October 10, 2025 • 30 mins
Take control of your retirement with our Solo 401(k) Special, starting at $895. The offer ends on October 17, 2025! Learn more: https://kkoslawyers.com/solo-401k-special-2025/?utm_source=buzzsprout&utm_medium=description-link&utm_content=596-solo-401k-p2-maintain&utm_campaign=main-street-business-podcast
Are you taking full advantage of one of the best retirement strategies available to entrepreneurs and small business owners? In this episode of the Main Street Business Podcast, Mark J. Kohler and Mat Sorensen dive deep into how to set up, maintain, and maximize your Solo 401(k) — giving you the tools to make the most of this powerful retirement plan.
The Solo 401(k) offers higher contribution limits, flexible investment options, and unique tax advantages that make it one of the most attractive plans for the self-employed. Mark and Mat break down everything you need to know about eligibility, plan setup, ongoing compliance, and strategies to ensure your plan is working for you. They’ll also cover common mistakes, key rules to remember, and proven ways to grow your wealth through real estate, small business investments, and alternative assets inside your Solo 401(k).
Whether you’re new to retirement planning or already have a Solo 401(k) in place, this episode provides practical steps to help you stay compliant, maximize contributions, and take full advantage of the tax-saving opportunities available. By the end, you’ll understand why the Solo 401(k) is often a smarter choice than a SEP IRA or other retirement plans — and how to ensure yours is structured correctly.
If you’re serious about saving taxes, building wealth, and taking control of your financial future, this is an episode you don’t want to miss!
You’ll learn:
- How to determine if you qualify for a Solo 401(k) — even if you have part-time employees or a small side business
- The key rules for full-time and part-time employees, and how to stay compliant as your business grows
- Smart strategies for setting optimal salary levels for yourself and your spouse to maximize contributions and minimize taxes
- The different contribution options (traditional, Roth, and employer match) and how to combine them for greater flexibility
- How to roll over or restate an existing 401(k) into a self-directed plan that lets you invest in what you know best
Get a comprehensive tax consultation with one of our Main Street tax lawyers that can build a tax strategy plan with an affordable consultation that will leave you speechless!!
Here’s the link - https://kkoslawyers.com/services/comprehensive-bus-tax-consult/?utm_source=buzzsprout&utm_medium=description-link&utm_content=596-solo-401k-p2-maintain
- Grab my eBook 30 Unique Strategies Every Business Owner Should Know!
- You don't want to miss this! Secure your tickets for the #1 Event For Small Business Owners On Main Street America: Main Street 360
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Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_01 (00:00):
When we're talking about a solo K, you can go buy
(00:01):
stocks, bonds, and mutual funds.
Okay, I'm not against that, butthat's not all that you can
invest in.
Like when you have aself-directed solo 401k, you can
buy real estate, you can investin a private company, you can
buy crypto, you can buy preciousmetals, you can invest in a
private fund.
We're not saying you have to goto Wall Street and buy more
stocks, bonds, annuities, ormutual funds.
SPEAKER_00 (00:20):
It's all about the rate of return, investing in
what you know, and investing insomething else that could get
you two or three times thereturn you would get over here
in just a simple mutual fund.
Not that they're bad, butwouldn't you like to do both?
And you can win.
(00:52):
Yeah, some may say fast and thefurious part two was one of
their better ones.
Uh, I think this could be betterthan part one, not sure.
You know, yeah, maybe back tothe future too.
SPEAKER_01 (01:01):
I mean, I don't know.
I don't Fast and Furious.
Is that your lane?
I no, I'm I'm I don't know.
Have you seen it?
SPEAKER_00 (01:09):
Parts well, we better get into this before.
I'm gonna, you know, I just youknow, I don't know how many
versions of Fast and the Furiousare.
That's the big joke.
So maybe that's from a well,everybody, please, if you
haven't listened to part one, Iwould recommend you go back and
catch that before we proceed.
(01:30):
The reason why is a lot of thequestions you may have answered
of why they're so great, and Ithink we hit our top 10 or
whatever it was of just awesomereasons for a solo 401k and how
they function is in part one.
Now, Matt, what's our lineuptoday?
Well, here's what we're gonnado.
SPEAKER_01 (01:45):
Yeah, here's the agenda, uh, so to speak.
We're talking about how do youqualify for the solo 401k?
It's not for everyone, but forwho it's for.
It's the freaking bestretirement account to set up.
Um so we're gonna go over that.
How do you set this up?
What are the documents involved?
What's legally required to getthis set up and operating?
Um, how do I get the money inand contribute, roll over money,
get new money in?
(02:06):
Uh, that's really the maximizingpart here.
And then we'll talk aboutinvesting it and then
maintaining it.
There are some requirements andthings you got to do to keep it
um up to date for IRS standards.
So um that's our agenda.
We're gonna rip through it, giveyou everything you need to know
on this.
And please know we've got a teamof lawyers at KQO Slawyers that
sets these up every day, advisesclients, our team at directed
(02:28):
IRA can help handle theaccounts.
So we've got the solutions foryou when you want to go execute
on this.
Um but let me hit you want tohit go ahead, Mark.
SPEAKER_00 (02:36):
Well, I want to just say one thing here, too, is that
there when you meet with uh oneof our tax lawyers, or if you
have a good advisory, we hope,if you don't, uh but when you
do, our goal is to help you findthe right plan.
And that's really part of thisfirst topic of do you qualify?
Because you may think, oh, Iqualify or I don't.
(02:57):
Well, you never know.
That's the goal of the attorneyto go, okay, maybe we go through
a SEP for a year, then we kickit out and do this or do that.
Maybe we do need to do a safeharbor 401k, or well, let's do a
mega backdoor Roth IRA.
So there's a lot of nuances thatare gonna depend on your facts
and circumstances.
But I think that so that's why aconsult helps.
(03:18):
And every 401k we set up at ouroffice, uh, very affordable, uh,
you're gonna meet with thatlawyer tailoring it, tailoring
it to you on Zoom, anywhere inthe country.
So I guess you're right, Matt.
Qualifying first, right?
SPEAKER_01 (03:31):
Yeah, let's hit that.
So to qualify for this, you mustbe self-employed with no other
employees other than you,spouse, kids, or business
partners in the company.
And the solo cake concept, justto make sure you understand
this, this was createdspecifically for people that
don't have a lot of employees ina company.
It's just you, you're the realestate agent, the broker, the
(03:52):
consultant, whatever it is.
You don't have a whole team,right?
This is just you, or maybe it'spartners or family that can
still work.
But all the 401k rules andmatching and employee issues,
and that is you don't have toworry about any of that with the
solo K.
And that's why.
So we want to make sure youqualify for this so you can get
this kind of like expedited,more simple 401k that you can
(04:15):
put 70 grand a year into.
SPEAKER_00 (04:17):
Yeah, and that's what makes it more affordable to
set up too, is because there'snot census or a census of all
the employees and their ages andtheir wages and all that.
Now, here's what's interestingon this point.
Maybe you do have an employeeright now.
You might qualify still becauseyou're disqualified once you
have an employee that hits aone, a full-time employee that
(04:40):
hits a one-year anniversary.
Yeah.
So, and we'll come to part-timeemployees here in a moment.
SPEAKER_01 (04:46):
Yeah, it's all part-time in a second.
SPEAKER_00 (04:48):
So we're in the middle of 2025 essentially, or
the third quarter of 2025 rightnow.
So if you hired a full-timeemployee six months ago, okay,
great, you can still do a solo401k this year.
And then in fact, uh you turnthe corner, and then when they
hit their anniversary date,that's when your solo 401k would
(05:10):
have to end.
