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A Solo 401(k) plan is also referred to as the “One-Participant 401(k) Plan”. The Internal Revenue Agency (IRS) stipulates that both a standard 401(k) plan and a Solo 401(k) are subject to the identical requirements and regulations. The only difference is a Solo 401(k) permits a business owner (and his or her spouse) to participate in a qualified defined contribution plan.
This tax-advantaged retirement savings plan was first introduced in the Economic Growth and Tax Relief Reconciliation Act of 2001. The impetus for their introduction was to provide self-employed individuals (and their spouses) the opportunity to participate in employer-sponsored retirement plans.
As per the IRS rules, a Solo 401(k) plan is governed by the same regulations as standard 401(k) plans – the only difference being that no additional employees can be hired by the small business to be eligible for this type of retirement vehicle. Additionally, unlike a 401(k), Solo 401(k) plans are not subject to the restrictions of the Employee Retirement Income Security Act (ERISA).
Contributions to a Solo 401(k) plan are made as both employer and employee. For 2024, the “employee” contribution limit is $23,000 and $30,500 for those 50 years old and older. The total contributions to this type of retirement account cannot exceed $69,000 ($76,500 if 50 or older).
A benefit of a Solo 401(k) plan is that unlike an IRA, you are not required by law to use a custodian. Under IRS regulations, you are permitted to hold certain types of precious metal coins and bullion in the physical possession of a US financial institution, which functions as a trustee.
Solo 401(k) Plan Rollover Rules & Limitations
The IRS has stringent rollover rules that must be followed if you don’t want to incur hefty tax penalties. Funds from a Solo 401(k) plan can be “rolled over” into another type of retirement account or between financial institutions within a period of 60 days. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.
It is crucial to note that not all Solo 401(k) providers permit rollovers. Prior to embarking on a rollover, you first must ensure that this is allowed by your plan provider.
Solo 401(k) Plan vs. Other Retirement Accounts
The table below compares the various types of retirement plans:
Plan Type Sponsorship Roth Option? Allows Precious Metals Stocks? Allows Precious Metals Bullion? Allows Other Alternative Investments Precious Metals IRA Individual Yes Yes Yes Yes Traditional IRA Individual Yes Yes No No 401(k) Employer Yes Maybe No No SEP IRA Self-employed or Business owner Yes Yes Maybe Maybe Solo 401(k) Self-employed Yes Yes Yes Maybe Simple IRA Employer Yes Yes Maybe Maybe Money Purchase Plan Employer No Maybe No No Profit Sharing Plan Employer No Maybe No No 457(b) Government or Non-governmental Tax-exempt Employer Yes Maybe No No SARSEP Employer No Yes Maybe Maybe Keogh Plan Self-Employed or Unincorporated Employer No Maybe No No Thrift Savings Plan (TSP) Government or Armed Services Employer Yes No No No ESOP Employer Yes Maybe No No Annuity Individual No Maybe No No
“Maybe” denotes where precious metals investment options are dependent upon the retirement vehicle provider.
Solo 401(k) Contribution Limits
The Internal Revenue Agency (IRS) has specific contribution limits for a Solo 401(k) plan (also referred to as a One-Participant 401(k) plan). The IRS stipulates that a business owner can contribute as both an employer and employee to a Solo 401(k) plan. For 2024, the “employee” contribution limit is $22,500 and $29,500 for those 50 years old and older.
Combined employer and employee contributions cannot exceed $69,000, not including catch-up contributions for those 50 years old and older.
Solo 401(k) Calculator
A 401(k) plan can prove to be an excellent retirement investment choice because it is a tax-advantaged investment vehicle. There are numerous components that contribute to the amount of savings you set aside for retirement. Use this Solo 401(k) calculator to determine how much you could potentially save.
Solo 401(k) Providers
Vanguard Solo 401(k)
A Vanguard Solo 401(k) is a good option for business owners and self-employed individuals who meet the criteria for this type of retirement vehicle. The company offers over 100 mutual funds, including index funds. There is no required minimum investment, nor are there restrictions based on income or age.
Fidelity Solo 401(k)
Fidelity has consistently been one of the highest-rated multinational financial services companies in the industry and has proven to be an excellent option for retirement investing. The Fidelity Solo 401(k) offers tax-deferred growth with an array of mutual funds, ETFs, stocks, and bonds, and FDIC-insured CDs. You will also have access to a wide range of Fidelity research and investment tools with this retirement account.
Etrade Solo 401(k)
An ETrade Solo 401(k) is another popular provider of this type of retirement plan. If you meet the criteria of a Solo 401(k), the company offers a wide selection of mutual funds, ETFs, stocks, and more.
Solo 401(k) Plan FAQs
When is the Solo 401(k) contribution deadline?
The Solo 401(k) contribution deadline is usually December 31.
Solo 401(k) vs SEP IRA?
A Solo 401(k) permits a business owner (and his or her spouse) to participate in a qualified defined contribution plan.
Conversely, with a Simplified Employee Pension Plan (SEP), the IRS “allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees. A business of any size, even self-employed, can establish a SEP”.
Contributions to a SEP IRA are tax-deductible.
What is a Solo Roth 401(k)?
