Solo 401(k) plan

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PERSonalTime

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Does anyone have a solo 401K plan? If you work at a small
firm and your employer does not offer a retirement plan, can you set up your own solo 401(k) plan?

I'm looking for an explanation of how solo 401(k) plans work?

Thanks
 
Solo 401k is for self- employed, I do not think you can set it up if you get W-2, if you are getting 1099, then there are could be some options
 
Exit 2024 said:
Solo 401k is for self- employed, I do not think you can set it up if you get W-2, if you are getting 1099, then there are could be some options
Click to expand...

Actually, I'm pretty sure the Solo 401k is available for any business where all the employees are owners and possibly spouses. See the links above for details.
 
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Captain Sensible said:
Actually, I'm pretty sure the Solo 401k is available for any business where all the employees are owners and possibly spouses. See the links above for details.
Click to expand...

Yes, but in this case, the OP wants to open a solo 401(k) for his primary job.
He cannot.
 
I think you need to be self employed. If you are self employed with even one employee who is not your spouse or business partner, you can only have SEP. I opened 401k for my husband's consulting work and SEP for my daughter's business so that's where the knowledge come from. I don't think you can open a solo-401k if you get W-2.
 
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I have a solo 401k through Schwab for my consulting biz which is all non W-2 income. Had a SEP IRA but 401k lets me put in much more $$$.
 
Love my Solo 401k!

I have a solo 401k and love it. My wife and I are sole owners of our corporation and get paid W-2 income from the corp. The first $24k each (we are over 50) goes to the plan. In addition, we can contribute (and do) up to 25% of our pay as profit sharing. There is a limit of $54k (i think that is the amount) per person. We own real estate, stocks, trust deeds, etc. in the plan. We were able to roll all of our other retirement (IRA) plans into it and consolidate our retirement funds in one place. I had a tough time finding a bank that would open the checking account, but finally had Wells Fargo Make some calls to get it approved. Obviously they are not too common.
 
Fedup said:
I think you need to be self employed. If you are self employed with even one employee who is not your spouse or business partner, you can only have SEP. I opened 401k for my husband's consulting work and SEP for my daughter's business so that's where the knowledge come from. I don't think you can open a solo-401k if you get W-2.
Click to expand...

I have a solo 401K set up at Schwab. The set up is more complicated than something like an IRA and it is useful to go with a brokerage like Schwab that has experienced CSR's to give a little guidance. I had a good experience with Schwab.

I have a regular W2 job working for a Mega-corp and am covered with a very good 401K and also a cash value pension through Mega-corp. I also have a sideline self employed sole proprietor gig that generates a small, but reliable schedule C income. I set up the solo 401K mostly as a place to roll over my pre-tax IRA balances to facilitate yearly backdoor Roth contributions/conversions. I use up my entire annual personal contribution limit ($60K all sources) in my Mega-corp 401K. My solo 401K only gets a small profit sharing contribution annually from my sideline gig, no personal contributions at all.

One little gotch-ya to be aware of is that solo 401K's have annual reporting requirements when the balance exceeds $250K. My solo 401K contains ~$3K of profit-sharing contributions and ~$500K of rolled over IRA money, and is subject to annual reporting.

The rules for a solo 401K are a little obscure, but you certainly can have one set up even if you have W2 income, coverage under another retirement plan and even if you use up your personal contribution limits inside another retirement plan. The key is to have qualifying self employed income, whether or not you also have W2 income. I've done it for several years.
 
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Fedup said:
You forgot that OP does not have 401K at work, unlike you.
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My 401K at work doesn't influence qualifying for a solo 401K, either positively or negatively.

Without offering specific tax advice - which I am in no ways qualified to give - The key thing for the OP is to have some type of self-employed income. If he works as a 1099 contractor or consultant, that would qualify. It doesn't matter whether or not you also have W2 income as well. A person can be an active participant in more than one 401K plan - including a solo 401K. The personal contribution annual limit is global, but the profit sharing contributions from employment sources is not. The key thing is that you have to have self employed income in order to qualify for a solo 401K. And you need to not have any non-related employees.
 
I'm confused by your post, perhaps I need to go to sleep. But to be able to open solo 401k, he needs to be self employed, which means he needs to be paid in 1099 and not W-2. He can be an S-corp and pays him W-2, but whoever pays him, has to pay him 1099. I think perhaps that's the part that I'm confused that you wrote it's ok to have W-2 income to open solo 401k. But OP works for a corporation, gets w-2, he is not self employed.
 
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Fedup said:
I'm confused by your post, perhaps I need to go to sleep. But to be able to open solo 401k, he needs to be self employed, which means he needs to be paid in 1099 and not W-2. He can be an S-corp and pays him W-2, but whoever pays him, has to pay him 1099. I think perhaps that's the part that I'm confused that you wrote it's ok to have W-2 income to open solo 401k. But OP works for a corporation, gets w-2, he is not self employed.
Click to expand...
If you are the sole owner of the corp and pay yourself W-2, you are self employed and thus qualify. The corp cannot have any employees other than a spouse to qualify. I pay annually for someone to file the required forms each year, but it is minimal.
 
I'm not clear on whether the OP gets a W2 or not. A lot of contractor types that are paid on 1099 consider themselves to be "employees", although technically they are not.

I think the confusion about my post is that getting W2 income doesn't disqualify a person from opening a solo 401K. W2 income has no influence on qualifying, one way or another. The requirement is to have 1099 or schedule C income reported. It is possible to be both employed (paid on a W2) and also self employed (receiving money with a 1099) at the same time. They are not mutually exclusive. As an example, in my case I work full time for a mega-corp as a W2 employee with a benefit package. I also am self employed with a small sideline business and pay taxes on schedule C income. I am both employed and self employed at the same time. I get both a W2 and 1099's. The 1099's qualify me for a solo 401K. The W2 has no influence, one way or the other.
 
Well, in my case the W-2 income does qualify me, but that is because my wife and I are sole owners of the corporation and therefore "self employed". But you are correct in the fact that it would only apply to any "self employed" income such as 1099 or W-2 from an entity owned solely by you. I know it can be confusing. There are some really good companies out there that can assist in setting it up and do the annual reporting. In my case, it was well worth the hassle.
 
People need to re-read the OP.

Does anyone have a solo 401K plan? If you work at a small
firm and your employer does not offer a retirement plan, can you set up your own solo 401(k) plan?

He works at a company that does not offer a 401(k) plan.

He wants to know if he can set on up for himself so he can put money away for retirement.

The answer is an emphatic NO.

For this job, he is an employee. He cannot unilaterally set up a 401(k).

The situation stinks, but it is what it is.
The article I linked above details his options.
 
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