This Solo 401K overview has been revised with information for 2023 & 2024 tax years, as part of a multi-part series on retirement accounts for self-employment income. I previously gave an introduction to SEP IRAs; here, I’ll cover Solo 401Ks; having started and contributed to both of them myself gives me first-hand experience with each. A separate article will address SIMPLE IRAs. Anyone planning self-employment income through 1099s should find these overviews valuable.
What Is a Solo 401K (Individual 401K)? A Solo 401K can go by many names; all referring to the same account type. These names include Individual 401Ks (or i401Ks), Solo-Ks, Self-Employed 401Ks, Uni-Ks and One Participant 401Ks among many others; this article will focus on Solo 401Ks instead due to their greater accessibility. For purposes of clarity we will use the term Solo 401Ks only throughout.
Although each term refers to something slightly different, all are meant to describe the same thing: A 401K plan designed for self-employed individuals or their spouse.
There are a few key differences between employer-sponsored 401Ks that many of us are used to and Solo 401Ks, which will be discussed shortly. Apart from those differences, Solo 401Ks very closely resemble Traditional and Roth 401Ks which we already are acquainted with.
What Are My Qualifications to Create and Contribute to a Solo 401K? In contrast to a SEP IRA, Solo 401Ks do not impose age or income restrictions, though contributions must come from self-employment income in that year for them to count towards your contributions.
As with the SEP IRA, to qualify for a Solo 401K you don’t have to be full-time self-employed; part-time self-employment or earning side income through secondary jobs/side hustles is just as acceptable. Furthermore, having another Traditional 401K does not preclude you from starting and maintaining a separate Solo 401K plan.
+ There are no comments
Add yours