Solo-K - The 4 W's

The 4 W's - What, Why, When & Where

What is a Solo-K?

The Solo-K has many names. It may be called a Solo-K, Individual-K or a One-Participant 401(k) name a few.  Usually, the different monikers only have to do with how they are being marketed and promoted by the companies establishing these plans. 

Regardless of the titling, the plan is intended to be utilized by the self-employed individual....that has no common-law employees. The owner of the business can establish the plan for any self-employed business, whether they be a sole-proprietorship, LLC (pass-through), S-Corp, C-Corp or Partnership. 

This plan is attractive for so many reasons:  the self-employed individual now has the same opportunities of a large business in sponsoring the Solo-K from their business.  Bluntly, the advantages of the Solo-K usually far outweigh the benefits of any IRA. need to qualify for the plan. The Solo-K will permit the Trustee/participant to invest in both traditional and non-traditional assets.

Why a Solo-K?

While there are many benefits of the Solo-K for the self-employed individual, let's focus on the primary benefits of why you may want to establish the Solo-K.

  • High Contribution Limits;
  • Participant Loan Eligibility;
  • Invest in both Traditional and Non-Traditional Assets;
  • Make Elective Deferral, Business Profit Sharing, and even After-Tax Contributions;
  • No UDFI on properly-structured, leveraged real estate transactions; and,
  • Roth -- Want it, you got it

When to Form a Solo-K?

You can set up your Solo-K at any time; however, while you can possibly make contributions into the plan the following tax year for the previous tax year (i.e., 2020 for 2019), you must actually establish and sponsor the plan prior to December 31st of the year in which you establish the plan. 

A helpful hint! Your plan must have its own EIN for establishment. It is always wise not to try to start the process during the last week of the year (December 24th - December 31st, typically) as the IRS will typically restrict one from securing the EIN during this time of the year. So, to the wise, commence your Solo-K prior to this time.

Where to "House" the Solo-K?

You can establish your Solo-K at any bank or at certain brokerage firms (e.g., Schwab, Fidelity, TD Ameritrade, E*Trade). In fairness to the process, some banks and brokerage firms will not open; however, most banks, if correctly explained, will open for the Trustee. In reality, the 401(k) Trust is a revocable trust and most, if not all, banks open revocable trust accounts for their customers. 

Learn More about Solo-K Plans

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