A Self-Directed Solo 401(k) plan is an IRS-approved and qualified 401k plan. It suits a self-employed sole proprietor, a corporation, or a limited liability company.
Who is best-suited for Solo 401K?
A Solo 401(k) plan is ideal for sole proprietors, consultants, or independent contractors. It is almost identical to a Self-Directed IRA LLC, except for creating an LLC, which is not required.
Steps in Setting Up a Solo 401(k)
There are six easy steps in setting up a Solo 401(k). And those are as follows:
Understand the Eligibility Conditions
The eligibility is the first thing to understand. A Solo 401(k) or Individual 401(k) is a specially designed plan for only a single participant, the business owner. You will not be eligible for the plan if you have full-time employees who would qualify for a 401(k).
Identify a Provider
The next step is to identify the right provider of Solo 401(k). Reasonable fees, good reputation, and investment flexibility are the main things to look out for in a prospective Solo 401(k) provider.
Complete Paperwork
After that, complete the necessary paperwork with your provider to formally set up your Solo 401(k).
Compose Employee Disclosures
Despite you do not have any employee who can participate in your Solo 401(k), yet you need to compose disclosures on certain information on the plan and the benefits of tax-free savings.
Open an Account
Open and set up your Solo 401(k) account with your provider following the guidelines in the plan documents. You can open the account any time before the tax-filing deadline.
Make Contributions
Once you have set up your Solo 401(k) account, you can start making contributions. You can schedule automatic, electronic contributions or make a single contribution any time before your tax-filing deadline.There are many things to know about a Solo 401(k). Refer to the infographic in this post to know all about the plan.