Now, Matt, in fact, I'm gonnaask you that is it it's the year
they hit, it's not the date.
So if they you have a full-timeemployee that in the middle of
2026, that's their anniversarydate, yeah, then you can't make
a contribution to a solo for thewhole year, or you could up
until their anniversary date.
SPEAKER_01 (05:28):
You you could up until their anniversary date,
because they don't qualify toparticipate in the 401k until
they've worked for you for ayear.
When we set up the solo K, youcan put that as a requirement
that, you know, this only worksif you've worked here for a
year.
Now, by the way, if you're abrand new business owner setting
up a solo K, don't do thatbecause you'll self-select
yourself out.
But um, but let's say you'vebeen in business for a while
(05:50):
anyways, and you create a new401k, say, hey, this is only
available to people that haveworked here a year, that the IRS
lets you do that.
That way, if you do haveemployees that kind of come and
go, or even that one stays forover a year, um, you at least
have that window of one year.
But in your example, you set upa solo K right now and you have
an employee that started a fewmonths ago, you're good for 2025
contributions.
(06:10):
And once 2026 hits, you can makeyour 2026 contributions.
But let's say that employee hasthen been a year with you in
June of 2026, that's when youcannot contribute anymore, which
was fine if you already got your2026 contributions in.
So now you must have earned thatincome through 2026 so far,
right?
Um, so that's how the solo Kwork if you did have a full-time
(06:33):
employee.
And we do have that.
We have clients that have solo401ks and they basically keep
them and keep investing them.
Maybe they roll it to an IRA ora Roth IRA if it's a Roth solo
K.
Once they have that employee,you could even transition to a
group 401k, much more complexand much more costly.
Um, but you have another optionsthere.
It's not like the 401k is doneor you can't use it.
(06:54):
It's just like you're notputting new dollars in the solo
K structure anymore.
SPEAKER_00 (06:58):
Yeah, it's really a way to unlock the solo 401k for
one or two years, depending onwhen that anniversary date for
your first or your otherfull-time employee.
Now, the rule with part-timeemployees is if you have uh any
part-time employees that havehit their three-year
anniversary, that's when youthey you'd have to include them
(07:21):
in the plan or close down yourplan.
So uh in 30 and the andfull-time is versus part-time,
it's a little different test.
What is it about?
SPEAKER_01 (07:31):
It's like 30 hours.
It's like it's almost like inthe 20s.
It's it's like you're like,since when is that full time?
So what I will say is it hitsfaster than you think.
So if you're like, they onlywork 30 hours a week for me,
that's full time for purposes ofthis test.
So just be careful on that ifyou do have any employees.
Now, if you have, let's sayyou're a real estate broker and
you have agents that are 1099 toyou, you don't have any other
(07:53):
employees.
Cool, you're not you thosearen't employees.
The people you 1099 that arelegitimate independent
contractors, that's not countingin here.
This is only real W-2 employeesthat you're employing in your
business.
SPEAKER_00 (08:06):
Also, let's say your kids, yeah, your kids, remember,
or your spouse, don't violatethat rule.
You can all play in the solo.
So think of it like a familysolo plan, not just one person
solo.
And your business partner, ifyou have another owner in the
company.
Yeah.
So that's the rule to qualify.
(08:27):
Now, there's a lot of nuancesagain.
We won't go there today, whereyou may do a SEP before you say,
I'm gonna go to a so uh I'mbecause you could qualify for a
SEP with employees at adifferent uh time measurement,
but I'm not gonna open that canof worms.
So there are stages and optionsas you're going into this arena.
(08:50):
So get a consult, and this issomething you've got to do
before we have a special rightnow.
You'll see it down in thedescription.
We do it every year in the monthof October because we got to get
this done.
If you call us in December, Idon't think it's gonna happen.
It's gonna be really hard.
SPEAKER_01 (09:07):
So yeah, we want to get these solo cases set up so
you can maximize your 2025contributions.
We're gonna go throughcontribution rules here in a
second, uh, because that's abouthow to maximize the solo 401ks,
get your dollars in.
Um, but the the the you have themost options, the most
opportunity to get the mostcontributions in if you set up
the solo K plan in the year thatyou wanted to contribute.
(09:29):
If you set it up later, you canstill get money in.
There's just some morerestrictions and loopholes you
got to jump through.
So uh so that's why we like tojust get them set up now if
you're thinking about I want tomake 2025 contributions.
Um now, one other thing I wantto say on the qualified to keep
in mind is we're talking aboutbusinesses that sell goods or
services.
You could be a soleproprietorship, an S
(09:50):
corporation, an LLC that'ssingle member, you know, taxes a
sole proprietorship, a Ccorporation, all right.
Those all work and you can havea um uh solo 401k so long as
that entity is selling goods orservices.
If the if the entity is like anLLC that owns a rental property,
for example, that doesn'tqualify.
That's investment income orrental income for tax purposes.
(10:12):
That's not selling goods orservices.
So 401ks were meant forbusinesses that have employees
that are selling goods orservices.
Think of it that way.
So whether this is a side hustleor main hustle for you, as long
as you're selling goods orservices, you're good.
But investment asset typeholding entities, real estate is
the classic example.
(10:32):
That entity cannot create a soloK plan.
SPEAKER_00 (10:35):
Yeah, and I I just really on this qualification
topic, there's not much morethan that.
You can set them up at any age.
Uh, you could have as littleincome as 10 grand or less.
You know, you've got to havewages in order to make a
contribution if you're doing anS corporation.
So again, the type of entity youhave could play into it, but
(10:56):
really um it's wide open unlessit's a passive rental property
type entity, or uh you've gotemployees that hit these
triggering dates of uhanniversary.
So super exciting.
Uh 40 million Americans now,it's estimated, have a side
hustle, and then you can have asolo 401k.
(11:17):
I mean, it's just super cool.
So, all right, yeah.
SPEAKER_01 (11:20):
Even if, and I'll say even if you have a day job
with a solo 401k, you know, andyou got the side hustle.
So you have a day job, you'rematched, you're getting a match
at work in your 401k, you canalso get one in the uh side
hustle.
Yeah, totally.
All right.
Qualification, I'd be sorry,contribution amounts.
Do you want to hear that?
Well, let's talk about the setupand documents here for a second.
I'll I can get that fast becauseI just want to like let's get
(11:42):
this thing set up just so youknow what's involved.
There's two main things you'regonna need.
One is a IRS pre-approved plandocument.
We have that, or you know,Fidelity or whoever you're
using, okay.
You need an IRS pre-approvedplan document.
Now we have that.
And in our solo 401k plan, wesay you can invest in whatever
you want.
So as you get out there and lookat setting up a solo 401k plan,
(12:03):
you want to be have in mind oflike, well, what am I planning
to invest into?
And if you're like, well, I'mjust gonna buy stocks, okay, go
do that at TDM Airitrade.
They can set up a solo K orFidelity because they don't
charge you for it because theonly thing you can buy is what
they sell.
They'll make money selling youmutual fund stocks or ETFs in
your account.
But if you're like, no, no, no,I want to do real estate, I want
to invest in crypto or preciousmetals or a private company.
(12:25):
Well, they don't let you dothat.
That's what you need, aself-directed solo K, which is
what our plan allows you to do.
And so our solo 401k plan isopen architecture, doesn't
restrict your investments.
And that's an IRS pre-approvedplan.
So that's part one.
The other thing is you do want aseparate EIN for this.
This is gonna hold otherinvestment assets.
It's gonna have income, it'sgonna sell stuff.
(12:46):
You don't want to be using yoursocial or your business EIN.
