Solo 401k Regulations

Understanding solo 401k regulations is critical if you are considering implementing this type of retirement account. They have a few differences from traditional 401ks. Here are the basics of solo 401k regulations and how to handle them. 

Solo 401k 

A solo 401k is an individual retirement account that you can set up if you are a sole proprietor or the owner of an S corporation or a C corporation. You can set one up for you and your spouse but no other employees.


Each year, you will be able to contribute a maximum of $16,500 to the account. If you are over the age of 50, you can contribute as much as $22,000 in a given year.

Profit Sharing

As the business owner, you will also be able to contribute some of the profits of the company into your retirement account. Each year you can determine whether you want to contribute to the account. The maximum amount of money that you can contribute is 25 percent of your salary. This is based off of W-2 income for the year. 


Just like with a traditional 401k, you can borrow the funds from a solo 401k. In order to do this, you have to repay the loan over a period of five years at an interest rate of approximately 1 percent above the prime rate.

Can you borrow from your solo 401k without paying taxes?

The solo 401k is a retirement account that will allow you to borrow against the money in your retirement funds if you need to. One of the biggest advantages of taking on this type of loan is that you do not have to pay taxes on the money that you borrow. If you were to simply withdraw the money, you would have to pay an early distribution penalty and pay income taxes on the money also. When you borrow money from your solo 401k, you will have to pay it back with interest, but as long as you do, there will be no taxes. 

Can your spouse contribute to your solo 401k?

If you are self-employed and have a solo 401k, your spouse is eligible to contribute to the account if he or she is a full-time or part-time employee of your business. In fact, he or she can contribute just as much as you can into the account. This would allow you to basically double your tax-deductible contribution for the year. This provides you with a way to put away the most money toward your retirement out of all of the different individual retirement account options that are available.

What are the solo 401k contribution limits?

If you contribute to a solo 401k, there is a maximum amount of money that you can contribute every year. As of 2010, the limit for an individual to contribute to a solo 401k is $49,000 per year. If you are over the age of 50, you can contribute as much as $54,500. This contribution will be comprised of two parts. You can defer a portion of your salary, and you can also participate in a profit sharing plan. The salary deferral can be up to $16,500 or $22,000, depending on your age, while the profit-sharing makes up the rest.