A solo 401(k) plan is a traditional 401(k) plan that covers a business owner with no employees, or that person and his or her spouse. A solo 401(k) is ideal for a business owner with no employees (with the exception of a spouse) who would like to contribute above the limits of a personal IRA.
Who can contribute?
Contributions can be made as employee deferrals and employer contributions.
How much can you contribute to a solo 401(k)?
Maximum annual employee deferral contribution (2020): the lesser of $19,500 or 100% of compensation
Catch-up deferrals if employee is age 50 or older (2020): $6,500
Maximum annual employer contribution: 20% of Schedule C Income or K-1 income and 25% of W-2 Income
For 2019, the total contributions (employee + employer) cannot exceed $56,000.
Establish an account at a financial institution to manage the investments and set up an IRS approved plan document.
A 5500 is required once plan assets reach $250,000 or there is another eligible employee. A solo 401(k) for a business owner with no common-law employees is not subject to nondiscrimination testing.