My Solo 401(k) Is a $exy, Tax-Advantaged Retirement Account

Hey guys! I’ve got some nerdy news … I just set up a Solo 401(k) plan with TD Ameritrade.

And it wasn’t as hard as I thought it would be! In fact, I did most of the 57-page paperwork at 1 a.m while I was half-drunk and watching Beethoven on TV. (BTW – That movie is still just as good today as it was when I first saw it 30 years ago.)

Anyway, I discovered some cool stuff while researching solo 401ks and hunting for the best provider to go with. Figured I’d share some notes and highlights with y’all.

I promise I won’t get too into the weeds.

Recap on My 2021 Income/Savings Situation…

Right now my wife and I don’t have any retirement benefits through our employers. She gets paid W2 income and I receive 1099 income as an independent contractor.

As a contractor, I technically work for myself, which gives me the option to start a small business or solo retirement plan. I chose the Solo 401k account (vs. SEP or Simple IRA) for reasons I’ll explain in a little bit…

As far as annual savings, my wife and I are kind of on the “Coast FI” train. This means we are earning almost the same amount as we are spending each year and don’t have much excess income to invest.

There are pros and cons to this low-income situation. One of the benefits is that we are in a very low tax bracket right now, which lets us play fun games like capital gains harvesting. One of the downsides however is that in order to make contributions to a new retirement account, we have to rob money from an existing asset or account.

Shuffling money around from one account to another might seem silly, but it will help our portfolio grow more efficiently, and we can avoid/defer thousands — or maybe even hundreds of thousands — of dollars in taxes.

Why I Chose Solo 401k vs. SEP vs. Simple IRA

Roth, baby… Roth!!! The biggest reason I love the Solo 401k plan is because it offers both traditional and Roth contribution options! (No Roth for SEP and Simple IRAs). Since we’re in a low tax bracket now (and think we’ll be in a higher bracket later in life), we’d like to move as much money as possible into Roth accounts.

A Roth 401k can roll over directly into a Roth IRA, which basically gives us a path to invest an additional $19,500 per year that we’ll never be taxed on again. We can also withdraw contributions (rollovers) from a Roth IRA any time we want, penalty-free, given that our Roth accounts were established more than 5 years ago. (More details in this post, Ways to Fund a Roth IRA – see Section #4)

Another reason I chose the Solo 401k was because of contribution limits. For SEP plans, the contribution limits are the lesser of 25% of the employee’s income, or up to $58,00 for 2021. Since my contractor income is pretty small (let’s say, like $40k/yr), my SEP contribution max would be 25% of that (so, ~$10k). Whereas the Solo 401k contribution limit is $19,500 for employees — and then additional employer matching on top of this.

Best Solo 401k Providers

I did a bunch of research before choosing TD Ameritrade. By far the most helpful blog post (and reader comments!) I found is at The College Investor. The post goes into detail about the big providers and even has a comparison table of the most popular ones.

Because Roth contributions are important to me, my options were limited to TD Ameritrade, E*Trade or Vanguard. TD seemed to be the most flexible and friendly when I called them, so that’s who I chose in the end.

The total set-up time was about two weeks. TD required printing physical forms and snail-mailing them to open a new account. Kind of old-school, but apparently all of the providers make you do this. The paperwork can seem overwhelming to begin with, but it’s really not as hard as it looks once you get started reading.

My 2021 Contribution Plans

One of the beauties about administering your own 401(k) is you can make contributions at any time you want throughout the year, in any amount you want. Just as long as you don’t exceed the contribution limit.

My original plan was to dump $19,500 right into the Roth 401k to get started asap. But, there are a few potential problems with that…

First, I remembered that I already made some 401k contributions this year. Before my current employer removed my benefits, I siphoned about $10k of income into an employer-sponsored 401k in Q1 of this year. Being that my max personal contribution to ANY 401k in the year 2021 is $19,500, this allows me only ~$9500 more in contributions for the rest of the year.

Next, I realized that the year is still kind of young, and anything can change between now and December 31… What if a killer new job falls in my lap, with awesome employee benefits and a 401k matching program? I’ll be kicking myself for not having any available contributions left. Maybe it’s best to wait until December to contribute funds?

Another consideration is Roth vs. traditional contributions. If I sell 2 more of my rental properties before the end of the year, my overall income might not be so low any more, and I may want to reduce my taxable income instead of funding the Roth 401k. I haven’t run the exact numbers, but that’s a possible scenario.

Anyway, all in all I’ve decided to hold off making any contributions right now. As long as I get them in before the end of the year, all is good. (I have until tax day 2022 to make the solo 401k employer matching contributions too, so no rush there).

Other Benefits and Gotchas of Solo 401ks

Here are some other nerdy notes I made along the way, in case you’re interested…

  • As an employee, I can contribute $19,500 to a solo 401k. This has to be earned income from the business. As an employer, I can match contributions, but only up to 25% of total earned income. 
  • While employee contributions can be traditional or Roth, employer contributions are always traditional contributions. They can not be Roth also.
  • The IRS allows your spouse to be covered under a solo 401k. So potentially, I could double my contributions by setting up an account for my wife too. But, the spouse must earn income “from the business.” And since my wife doesn’t work on my job or duties, unfortunately she can’t use my plan.
  • Many brokers (including TD Ameritrade) make you pay your contributions via WIRE transfer, or by mailing them a physical check. Kind of ridiculous, but since I’ll likely be funding all in 1 transaction, I guess that’s OK with me.
  • Investment options vary for each broker. Another reason I chose TD Ameritrade was that they let me invest in Vanguard ETFs, commission-free.

Whelp, that’s all I got for now. Any of you have a Solo 401k and are making Roth contributions? Am I the only idiot trying this?


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  1. Lisa September 21, 2021 at 10:34 AM

    Paying by wire seems crazy to me! I have a Solo 401k with Vanguard, and the set up process was easier than you’re describing, and I can make contributions with a direct transfer from my bank. Wow. I can’t understand why they would require a wire transfer. That’s bizarre.

    1. Joel September 23, 2021 at 8:08 PM

      Yes it’s really weird. My only guess is it’s some regulation that they have to abide by. And maybe not common enough that they are pushing for change. On the positive side, at least if you fund in 1 chunk a single wire isn’t too bad.