The IRS will be looking forwhat's happening on that on your
company return or your social.
We want this, any of thoseinvestments or income.
We want to be using that EIN forthe solo 401k.
So we'll get a separate EIN aswell for you as part of that
process.
But our team's handling this,setting it up right, getting the
documents, a plan document,adoption agreement, um, EIN, and
(13:08):
we give you a uh also kind of aguide um on how to how to
operate the solo 401k as well.
SPEAKER_00 (13:13):
Yep.
And this is not what this is theone area where going DIY is
almost not even possible becauseyou have to have this approved
document, and people, it's notone sheet of paper like uh
filing an LLC at the state, andyou can try and mech it out
yourself.
But with this thing, it's gonnabe a binder, and there's a lot
(13:36):
of questions to answer in thatdocument, and that's why we put
a lawyer with you to knock itout, very affordable, and you're
gonna be able to tailor it towhat you want to do with it, and
then we get you the EIN.
Third step, open a bank account,and you're gonna start to put
contributions in there.
You can self-manage orself-administer or self-trustee
(14:00):
your own solo 401k.
Now we have a reporting servicethat's very affordable next to
it where we can track things foryou and do the tax returns.
We'll come to that in a minute.
But you really do control thedestiny of this 401k.
Yeah, and you can open LLCs, youcan you need to open a bank
account, you're gonna track thecontributions, the matches.
(14:21):
Um pretty exciting.
SPEAKER_01 (14:23):
Yeah, and we help with all that bank account
setup, custodial account atdirected to hold the investments
and process the money.
You can get a checking accountlink to that.
Um, so you can write the checksand go make investments as
trustee, as Mark said.
All right, now let's hitcontributions.
You don't want to make sure wegot the setup stuff in there
because you you do that's that'sthe key part here is we actually
(14:43):
need that plan set up, signed,and adopted by your company.
And remember that that solo 401kplan is a plan that the company
adopts for the benefit of itsemployee, which happens to be
you, where it's VandalayIndustries and your Art
Vandalay, you know, the solo401k plan is at the Vandalay
Industries 401k, and you, ArtVandalay, have an account in the
(15:04):
solo 401k that could be Roth,could be traditional, you could
be doing Roth and Traditional inthat as well.
Okay.
Did you like the Art Vandalay?
I didn't even get a chuckle onthat.
SPEAKER_00 (15:13):
I well, I maybe I've heard that joke so many times.
I should have given you kind ofthe gratuitous laugh.
I am so sorry.
For those Seinfeld fans outthere, yeah, Art Vandele has got
a really He's a legend.
I'm a legend.
SPEAKER_01 (15:27):
Yeah.
All right, contributions.
Okay, now here's getting moneyin the solo 401k.
I mentioned earlier you can put$70,000 a year into a solo 401k.
That's like 10 times what youcan put into an IRA.
That's one reason we love this.
So if you qualify for the solo401k, you're someone that's
self-employed, this is the anawesome vehicle to get money in,
whether you're doing Rothcontributions and growing
(15:49):
tax-free dollars, or you'redoing traditional dollars and
taking a huge deduction.
This is uh an awesome strategy.
Okay, so there's two componentsof how that 70K works out.
The first thing is the employeecontribution, which for 2025 is
$23,500.
As long as you make$23,500, youcan put in$23.5.
(16:09):
Okay.
I'm sure we'll get to an S-corpscenario here for those of you
that are S Corp owners, becausethat's probably what you should
be if you're a business ownermaking good money.
The second component of what youcan put in is the employer
contribution.
So that first$23.5 is employee.
That's dollar for dollar on whatyou make.
If you make$10,000, you can putin$10,000.
If you make$50,000, you can putin$23.5.
Okay.
(16:29):
Um, that's just the max and itgoes dollar for dollar.
The second component's employer.
And this gives us another$46,500we could do that.
So let's say your W 2 is$100,000.
That means you could put in$25,000, right?
(16:52):
As the employer contribution ontop of the$23,500, which would
get you to$48,500 in thatexample.
All right.
SPEAKER_00 (17:02):
Now I want to point out just two things here that
are interesting, everybody.
Let's say you are not an Scorporation, you're only allowed
to put in 20% of your profit.
So if you're gonna make$100,000,then you're gonna only be able
to put in that 20%.
SPEAKER_01 (17:22):
Plus the 23.5.
So you get 20 grand plus the23.5, but that's only 43,500
instead of 48,500.
SPEAKER_00 (17:31):
And the interesting point is that as you start to
evolve to an S corporation, wewant to be cramming down your
salary so you're not paying asmuch FICA and then maximizing
your 401k.
And there's it it's a balancingact, and there's a sweet spot
because we don't want to pay somuch in FICA that you just get
(17:55):
to put in a few extra dollars onyour 401k.
It's not worth the traction alot of times, it's not worth the
squeeze.
And so we want to like be veryartful this time of year.
This is why the fourth quarteris so busy for us, because we're
pulling the trigger on the 401kand then we're tidying up your
salary levels, which brings meto the second point.
Matt, I want you to comment onboth of these.
(18:16):
So that first one is kind ofthat magic spot, is also are you
calling it the magic spot now?
Sweet spot, magic spot, and I'mnot I'm and we're gonna get in
trouble.
I'm about to talk about um yourwife here, and that is uh
putting your spouse on roll.
I don't know what you weretalking about.
I'm what were you thinking?
(18:37):
Um, but we're gonna talk aboutputting your spouse on payroll.
Um, I was just teaching a classyesterday to um a group of RV
owners, and they're living thedream full-time RVers traveling
around the country.
And the big question was, well,do I put my spouse on payroll so
they can get social security andalso start paying up?
(18:59):
Well, that's a it's a myth thatthat's a that's not a good thing
to do, because a spouse is gonnaget half of their working
spouse's uh social security, andit's averaged over 35 years of
income.
So we'd have to start giving yousome major salary before you'd
(19:19):
ever catch up to the half thatyou're already entitled to from
your working spouse.
So I'm just gonna get to the theuh reveal here, and that is the
only time you want to put yourspouse on payroll is so you can
put money in his or her 401k.
So now we want to find thatperfect salary level for them
(19:40):
without doing too much either.
And sometimes just the deferralis fine.
If it's 235, let's put thespouse on payroll for 25 grand,
boom, put away their that morethan they could in an IRA, they
still can do an IRA, and sowe're getting that magic.
So finding your the moral of thestory is we want to find the
perfect salary for you andpossibly for your spouse, so
(20:03):
that we're maximizing bothcontributions without paying the
dreaded self-employment tax toomuch.
SPEAKER_01 (20:09):
Yeah, and keep in mind that 70K amount that you
can put in is is an individualmax.
So, like that's not for the soloK in total.
This is your solo K plan, youknow, like Art Vandal could be
doing 70K and then ValerieVandalay.
Valerie Valerie.
I'm going to like you know,sticking with the B's.
(20:31):
So Valerie Vandalay, she couldbe doing 70K in hers too, right?
So um now again, you'd need theright W-2 to max that out, and I
think that gets you to like 160Kor something on a W-2, but but
just to get that total max out.
But think of this, just think ofyou both did 50K on your W-2,
right?
You're doing 235, plus you get12,500, which is 25% of the 50K,
(20:56):
right?
What are we at now?
That is 45, that's$46,000.
No, sorry,$36,000 that I can putin a solo K.
My spouse does a$50,000 W2, theycan do$36,000 into a solo 401k
as well, that's under their nameand an account for them.
So um, same thing.
Your kids are in the businessworking, and you know, maybe
(21:18):
they're making five grand, tengrand, they could be dropping
money in a solo 401k too.
