can be frozen, allowing existing funds to remain invested without new contributions from the business owner. Learn more about IRS rules and regulations for One Participant 401k plans, here.

 

If you are employed by a company where you are not an owner and participate in its 401(k) or another employer-sponsored plan, you can still set up a separate Solo 401(k) if you own a separate business or engage in self-employment. However, keep in mind that contribution limits for employee contributions are cumulative. When contributing to your Solo 401(k), you must factor in the contributions you and your employer have already made to your company’s 401(k) plan to ensure you stay within the overall limit.

Absolutely. Account holders at Directed IRA have full control over their Solo 401(k) investments and can invest in any asset allowed by law. For example, many of our clients use Solo 401(k)s to invest in real estate, private funds and syndications, or provide loans through secured notes, generating steady returns for their retirement accounts. Popular self-directed investments include:

 

  • Real estate (rental properties, fix-and-flips, syndications)
  • Venture capital and startups
  • Promissory notes and private lending opportunities
  • Digital currencies and precious metals

Both account types are powerful retirement savings tools, but differ in several key ways:

  1. Contribution Limits: Solo 401(k)s allow significantly higher contributions than Roth and Traditional IRAs since you can contribute as both an employee and employer.
  2. Eligibility: The Solo 401(k) is designed for self-employed individuals or small business owners with no full-time employees other than the owner and their spouse. IRAs are available to anyone with earned income, regardless of employment status.
  3. Investment Options: Both Solo 401(k)s and IRAs support a wide range of investments and can be “self-directed” into real estate, private companies, and cryptocurrency. Learn more.
  4. Administrative Requirements: Solo 401(k) requires more administrative work, such as filing Form 5500-EZ with the IRS if plan assets exceed $250,000. IRA is generally simpler to manage, with fewer reporting requirements.
  5. Roth Option: Both Solo 401(k)s and IRAs can have Roth options, allowing for tax-free withdrawals in retirement. However, the Solo 401(k) allows much higher Roth contributions due to its higher contribution limits.
  6. Prohibited Transactions: Both accounts are subject to prohibited transaction rules, but the consequences and structures for avoiding them may differ.
  7. Control: Solo 401(k) often allows direct control over investments without the need for a custodian, as the account holder can act as the trustee. IRAs typically require a custodian to manage the account unless a Checkbook IRA LLC is set up.
  8. Loans: With a Solo 401(k), participants can take out a loan of up to $50,000, referred to as a Participant Loan. In contrast, borrowing is not allowed with an IRA.
  9. UDFI Tax: For Solo 401(k) accounts, leveraged real estate investments are exempt from Unrelated Debt-Financed Income (UDFI) tax. However, in an IRA, leveraged real estate is subject to UDFI tax.
  10. Consequences of Prohibited Transactions: In the event of a prohibited transaction, a Solo 401(k) incurs a 15% excise tax. For an IRA, the consequences are far more severe— the entire account is treated as fully distributed, potentially triggering significant tax implications.

Participants in a Solo 401(k) can roll over most qualified retirement accounts, including Traditional IRAs, SEP IRAs, other 401(k)s, and pensions. However, rollovers are not allowed for:

 

  1. Retirement accounts from a current employer that restrict transfers until age 55, 59½, or upon leaving the company.
  2. Roth IRAs, as these cannot be rolled into any other account type. Roth IRAs are always Roth IRAs.

 

To roll over funds from an existing account (e.g., a former employer’s 401(k) or traditional IRA), you need to submit a direct rollover or transfer request.

Contributions to a Solo K can be made as an employee and employer of the plan.

  • Employee Contributions: As an employee, you can contribute up to 100% of your compensation (earned income) if self-employed, up to the annual contribution limits. For 2025, the limit is $23,500 or $31,000 if you’re 50 or older, which includes catch-up contributions.
  • Employer Contributions: As the employer, you can also contribute up to 25% of compensation, as defined by the plan, or for self-employed individuals taxed as a sole prop the employer contribution is 20% (see detailed IRS guidance).
  • Total Contribution Limits: The combined contributions from both employee elective deferrals and employer contributions cannot exceed $70,000 for 2025. For those 50 and older, $77,500.

More Resources on Self-Directing a Solo 401(k)

Beginner’s Guide: How to Self-Direct Your IRA

Directed IRA Webinars

Self-Directed IRA Summit

Directed IRA Podcast

Beginner's Guide:
How to Self-Direct Your IRA

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