Establishing a Solo 401(k) FAQs

Establishing a Solo 401(k)

A Security Benefit Solo 401(k) offers sole proprietors the opportunity to save for retirement using many of the advantages of a traditional 401(k), including: 

  • tax-deductible contributions 
  • annual contributions that exceed 25% of compensation
  • Roth contribution availability
  • catch-up contributions for people 50 and over
  • loans or hardship withdrawals
  • rollovers from other retirement plans

Most importantly, Security Benefit's straightforward administrative requirements make these plans easy to establish and maintain for you and your clients.

Below are some frequently asked questions and you can find more on Solo 401(k) FAQs Overview, Contributing to a Solo 401(k), and Rollovers and Distributions. Visit our Solo 401(k) page to learn about the Security Benefit Solo 401(k).

Who can set up a Solo 401(k) plan?

Any business type that does not have common law employees can create a Solo 401(k). This includes:

  • Sole Proprietors 
  • Partnerships 
  • C Corporations
  • S Corporations
  • LLC/LLP companies
How does a Solo 401(k) plan work with different ownership structures like an S-Corp?

An S-Corp can establish a Solo 401(k) plan, with contributions based solely on W-2 compensation (K-1 distributions can’t be used as compensation). Salary deferrals are available, either as Roth or pretax, and any employer contributions would be uniform as a percentage of compensation.

Can a spouse be included in a Solo 401(k) plan?

Yes, a spouse can be added to the plan if they are a paid employee or partner in the business. 

Can other family members be included in a Solo 401(k) plan?

Other family members cannot be included if they do not have ownership in the business. 

What happens if employees are hired for a business which currently has a Solo 401(k) plan?

This could disqualify them from potentially contributing to a Solo 401(k) plan. Additionally, the plan would need to be amended to a traditional or Safe Harbor 401(k) plan if employees are hired.

Can a Solo 401(k) plan be established if independent contractors are hired instead of W-2 employees?

Yes.

Can someone work at another business while owning their own business and adopt/maintain a Solo 401(k) plan?

Yes, although contributions to a Solo 401(k) plan cannot be based on the salary from the other establishment. If the owner is taking part in another 401(k) plan, the salary deferral contributions must be aggregated amongst both plans.

If multiple businesses are owned by an individual, can they have a Solo 401(k) plan? What if some businesses have employees?

This can be a complex issue as it may create a controlled group situation. The IRS will not allow the owner of one business to establish a retirement plan for him or herself while discriminating against the other businesses they own. 

If a business with a Solo 401(k) closes or is sold, what happens to the plan?

If the business closes, the account should be stopped and rolled over to an IRA or other plan.

When should a Solo 401(k) plan be set up?

A Solo 401(k) can be established up to the tax filing deadline, including extensions. 

Does the plan need an Employer Identification Number (EIN)/Tax ID, or can a Social Security Number be used?

Although, the IRS will allow a Solo 401(k) plan to be set up using a Social Security Number as the (EIN), Security Benefit requires an Employer Identification Number (EIN). This is because once the Solo 401(k) reaches $250,000 in assets a 5500-EZ must be filed, and the EIN eases the filing of the 5500-EZ.

What paperwork is needed to start a Solo 401(k)?

A Solo 401(k) plan is governed by the plan documents, which usually consists of a Basic Plan Document and an Adoption Agreement, however, other documents such as a service agreement or account applications may be needed.

Security Benefit’s process to start a Solo 401(k) plan is simple. We require our Solo 401(k) Plan Adoption Agreement guide to be completed. A pre-filled plan installation kit will be delivered via electronic delivery to the financial professional and the business owner. Once the information is sent back to Security Benefit the plan will typically be created within 10 business days.


FINANCIAL PROFESSIONAL USE ONLY — NOT FOR USE WITH CONSUMERS

Security Benefit, its affiliates and subsidiaries, and their respective employees and representatives, do not provide tax, accounting, or legal advice. Any statements contained herein concerning taxes were not intended as and should not be construed as tax advice, nor should they be used for the purpose of avoiding federal, state, or local taxes and/or tax penalties. Please seek independent tax, accounting, or legal advice. 

Services are offered through Security Distributors, a subsidiary of Security Benefit Corporation (Security Benefit).

SB-10036-84 | 2023-08-23