SPEAKER_00 (21:22):
Yeah, and I, you know, if we're gonna stay with
the Seinfeld theme, uh, let'spresume George Costanza would
have pulled off his wedding withSusan.
You remember Susan?
That's right.
That's right.
They were gonna get married, andthen they would have had to man
manage that because VandalayIndustries was George's dream
company.
He always wanted to be our butt.
How did Susan die?
(21:42):
Little tribute.
Remember how Susan died?
They never got weddinginvitations, cheap wedding
invitations.
Oh my gosh, it was so funny.
All right, well, contributionsis really the the artistic and
the strategic spot of this wholeprocess because the solo 401k
(22:07):
gives you so much flexibilitythat once you're in the party,
you're like, okay, I got allsorts of options.
And as Matt alluded to earlier,you could do a Roth
contribution, and then thecompany could be a traditional,
meaning the company gets awrite-off for the match, but you
that Roth bucket inside your401k could be invested
differently.
(22:28):
Also, you could convert on daytwo the company match to Roth,
and then have your Roth IRA onthe site.
We call that the mega backdoorRoth.
So you kind of get this, you canstart really playing around with
this if you want just Roth moneyor if you want the write-off.
And that's a big debate.
I mean, we've gotten into almostfist fights at conferences on
(22:48):
which one's better, a Roth or atraditional contribution, and
how old are they and what'stheir income?
And oh my gosh.
I mean, it's just it's I don'tthink AI can even solve for that
one.
SPEAKER_01 (22:58):
Yeah, and I'll even say this on rollovers you can
still roll over.
You got an old employer 401k oreven a traditional IRA, you can
roll that into the solo 401k.
Roth IRAs, by the way, can't berolled in or transferred to a
Roth solo 401k.
You can go for Roth 401k out toRoth IRA, but you can't go Roth
IRA into Roth 401k.
(23:19):
So, but that solo K, it's goodfor new contributions, as we've
been going through here, butalso for any transfers and
rollovers of other retirementaccount dollars you have.
Like I said, the old employer401k or even a traditional IRA
or SEP IRA could get moved inand consolidated into this solo
401k.
SPEAKER_00 (23:35):
So another unique strategy here, just like Matt
said, is you might have old 401kor IRA money, and you're like, I
don't know if I'm gonna make newcontributions this year, but I
sure love that solo 401k becauseI can borrow from it.
So you could take old IRA moneyor old work employer money and
roll it into your new solo 401kand borrow up to 50% or$50,000,
(23:58):
which you whichever's less.
And now you're paying interestback to yourself tax-free into
your 401k.
So that 401k could be the smallbusiness loan you're looking for
or something smart, not a triparound the world.
But let's use it, but that'ssomething you can't do in an
IRA, but the solo 401k wouldallow you to do.
SPEAKER_01 (24:19):
Yeah, and that's called the participant loan,
unique to 401ks.
Our plan document allows forthat.
Um you pay that back over fiveyears, by the way, with at least
quarterly payments.
You could do it monthly or atleast quarterly.
But we've seen a lot of peopleuse that for to start up a small
business.
They start up their new Scorporation, they roll over
existing IRA or old 401kdollars, they go invest some of
it and they take a loan out.
(24:40):
It's not a distribution, nottaxable, no penalty.
They can access that money tobuy some maybe inventory or get
some of your business startupcosts going, some education,
training, whatever it might be.
And um, then you're paying itback, like Mark said, into your
own 401k.
And if you use it for a businesspurpose, you're expensing that
interest as well.
It's a pretty freaking awesomestrategy.
(25:00):
Um, and I love that one.
I didn't even think about thatone.
Another great benefit on thesolo K.
Um, all right, let's hitinvesting for a second here.
Just we want to make sure youknow one thing.
And of course, this is, youknow, we have a whole separate
podcast on this, the directedIRA podcast where you talk about
self-directing.
When we're talking about a soloK, you can go buy stocks, bonds,
and mutual funds.
Okay, I'm not against that, butthat's not all that you're you
(25:22):
can invest in.
Like when you have aself-directed solo 401k, which
is what we set up, you can buyreal estate, you can invest in a
private company, you can buycrypto, you can buy precious
metals, okay, you can invest ina private fund.
These are all assets your solo401k can own and invest in.
We're not saying you have to goto Wall Street and buy more
stocks, bonds, annuities, ormutual funds.
SPEAKER_00 (25:44):
Yeah.
It's just super exciting.
And it's all about the rate ofreturn, folks.
Don't get fixated on maybe someof the uh costs or issues that
seem like they're hurdles.
Those that's a it's a cost ofdoing business and just put it
into the equation.
You might be able to get a zerocost 401k at Fidelity, but like
(26:09):
Matt said, you can just buyFidelity product.
And so you're like, oh, well, Igotta pay a thousand to go set
up this 401k over here, and Iget, you know,$300 a year,$400 a
year, whatever it is, and I gotto maintain it.
Yeah, but what's your rate ofreturn inside that solo 401k?
Investing in what you know andinvesting in something else that
could get you two or three timesthe return you would get over
(26:31):
here and just a simple mutualfund.
Not that they're not bad, butwouldn't you like to do both?
And you can.
And one other thing we need tomention in this whole process is
if you already have a solo 401k,you may be like, darn, I'd love
to have one of those that I canself-direct, and this is
awesome.
This is what I wanted and nevergot, or I never dreamed it was
(26:52):
possible.
Well, then you can make anappointment, and instead of
setting up a brand new one, wewould restate your current one
with a new plan document that itgives you this freedom.
So you could get to the samepoint without having to go
through uh a big redo that's uhcumbersome and expensive.
SPEAKER_01 (27:10):
Yeah, and we see that quite a bit with someone
that say had a solo 401k at TDMaritrade, but that solo 401k
plan document only lets them buystocks, bonds, and mutual funds.
They're like, well, I want tobuy this rental property or
invest in this crypto.
You know, okay, well, we willrestate that solo 401k plan.
It's still the same name, it'sstill the same EIN, still the
same plan, but we will restatethat to a plan that allows you
to own these other privatealternative assets.
(27:32):
All right, let's talk about thelast one here on the list, which
is maintaining the solo 401k.
There's really two importantcomponents to this.
Um, I mean, as a general rule ofthumb, the IRS requires you to
have good records of what put inthe been put in the 401k and
what it's been invested into,um, income in it, expenses, and
all that.
But there's really two criteriaof things you got to make sure
you're doing.
One is you got to make sure yourplan documents stay up to date.
(27:54):
The IRS requires you to, at aminimum, have your plan
documents updated every sixyears.
When we're doing a solo 401kplan for you, when you have an
account with directed where wehandle the account for you,
we're gonna do your annual umamendments.
Sometimes it's every two tothree years, the IRS will
require it.
But we send those out and weautomatically update your plan
for you.
(28:14):
The second requirement is a taxreturn.
Generally, solo Ks that areunder 250 grand do not need to
file a tax return.
And that's total assets at theend of the year.
Once your solo 401k has morethan$250,000 of assets on
December 31st at the end of theyear, now it has to file a tax
return.
(28:35):
This tax return, there's asimplified version of it called
a 5,500 EZ.
There's no tax due on it, butthis is a disclosure filing
requirement that you have tofile for your solo 401k.
So again, this is something weautomatically handle for you.
So when you have an accountantdirected, we include all this
maintenance for you once thesolo 401k plan is set up.
(28:56):
So make sure for any of you thathave a solo 401k are setting up
that you understand the filingrequirements for this and that
those that 5500 EZ is gettingfiled if you have more than 250K
in assets in it, and also thatyour plan documents stay up to
date.