A Solo Roth 401(k) is similar to a regular Solo 401(k), but this type of retirement vehicle is funded with after-tax dollars. It is important to note that not all providers allow Roth contributions to this type of retirement plan.
How to start a Solo 401(k)?
First, you must meet the criteria of this type of retirement plan: be a sole business owner, or have a business partner, and your company can have no other employees other than your spouse or the spouse of your business partner. Next, choose a Solo 401(k) provider who will then walk you through the steps of setting up this type of retirement plan.
What types of gold you can invest in through a Solo 401(k) plan?
This depends on the trustee you select for a Solo 401(k) plan. Different financial institutions will place different limitations on what can be invested through this type of retirement plan.
Theoretically, a Solo 401(k) can be used to invest in the following assets:
• Mutual funds
• Exchange-Traded Funds (ETFs)
• stocks
• bonds
• Certificates of Deposit (CDs)
• S corporation stock
•Life Insurance
• Precious metals
• Real estate
What are the benefits of rolling over a Solo 401(k) plan to a Precious Metals IRA?
Under IRS rules, a Solo 401(k) can be used to invest in numerous alternative assets, including precious metals. However, it is important to note that not all plan trustees are equipped to handle the investment of precious metals through this retirement account.
If you are interested in investing in IRS-approved precious metals and are unable to do so with your Solo 401(k), then it is beneficial to do a rollover into a self-directed IRA like a Precious Metals IRA.
How does a self-directed IRA (Precious Metals IRA) work?
A self-directed IRA (or SDIRA) is a type of retirement account that permits a myriad of diversified assets not allowed in other IRAs - a Precious Metals IRA is categorized as a self-directed IRA. In addition, a self-directed IRA is solely managed by you the investor. Although under federal law, you must have a custodian who acts as an administrator over this type of retirement vehicle.
Under IRS rules, self-directed IRAs are subject to the same contribution limits and distribution (withdrawal) limits as traditional and Roth IRAs.
What are the self-directed IRA (Precious Metals IRA) rules?
The main rule to keep in mind with a self-directed IRA like a Precious Metals IRA, is that under federal law it is mandatory to use an approved IRA custodian to open this type of retirement account.
What are the benefits of dedicating 5-20% of your investment portfolio to precious metals like gold or silver bullion?
Investing in precious metals such as gold is an excellent hedge to protect your investment portfolio against economic uncertainties and inflation. A diversification strategy that includes gold (or other precious metals) not only protects your portfolio against market turmoil, but gold also provides significant growth potential. A simple method for diversification is to open a self-directed IRA.
What is IRA-approved gold or silver?
The Internal Revenue Agency (IRS) has stringent regulations on what types of gold and silver are permitted in an IRA. Essentially, the criteria include the purity levels of the gold or silver, and where it was minted. It is crucial to understand that only specific bullion coins and bars which meet IRA-approved purity levels are permitted in this type of retirement vehicle. Some examples of bullion coins that are approved by the IRS for investing in an IRA include American Eagles, Canadian Maple Leafs, and Austrian Philharmonic.
It is imperative to understand that the IRS does NOT permit things like collectible coins or numismatics as an IRA account. Any reputable IRA company will only recommend IRA-approved gold and silver bullion coins and bars. Be wary of any Gold IRA company that attempts to push collectible coins or numismatics as an investment option for an IRA - their intentions will be dubious.
What is a Gold IRA Company?
A Gold IRA company is a firm that acts as a custodian for the entirety of the process for setting up Gold IRAs (in addition to other Precious Metals IRAs). The process entails setting up the account, an IRA rollover or custodian-to-custodian transfer, purchasing IRA-approved precious metals, and storing precious metals in an accredited IRS-approved depository. Usually, Gold IRA companies have established relationships with traditional IRA custodians, IRS-approved accredited depositories, and precious metal dealers, which makes the process seamless for clients.
It is crucial to understand that under federal law if you open a self-directed IRA (including a Precious Metals IRA), you must have a custodian.
How do I choose the best Gold IRA company to invest with?
This is solely dependent on your personal preferences. What Gold IRA company you choose is contingent on what components are most important to you, whether it is storage options, ratings, or client services, amongst other factors. Once you have decided on your personal preferences, select numerous companies, then contact them to receive more information pertaining to both the respective firm and products offered.
What is an IRA Rollover?
Sometimes any movement of money from one retirement plan to another is often referred to as a “rollover”. However, the IRS has specific definitions for a rollover and a transfer. As per the IRS definition, a rollover occurs when the funds being moved are paid to you directly, and you then deposit the money into the other retirement vehicle.
What are the IRS rules for an IRA Rollover?
The IRS has strict regulations and rules pertaining to an IRA Rollover. The guidelines outlined by the IRS for an IRA rollover include having 60 days to deposit the money you have received, in the custodian of your choice. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.
If you receive distributions from a retirement plan and you rollover into another retirement plan, as per the IRS rules there will be no taxation on those funds. In addition, funds can only be rolled over once in a 365-day period from a specific IRA.
What are the IRS rules for an IRA Transfer?
In a trustee-to-trustee transfer (as the IRS has deemed it) you request that the original IRA custodian transfers the funds to the new IRA custodian. With a trustee-to-trustee transfer, you never touch the funds and the money transferred is not subject to taxation.
