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How to Make Contributions to a Solo 401k
How to Make Contributions to a Solo 401k

Learn how to contribute funds from your business earnings to your Solo 401k plan and trust

Updated over a week ago

Remember, there are two ways to get funds into your Solo 401k plan:

  1. Rollovers

  2. Contributions

Rollovers can come from almost any retirement plan (traditional IRA, 401k, 403b, TSP, pension plan, etc). Rollovers can be partial or full and can happen on any schedule and in any amount.

Contributions come from earnings from your business.

Here's how to contribute funds to your Solo 401k:

  1. Determine contribution type (pretax/Roth/employer/employee)

  2. Move funds from business or personal account to Solo 401k bank/brokerage account (make sure you keep pre-tax money in pre-tax bank/brokerage account and Roth contributions in Roth bank/brokerage account)

Best practices:

  • Maintain a separate bank or brokerage account for each plan participant

  • Maintain a separate bank or brokerage account for each type of tax-classified funds. This may mean you have a pre-tax, after-tax, and Roth account

All new contributions, including Roth contributions must come from your business earnings. The Solo 401k only allows you to contribute based on my self-employment income?You cannot contribute any additional funds from full-time employment elsewhere or any other funds not related to self-employment. Your Solo 401k’s biggest benefit is that you are able to roll over existing funds. If you have a lot of self-employment income, you get an additional benefit of being able to reduce your taxable income by making big contributions.

Why are matching contributions not applicable for the Solo 401k?

In the Solo 401K, you are the employee and you are also the employer. There are no matching contributions because the plan is designed to be as flexible and as capable as any retirement plan can possibly be allowed by law in the U.S. This might mean that some years you will make employer contributions and in other years you won’t. This is to allow the greatest flexibility within the plan.

Does my current employer’s 401k plan have any effect on my solo 401k plan such as contribution limit?

Yes, if you contribute to a 401k or 403b with another employer, your employee contribution amount is for all plans.

If you max out your employee contributions in another workplace 401k or 403b, you'll have employer contributions remaining in the Solo 401k plan.

What are the contribution deadlines?

Per IRS Publication 560, the employee elective deferral should be formally elected by December 31st of the calendar year. Formal election can consist of completing the Solo 401k contribution form.

Then, you have until the employer's tax return is filed (including extensions) to complete the actual contributions.

Can investment income be contributed to a Solo 401(k)?

Contributions to any retirement account must come from earned income. Contributions come from earnings subject to self-employment tax. For more information on earned income, see this article on determining earned income.

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