SPEAKER_00 (29:10):
Gosh, what wonderful summary there, Matt.
And I just want to add thatdon't forget right now, if
you're listening here in thenext few weeks from our uh uh
from the date of this, that wehave a annual special.
And the details are down below.
We can get you a 401k plan setup with the law firm, and then
directed IRA is there as yourcustodian to help make sure
(29:34):
those tax returns are done anddo the reporting.
So you kind of get that yin andyang so that you get the right
plan and then you know that themaintenance is taken care of.
Again, extremely affordablecompared to a full blown
employer plan.
SPEAKER_01 (29:47):
Yeah.
Yeah.
So click the links below, getover to KQS Lawyers.
That's our law firm, directedIRA.
That's where we handlemaintenance and custodian of the
account for your solo 401k.
We've got a lot of otherresources there to help you, a
whole team behind us to helpmake.
Make sure you're successful atthis.
And um, please make sure you'resubscribed to the podcast if
you're not already.
Please share it with yourfriends and family.
Give us kudos or you know, alike or a five star, whatever
(30:11):
you can do.
We want to help get the word outthere to more business owners
and investors.
And we'll see you next time.
Thanks for being here.
When we're talking about a solo K, you can go buy
(00:01):
stocks, bonds, and mutual funds.
Okay, I'm not against that, butthat's not all that you can
invest in.
Like when you have aself-directed solo 401k, you can
buy real estate, you can investin a private company, you can
buy crypto, you can buy preciousmetals, you can invest in a
private fund.
We're not saying you have to goto Wall Street and buy more
stocks, bonds, annuities, ormutual funds.
SPEAKER_00 (00:20):
It's all about the rate of return, investing in
what you know, and investing insomething else that could get
you two or three times thereturn you would get over here
in just a simple mutual fund.
Not that they're bad, butwouldn't you like to do both?
And you can win.
(00:52):
Yeah, some may say fast and thefurious part two was one of
their better ones.
Uh, I think this could be betterthan part one, not sure.
You know, yeah, maybe back tothe future too.
SPEAKER_01 (01:01):
I mean, I don't know.
I don't Fast and Furious.
Is that your lane?
I no, I'm I'm I don't know.
Have you seen it?
SPEAKER_00 (01:09):
Parts well, we better get into this before.
I'm gonna, you know, I just youknow, I don't know how many
versions of Fast and the Furiousare.
That's the big joke.
So maybe that's from a well,everybody, please, if you
haven't listened to part one, Iwould recommend you go back and
catch that before we proceed.
(01:30):
The reason why is a lot of thequestions you may have answered
of why they're so great, and Ithink we hit our top 10 or
whatever it was of just awesomereasons for a solo 401k and how
they function is in part one.
Now, Matt, what's our lineuptoday?
Well, here's what we're gonnado.
SPEAKER_01 (01:45):
Yeah, here's the agenda, uh, so to speak.
We're talking about how do youqualify for the solo 401k?
It's not for everyone, but forwho it's for.
It's the freaking bestretirement account to set up.
Um so we're gonna go over that.
How do you set this up?
What are the documents involved?
What's legally required to getthis set up and operating?
Um, how do I get the money inand contribute, roll over money,
get new money in?
(02:06):
Uh, that's really the maximizingpart here.
And then we'll talk aboutinvesting it and then
maintaining it.
There are some requirements andthings you got to do to keep it
um up to date for IRS standards.
So um that's our agenda.
We're gonna rip through it, giveyou everything you need to know
on this.
And please know we've got a teamof lawyers at KQO Slawyers that
sets these up every day, advisesclients, our team at directed
(02:28):
IRA can help handle theaccounts.
So we've got the solutions foryou when you want to go execute
on this.
Um but let me hit you want tohit go ahead, Mark.
SPEAKER_00 (02:36):
Well, I want to just say one thing here, too, is that
there when you meet with uh oneof our tax lawyers, or if you
have a good advisory, we hope,if you don't, uh but when you
do, our goal is to help you findthe right plan.
And that's really part of thisfirst topic of do you qualify?
Because you may think, oh, Iqualify or I don't.
(02:57):
Well, you never know.
That's the goal of the attorneyto go, okay, maybe we go through
a SEP for a year, then we kickit out and do this or do that.
Maybe we do need to do a safeharbor 401k, or well, let's do a
mega backdoor Roth IRA.
So there's a lot of nuances thatare gonna depend on your facts
and circumstances.
But I think that so that's why aconsult helps.
(03:18):
And every 401k we set up at ouroffice, uh, very affordable, uh,
you're gonna meet with thatlawyer tailoring it, tailoring
it to you on Zoom, anywhere inthe country.
So I guess you're right, Matt.
Qualifying first, right?
SPEAKER_01 (03:31):
Yeah, let's hit that.
So to qualify for this, you mustbe self-employed with no other
employees other than you,spouse, kids, or business
partners in the company.
And the solo cake concept, justto make sure you understand
this, this was createdspecifically for people that
don't have a lot of employees ina company.
It's just you, you're the realestate agent, the broker, the
(03:52):
consultant, whatever it is.
You don't have a whole team,right?
This is just you, or maybe it'spartners or family that can
still work.
But all the 401k rules andmatching and employee issues,
and that is you don't have toworry about any of that with the
solo K.
And that's why.
So we want to make sure youqualify for this so you can get
this kind of like expedited,more simple 401k that you can
(04:15):
put 70 grand a year into.
SPEAKER_00 (04:17):
Yeah, and that's what makes it more affordable to
set up too, is because there'snot census or a census of all
the employees and their ages andtheir wages and all that.
Now, here's what's interestingon this point.
Maybe you do have an employeeright now.
You might qualify still becauseyou're disqualified once you
have an employee that hits aone, a full-time employee that
(04:40):
hits a one-year anniversary.
Yeah.
So, and we'll come to part-timeemployees here in a moment.
SPEAKER_01 (04:46):
Yeah, it's all part-time in a second.
SPEAKER_00 (04:48):
So we're in the middle of 2025 essentially, or
the third quarter of 2025 rightnow.
So if you hired a full-timeemployee six months ago, okay,
great, you can still do a solo401k this year.
And then in fact, uh you turnthe corner, and then when they
hit their anniversary date,that's when your solo 401k would
(05:10):
have to end.
Now, Matt, in fact, I'm gonnaask you that is it it's the year
they hit, it's not the date.
So if they you have a full-timeemployee that in the middle of
2026, that's their anniversarydate, yeah, then you can't make
a contribution to a solo for thewhole year, or you could up
until their anniversary date.
SPEAKER_01 (05:28):
You you could up until their anniversary date,
because they don't qualify toparticipate in the 401k until
they've worked for you for ayear.
When we set up the solo K, youcan put that as a requirement
that, you know, this only worksif you've worked here for a
year.
Now, by the way, if you're abrand new business owner setting
up a solo K, don't do thatbecause you'll self-select
yourself out.
But um, but let's say you'vebeen in business for a while
(05:50):
anyways, and you create a new401k, say, hey, this is only
available to people that haveworked here a year, that the IRS
lets you do that.
That way, if you do haveemployees that kind of come and
go, or even that one stays forover a year, um, you at least
have that window of one year.
But in your example, you set upa solo K right now and you have
an employee that started a fewmonths ago, you're good for 2025
contributions.
(06:10):
And once 2026 hits, you can makeyour 2026 contributions.
But let's say that employee hasthen been a year with you in
June of 2026, that's when youcannot contribute anymore, which
was fine if you already got your2026 contributions in.
