A one-participant 401(k) plan is sometimes called a:
- Solo 401(k)
- Solo-k
- Uni-k
- One-participant k
The one-participant 401(k) plan isn’t a new type of 401(k) plan. It’s a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.
Key Features and Rules
- Dual Contribution Structure: You can contribute to the plan in two roles:
- As the employee: Make salary deferrals up to annual IRS limits.
- As the employer: Make a profit-sharing contribution of up to 25% of your net self-employment earnings or W-2 compensation.
- Pre-Tax and Roth Options: You can make traditional pre-tax contributions to lower your current taxable income, or Roth (after-tax) contributions that grow tax-free.
- Loan and Feature Access: Unlike many other self-employed plans, a Solo 401(k) often permits participants to take out loans against their account balance. [1, 2]
Eligibility
- You must have self-employment income (from a sole proprietorship, single-member LLC, partnership, S-corporation, or C-corporation).
- The business must have no common-law employees working full-time, other than you and your spouse.
- Passive rental or investment entities that do not generate active goods-and-services income do not qualify.
Compliance and Reporting
- IRS Form 5500-EZ: If your total plan assets exceed $250,000 at the end of the calendar year, you must file Form 5500-EZ with the IRS.