Solo 401(k) Rules and Benefits: Webinar Recap

This article is a recap of a recent webinar that covers solo 401(k) rules and benefits in detail. The full webinar provides comprehensive insights into the operational, financial, and administrative elements of these plans. Topics such as introduction to solo 401(k)s, their advantages, contribution limits and deadlines for 2024, investment options, and the intricacies of plan administration were covered extensively. The session also included an interactive Q&A session, allowing the attendees to explore their specific queries and concerns.

You can watch the full recorded webinar below. But if you prefer, you can read the highlights we recap that provide the key takeaways on solo 401(k) rules and benefits.

Host: Larissa Greene, Business Development Specialist at Advanta IRA

4 Key Webinar Takeaways of Solo 401(k) Rules and Benefits for Business Owners

The webinar’s highlights included four key solo 401(k) rules and benefits for business owners considering this plan as their retirement savings option.

1. Higher contribution limits and more flexibility

The solo 401(k), also called a solo-k or individual-k, is a retirement plan set up by the small employer or sole proprietor that allows higher contribution limits. You also have the option to make Roth contributions to the account. This creates true tax-free earnings on investments that aren’t taxed when distributed in retirement. These are key benefits that make the solo-k an attractive option for individuals aiming to maximize their contributions. Its flexibility allows annual adjustments based on business profits, which allows contributions increases or decreases as needed. Catch-up contributions are allowed for those 50 and older. Remember, contributions cannot exceed the annual contribution limits in place by the IRS.

2. 2024 solo 401(k) contribution limits for 2024

Often, the IRS adjusts contribution limits for retirement plans each year. Below are the contribution limits for solo-k plans for 2024:

    • Employee salary deferral: $23,000
    • Salary deferral catch-up contribution for ages 50 and older: $7,500
    • Employer contribution: Up to 25% of the salary of self-employed earnings
    • Total salary deferral plus profit-sharing match contribution: $69,000
    • Total combined contribution for ages 50 and older: $76,500

3. You can contribute to other plans as well as to a solo 401(k)

You can contribute to a solo 401(k), a Roth IRA, a traditional IRA, and a healthA handsome man standing in his family-owned eatery, smiling with an understanding of solo 401(k) rules for small businesses. savings account (HSA). And you can self-direct all three of those plans. However, it’s essential to consult with a tax professional to understand how these contributions are affected by your modified adjusted gross income. There are limits on combined annual contributions to multiple accounts your tax professional must help you navigate.

4. Allows both traditional and alternative investments

The solo 401(k) allows for a variety of investments, including stocks, bonds, and mutual funds. But you can also use alternative investments like real estate, private lending, crypto, private equity, private mortgages (and more) to build wealth in the account. The ability to invest in both traditional and alternative assets helps you achieve critical diversity in your portfolio.

Summary of Insights on Solo 401(k) Rules and Benefits for Business Owners

  • Solo 401(k)s allow much larger contribution limits than IRAs.
  • You can adjust contributions based on the business’s profits each year.
  • A solo 401(k) allows rollover opportunities, which means you can roll old employer plan funds over into this account.
  • Account holders can take tax-free loans from their account funds, provided you follow the rules for these transactions.
  • Solo 401(k)s that finance real estate investments using non-recourse loans avoid unrelated business income tax (UDFI).
  • This plan is suitable for sole proprietors, independent business owners, and employers, as well as partners in the business and spouses of employers and partners.
  • The IRS does not require separate accounts for pre-tax and Roth money in a solo 401(k), they just require separate record keeping.


Additional solo 401(k) resources:

7 Benefits of Self-Directed Solo 401(k) Plans for Small Business Owners

Solo 401(k)s vs SEP IRAs vs SIMPLE IRAs: Retirement Plans for Small Business Owners