So now you must have earned thatincome through 2026 so far,
right?
Um, so that's how the solo Kwork if you did have a full-time
(06:33):
employee.
And we do have that.
We have clients that have solo401ks and they basically keep
them and keep investing them.
Maybe they roll it to an IRA ora Roth IRA if it's a Roth solo
K.
Once they have that employee,you could even transition to a
group 401k, much more complexand much more costly.
Um, but you have another optionsthere.
It's not like the 401k is doneor you can't use it.
(06:54):
It's just like you're notputting new dollars in the solo
K structure anymore.
SPEAKER_00 (06:58):
Yeah, it's really a way to unlock the solo 401k for
one or two years, depending onwhen that anniversary date for
your first or your otherfull-time employee.
Now, the rule with part-timeemployees is if you have uh any
part-time employees that havehit their three-year
anniversary, that's when youthey you'd have to include them
(07:21):
in the plan or close down yourplan.
So uh in 30 and the andfull-time is versus part-time,
it's a little different test.
What is it about?
SPEAKER_01 (07:31):
It's like 30 hours.
It's like it's almost like inthe 20s.
It's it's like you're like,since when is that full time?
So what I will say is it hitsfaster than you think.
So if you're like, they onlywork 30 hours a week for me,
that's full time for purposes ofthis test.
So just be careful on that ifyou do have any employees.
Now, if you have, let's sayyou're a real estate broker and
you have agents that are 1099 toyou, you don't have any other
(07:53):
employees.
Cool, you're not you thosearen't employees.
The people you 1099 that arelegitimate independent
contractors, that's not countingin here.
This is only real W-2 employeesthat you're employing in your
business.
SPEAKER_00 (08:06):
Also, let's say your kids, yeah, your kids, remember,
or your spouse, don't violatethat rule.
You can all play in the solo.
So think of it like a familysolo plan, not just one person
solo.
And your business partner, ifyou have another owner in the
company.
Yeah.
So that's the rule to qualify.
(08:27):
Now, there's a lot of nuancesagain.
We won't go there today, whereyou may do a SEP before you say,
I'm gonna go to a so uh I'mbecause you could qualify for a
SEP with employees at adifferent uh time measurement,
but I'm not gonna open that canof worms.
So there are stages and optionsas you're going into this arena.
(08:50):
So get a consult, and this issomething you've got to do
before we have a special rightnow.
You'll see it down in thedescription.
We do it every year in the monthof October because we got to get
this done.
If you call us in December, Idon't think it's gonna happen.
It's gonna be really hard.
SPEAKER_01 (09:07):
So yeah, we want to get these solo cases set up so
you can maximize your 2025contributions.
We're gonna go throughcontribution rules here in a
second, uh, because that's abouthow to maximize the solo 401ks,
get your dollars in.
Um, but the the the you have themost options, the most
opportunity to get the mostcontributions in if you set up
the solo K plan in the year thatyou wanted to contribute.
(09:29):
If you set it up later, you canstill get money in.
There's just some morerestrictions and loopholes you
got to jump through.
So uh so that's why we like tojust get them set up now if
you're thinking about I want tomake 2025 contributions.
Um now, one other thing I wantto say on the qualified to keep
in mind is we're talking aboutbusinesses that sell goods or
services.
You could be a soleproprietorship, an S
(09:50):
corporation, an LLC that'ssingle member, you know, taxes a
sole proprietorship, a Ccorporation, all right.
Those all work and you can havea um uh solo 401k so long as
that entity is selling goods orservices.
If the if the entity is like anLLC that owns a rental property,
for example, that doesn'tqualify.
That's investment income orrental income for tax purposes.
(10:12):
That's not selling goods orservices.
So 401ks were meant forbusinesses that have employees
that are selling goods orservices.
Think of it that way.
So whether this is a side hustleor main hustle for you, as long
as you're selling goods orservices, you're good.
But investment asset typeholding entities, real estate is
the classic example.
(10:32):
That entity cannot create a soloK plan.
SPEAKER_00 (10:35):
Yeah, and I I just really on this qualification
topic, there's not much morethan that.
You can set them up at any age.
Uh, you could have as littleincome as 10 grand or less.
You know, you've got to havewages in order to make a
contribution if you're doing anS corporation.
So again, the type of entity youhave could play into it, but
(10:56):
really um it's wide open unlessit's a passive rental property
type entity, or uh you've gotemployees that hit these
triggering dates of uhanniversary.
So super exciting.
Uh 40 million Americans now,it's estimated, have a side
hustle, and then you can have asolo 401k.
(11:17):
I mean, it's just super cool.
So, all right, yeah.
SPEAKER_01 (11:20):
Even if, and I'll say even if you have a day job
with a solo 401k, you know, andyou got the side hustle.
So you have a day job, you'rematched, you're getting a match
at work in your 401k, you canalso get one in the uh side
hustle.
Yeah, totally.
All right.
Qualification, I'd be sorry,contribution amounts.
Do you want to hear that?
Well, let's talk about the setupand documents here for a second.
I'll I can get that fast becauseI just want to like let's get
(11:42):
this thing set up just so youknow what's involved.
There's two main things you'regonna need.
One is a IRS pre-approved plandocument.
We have that, or you know,Fidelity or whoever you're
using, okay.
You need an IRS pre-approvedplan document.
Now we have that.
And in our solo 401k plan, wesay you can invest in whatever
you want.
So as you get out there and lookat setting up a solo 401k plan,
(12:03):
you want to be have in mind oflike, well, what am I planning
to invest into?
And if you're like, well, I'mjust gonna buy stocks, okay, go
do that at TDM Airitrade.
They can set up a solo K orFidelity because they don't
charge you for it because theonly thing you can buy is what
they sell.
They'll make money selling youmutual fund stocks or ETFs in
your account.
But if you're like, no, no, no,I want to do real estate, I want
to invest in crypto or preciousmetals or a private company.
(12:25):
Well, they don't let you dothat.
That's what you need, aself-directed solo K, which is
what our plan allows you to do.
And so our solo 401k plan isopen architecture, doesn't
restrict your investments.
And that's an IRS pre-approvedplan.
So that's part one.
The other thing is you do want aseparate EIN for this.
This is gonna hold otherinvestment assets.
It's gonna have income, it'sgonna sell stuff.
(12:46):
You don't want to be using yoursocial or your business EIN.
The IRS will be looking forwhat's happening on that on your
company return or your social.
We want this, any of thoseinvestments or income.
We want to be using that EIN forthe solo 401k.
So we'll get a separate EIN aswell for you as part of that
process.
But our team's handling this,setting it up right, getting the
documents, a plan document,adoption agreement, um, EIN, and
(13:08):
we give you a uh also kind of aguide um on how to how to
operate the solo 401k as well.
SPEAKER_00 (13:13):
Yep.
And this is not what this is theone area where going DIY is
almost not even possible becauseyou have to have this approved
document, and people, it's notone sheet of paper like uh
filing an LLC at the state, andyou can try and mech it out
yourself.
But with this thing, it's gonnabe a binder, and there's a lot
(13:36):
of questions to answer in thatdocument, and that's why we put
a lawyer with you to knock itout, very affordable, and you're
gonna be able to tailor it towhat you want to do with it, and
then we get you the EIN.
Third step, open a bank account,and you're gonna start to put
contributions in there.
You can self-manage orself-administer or self-trustee
(14:00):
your own solo 401k.
Now we have a reporting servicethat's very affordable next to
it where we can track things foryou and do the tax returns.
We'll come to that in a minute.
But you really do control thedestiny of this 401k.
Yeah, and you can open LLCs, youcan you need to open a bank
account, you're gonna track thecontributions, the matches.
(14:21):
Um pretty exciting.
SPEAKER_01 (14:23):
Yeah, and we help with all that bank account
setup, custodial account atdirected to hold the investments
and process the money.
You can get a checking accountlink to that.
Um, so you can write the checksand go make investments as
trustee, as Mark said.
All right, now let's hitcontributions.
You don't want to make sure wegot the setup stuff in there
because you you do that's that'sthe key part here is we actually
(14:43):
need that plan set up, signed,and adopted by your company.
And remember that that solo 401kplan is a plan that the company
adopts for the benefit of itsemployee, which happens to be
you, where it's VandalayIndustries and your Art
Vandalay, you know, the solo401k plan is at the Vandalay
Industries 401k, and you, ArtVandalay, have an account in the
(15:04):
solo 401k that could be Roth,could be traditional, you could
be doing Roth and Traditional inthat as well.
Okay.
Did you like the Art Vandalay?
I didn't even get a chuckle onthat.
SPEAKER_00 (15:13):
I well, I maybe I've heard that joke so many times.
I should have given you kind ofthe gratuitous laugh.
I am so sorry.
For those Seinfeld fans outthere, yeah, Art Vandele has got
a really He's a legend.
I'm a legend.
SPEAKER_01 (15:27):
Yeah.
All right, contributions.
Okay, now here's getting moneyin the solo 401k.
I mentioned earlier you can put$70,000 a year into a solo 401k.
That's like 10 times what youcan put into an IRA.
That's one reason we love this.
So if you qualify for the solo401k, you're someone that's
self-employed, this is the anawesome vehicle to get money in,
whether you're doing Rothcontributions and growing
(15:49):
tax-free dollars, or you'redoing traditional dollars and
taking a huge deduction.
This is uh an awesome strategy.
Okay, so there's two componentsof how that 70K works out.
The first thing is the employeecontribution, which for 2025 is
$23,500.
As long as you make$23,500, youcan put in$23.5.
(16:09):
Okay.
I'm sure we'll get to an S-corpscenario here for those of you
that are S Corp owners, becausethat's probably what you should
be if you're a business ownermaking good money.
The second component of what youcan put in is the employer
contribution.
So that first$23.5 is employee.
That's dollar for dollar on whatyou make.
If you make$10,000, you can putin$10,000.
If you make$50,000, you can putin$23.5.
Okay.
(16:29):
Um, that's just the max and itgoes dollar for dollar.
The second component's employer.
And this gives us another$46,500we could do that.
So let's say your W 2 is$100,000.
That means you could put in$25,000, right?
(16:52):
As the employer contribution ontop of the$23,500, which would
get you to$48,500 in thatexample.
All right.
SPEAKER_00 (17:02):
Now I want to point out just two things here that
are interesting, everybody.
Let's say you are not an Scorporation, you're only allowed
to put in 20% of your profit.
So if you're gonna make$100,000,then you're gonna only be able
to put in that 20%.
SPEAKER_01 (17:22):
Plus the 23.5.
So you get 20 grand plus the23.5, but that's only 43,500
instead of 48,500.
SPEAKER_00 (17:31):
And the interesting point is that as you start to
evolve to an S corporation, wewant to be cramming down your
salary so you're not paying asmuch FICA and then maximizing
your 401k.
And there's it it's a balancingact, and there's a sweet spot
because we don't want to pay somuch in FICA that you just get
(17:55):
to put in a few extra dollars onyour 401k.
It's not worth the traction alot of times, it's not worth the
squeeze.
And so we want to like be veryartful this time of year.
This is why the fourth quarteris so busy for us, because we're
pulling the trigger on the 401kand then we're tidying up your
salary levels, which brings meto the second point.
Matt, I want you to comment onboth of these.
(18:16):
So that first one is kind ofthat magic spot, is also are you
calling it the magic spot now?
Sweet spot, magic spot, and I'mnot I'm and we're gonna get in
trouble.
I'm about to talk about um yourwife here, and that is uh
putting your spouse on roll.
I don't know what you weretalking about.
I'm what were you thinking?
(18:37):
Um, but we're gonna talk aboutputting your spouse on payroll.
Um, I was just teaching a classyesterday to um a group of RV
owners, and they're living thedream full-time RVers traveling
around the country.
And the big question was, well,do I put my spouse on payroll so
they can get social security andalso start paying up?
(18:59):
Well, that's a it's a myth thatthat's a that's not a good thing
to do, because a spouse is gonnaget half of their working
spouse's uh social security, andit's averaged over 35 years of
income.
So we'd have to start giving yousome major salary before you'd
(19:19):
ever catch up to the half thatyou're already entitled to from
your working spouse.
So I'm just gonna get to the theuh reveal here, and that is the
only time you want to put yourspouse on payroll is so you can
put money in his or her 401k.
So now we want to find thatperfect salary level for them
(19:40):
without doing too much either.
And sometimes just the deferralis fine.
If it's 235, let's put thespouse on payroll for 25 grand,
boom, put away their that morethan they could in an IRA, they
still can do an IRA, and sowe're getting that magic.
So finding your the moral of thestory is we want to find the
perfect salary for you andpossibly for your spouse, so
(20:03):
that we're maximizing bothcontributions without paying the
dreaded self-employment tax toomuch.
SPEAKER_01 (20:09):
Yeah, and keep in mind that 70K amount that you
can put in is is an individualmax.
So, like that's not for the soloK in total.
This is your solo K plan, youknow, like Art Vandal could be
doing 70K and then ValerieVandalay.
Valerie Valerie.
I'm going to like you know,sticking with the B's.
(20:31):
So Valerie Vandalay, she couldbe doing 70K in hers too, right?
So um now again, you'd need theright W-2 to max that out, and I
think that gets you to like 160Kor something on a W-2, but but
just to get that total max out.
But think of this, just think ofyou both did 50K on your W-2,
right?
You're doing 235, plus you get12,500, which is 25% of the 50K,
(20:56):
right?
What are we at now?
That is 45, that's$46,000.
No, sorry,$36,000 that I can putin a solo K.
My spouse does a$50,000 W2, theycan do$36,000 into a solo 401k
as well, that's under their nameand an account for them.
So um, same thing.
Your kids are in the businessworking, and you know, maybe
(21:18):
they're making five grand, tengrand, they could be dropping
money in a solo 401k too.
SPEAKER_00 (21:22):
Yeah, and I, you know, if we're gonna stay with
the Seinfeld theme, uh, let'spresume George Costanza would
have pulled off his wedding withSusan.
You remember Susan?
That's right.
That's right.
They were gonna get married, andthen they would have had to man
manage that because VandalayIndustries was George's dream
company.
He always wanted to be our butt.
How did Susan die?
(21:42):
Little tribute.
Remember how Susan died?
They never got weddinginvitations, cheap wedding
invitations.
Oh my gosh, it was so funny.
All right, well, contributionsis really the the artistic and
the strategic spot of this wholeprocess because the solo 401k
(22:07):
gives you so much flexibilitythat once you're in the party,
you're like, okay, I got allsorts of options.
And as Matt alluded to earlier,you could do a Roth
contribution, and then thecompany could be a traditional,
meaning the company gets awrite-off for the match, but you
that Roth bucket inside your401k could be invested
differently.
(22:28):
Also, you could convert on daytwo the company match to Roth,
and then have your Roth IRA onthe site.
We call that the mega backdoorRoth.
So you kind of get this, you canstart really playing around with
this if you want just Roth moneyor if you want the write-off.
And that's a big debate.
I mean, we've gotten into almostfist fights at conferences on
(22:48):
which one's better, a Roth or atraditional contribution, and
how old are they and what'stheir income?
And oh my gosh.
I mean, it's just it's I don'tthink AI can even solve for that
one.
SPEAKER_01 (22:58):
Yeah, and I'll even say this on rollovers you can
still roll over.
You got an old employer 401k oreven a traditional IRA, you can
roll that into the solo 401k.
Roth IRAs, by the way, can't berolled in or transferred to a
Roth solo 401k.
You can go for Roth 401k out toRoth IRA, but you can't go Roth
IRA into Roth 401k.
(23:19):
So, but that solo K, it's goodfor new contributions, as we've
been going through here, butalso for any transfers and
rollovers of other retirementaccount dollars you have.
Like I said, the old employer401k or even a traditional IRA
or SEP IRA could get moved inand consolidated into this solo
401k.
SPEAKER_00 (23:35):
So another unique strategy here, just like Matt
said, is you might have old 401kor IRA money, and you're like, I
don't know if I'm gonna make newcontributions this year, but I
sure love that solo 401k becauseI can borrow from it.
So you could take old IRA moneyor old work employer money and
roll it into your new solo 401kand borrow up to 50% or$50,000,
(23:58):
which you whichever's less.
And now you're paying interestback to yourself tax-free into
your 401k.
So that 401k could be the smallbusiness loan you're looking for
or something smart, not a triparound the world.
But let's use it, but that'ssomething you can't do in an
IRA, but the solo 401k wouldallow you to do.
SPEAKER_01 (24:19):
Yeah, and that's called the participant loan,
unique to 401ks.
Our plan document allows forthat.
Um you pay that back over fiveyears, by the way, with at least
quarterly payments.
You could do it monthly or atleast quarterly.
But we've seen a lot of peopleuse that for to start up a small
business.
They start up their new Scorporation, they roll over
existing IRA or old 401kdollars, they go invest some of
it and they take a loan out.
(24:40):
It's not a distribution, nottaxable, no penalty.
They can access that money tobuy some maybe inventory or get
some of your business startupcosts going, some education,
training, whatever it might be.
And um, then you're paying itback, like Mark said, into your
own 401k.
And if you use it for a businesspurpose, you're expensing that
interest as well.
It's a pretty freaking awesomestrategy.
(25:00):
Um, and I love that one.
I didn't even think about thatone.
Another great benefit on thesolo K.
Um, all right, let's hitinvesting for a second here.
Just we want to make sure youknow one thing.
And of course, this is, youknow, we have a whole separate
podcast on this, the directedIRA podcast where you talk about
self-directing.
When we're talking about a soloK, you can go buy stocks, bonds,
and mutual funds.
Okay, I'm not against that, butthat's not all that you're you
(25:22):
can invest in.
Like when you have aself-directed solo 401k, which
is what we set up, you can buyreal estate, you can invest in a
private company, you can buycrypto, you can buy precious
metals, okay, you can invest ina private fund.
These are all assets your solo401k can own and invest in.
We're not saying you have to goto Wall Street and buy more
stocks, bonds, annuities, ormutual funds.
SPEAKER_00 (25:44):
Yeah.
It's just super exciting.
And it's all about the rate ofreturn, folks.
Don't get fixated on maybe someof the uh costs or issues that
seem like they're hurdles.
Those that's a it's a cost ofdoing business and just put it
into the equation.
You might be able to get a zerocost 401k at Fidelity, but like
(26:09):
Matt said, you can just buyFidelity product.
And so you're like, oh, well, Igotta pay a thousand to go set
up this 401k over here, and Iget, you know,$300 a year,$400 a
year, whatever it is, and I gotto maintain it.
Yeah, but what's your rate ofreturn inside that solo 401k?
Investing in what you know andinvesting in something else that
could get you two or three timesthe return you would get over
(26:31):
here and just a simple mutualfund.
Not that they're not bad, butwouldn't you like to do both?
And you can.
And one other thing we need tomention in this whole process is
if you already have a solo 401k,you may be like, darn, I'd love
to have one of those that I canself-direct, and this is
awesome.
This is what I wanted and nevergot, or I never dreamed it was
(26:52):
possible.
Well, then you can make anappointment, and instead of
setting up a brand new one, wewould restate your current one
with a new plan document that itgives you this freedom.
So you could get to the samepoint without having to go
through uh a big redo that's uhcumbersome and expensive.
SPEAKER_01 (27:10):
Yeah, and we see that quite a bit with someone
that say had a solo 401k at TDMaritrade, but that solo 401k
plan document only lets them buystocks, bonds, and mutual funds.
They're like, well, I want tobuy this rental property or
invest in this crypto.
You know, okay, well, we willrestate that solo 401k plan.
It's still the same name, it'sstill the same EIN, still the
same plan, but we will restatethat to a plan that allows you
to own these other privatealternative assets.
(27:32):
All right, let's talk about thelast one here on the list, which
is maintaining the solo 401k.
There's really two importantcomponents to this.
Um, I mean, as a general rule ofthumb, the IRS requires you to
have good records of what put inthe been put in the 401k and
what it's been invested into,um, income in it, expenses, and
all that.
But there's really two criteriaof things you got to make sure
you're doing.
One is you got to make sure yourplan documents stay up to date.
(27:54):
The IRS requires you to, at aminimum, have your plan
documents updated every sixyears.
When we're doing a solo 401kplan for you, when you have an
account with directed where wehandle the account for you,
we're gonna do your annual umamendments.
Sometimes it's every two tothree years, the IRS will
require it.
But we send those out and weautomatically update your plan
for you.
(28:14):
The second requirement is a taxreturn.
Generally, solo Ks that areunder 250 grand do not need to
file a tax return.
And that's total assets at theend of the year.
Once your solo 401k has morethan$250,000 of assets on
December 31st at the end of theyear, now it has to file a tax
return.
(28:35):
This tax return, there's asimplified version of it called
a 5,500 EZ.
There's no tax due on it, butthis is a disclosure filing
requirement that you have tofile for your solo 401k.
So again, this is something weautomatically handle for you.
So when you have an accountantdirected, we include all this
maintenance for you once thesolo 401k plan is set up.
(28:56):
So make sure for any of you thathave a solo 401k are setting up
that you understand the filingrequirements for this and that
those that 5500 EZ is gettingfiled if you have more than 250K
in assets in it, and also thatyour plan documents stay up to
date.
SPEAKER_00 (29:10):
Gosh, what wonderful summary there, Matt.
And I just want to add thatdon't forget right now, if
you're listening here in thenext few weeks from our uh uh
from the date of this, that wehave a annual special.
And the details are down below.
We can get you a 401k plan setup with the law firm, and then
directed IRA is there as yourcustodian to help make sure
(29:34):
those tax returns are done anddo the reporting.
So you kind of get that yin andyang so that you get the right
plan and then you know that themaintenance is taken care of.
Again, extremely affordablecompared to a full blown
employer plan.
SPEAKER_01 (29:47):
Yeah.
Yeah.
So click the links below, getover to KQS Lawyers.
That's our law firm, directedIRA.
That's where we handlemaintenance and custodian of the
account for your solo 401k.
We've got a lot of otherresources there to help you, a
whole team behind us to helpmake.
Make sure you're successful atthis.
And um, please make sure you'resubscribed to the podcast if
you're not already.
Please share it with yourfriends and family.
Give us kudos or you know, alike or a five star, whatever
(30:11):
you can do.
We want to help get the word outthere to more business owners
and investors.
And we'll see you next time.
Thanks for being here.
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