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5 Things to Know Before You Set Up a Solo 401k

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So, you have been doing some research on alternative ways to invest your money and grow your retirement. On an internet search you come across the Solo 401k option and start digging in. What does it take to set up a Solo 401k?

In your research you realize your current custodian does not allow for investments in cryptocurrency, real estate, metals, tax liens, etc.  Now, more than ever it is time to take control of your financial freedom. Fortunately, the Solo 401k allows you to be your own custodian, plan administrator and trustee. 

Maybe you are new to investing your own retirement funds and happen to come across the idea of having a Solo 401k. It does not matter how you got here. You are now empowered to create the financial freedom you deserve. Let’s discuss the 5 things you need to know before you set up a Solo 401k.

1) Have a Business

To qualify to set up a Solo 401k, you must be a small business owner, self-employed person, or independent contractor. You must own a business and your business must have zero employees. Employees are defined as those who work for you more than 1000 hours per year and receive W2 wages.

But what if I don’t have a business? Not a problem! Take a look in the mirror because the best business is staring right back at you. You are what is going to make a successful business. Think about your passions, goals, and dreams. You can always look for guidance, there are resources everywhere. Here are 55 business ideas to get you started.

2) Know Your Investment Strategy

It is important to do your research on the various investments. Your Solo 401k can invest in any number of assets. Once you’re ready to proceed, it is time to create your own investment strategy. This is one of the greatest aspects of having complete control over your retirement funds, you get to choose your investments. 

Have fun with your money! You worked hard for it and now it is time for your money to work for you. Ask yourself a few questions:

  1. What kind of investments excite me? 
  2. What are my contribution goals? 
  3. How can I be diversified? 
  4. What is my overall goal?

It is important to create your investment strategy based on what fits best with your goals and interests. There is no right or wrong way. If you feel more comfortable with a financial advisor, that is always an option you can incorporate into your strategy.

3) Keep Your Solo 401k Investments Passive

What is a passive investment? Passive investing methods seek to avoid the fees and limited performance that may occur with frequent trading. Passive investing’s goal is to build wealth gradually. Also known as a buy-and-hold strategy, passive investing means buying a security to own it long-term(source).

Here are some of the most popular passive investments that can be a part of your Solo 401k:

  1. Cryptocurrencies 
  2. Real Estate
  3. Promissory and Mortgage Notes
  4. Tax Liens and Deeds
  5. Gold and Silver
  6. Brokerage Accounts
  7. Private Placements

4) Consider Pre-Tax Versus Roth When You Set Up a Solo 401k

Your contributions are a powerhouse when you set up your Solo 401k. Each Solo 401k by Nabers Group comes with a pre-tax and Roth sub-account. This allows for another layer of financial freedom and becomes a part of your retirement strategy. You are able to make pre tax and Roth contributions, which can benefit your current and future tax deferrals. Calculate your contribution with our Solo 401k Contribution calculator

So you have determined your maximum contributions, now what? Let’s decipher between your pre tax and Roth tax contributions. Your pre-tax contributions are tax deductible, this can help lower your taxable income. Pay less in taxes, while saving for your retirement. 

Here is an example of how you can lower your taxable income:

  • Net income-$100,000
  • Pre-tax contribution: $20,000
  • Your new taxable income: $80,000

Not only is your taxable income lower, but you are now in a different tax bracket rate (according to 2019 tax brackets). Your tax rate went from 24% to 22%(source).

In addition to your pre-tax funds, the Solo 401k also includes access to a Roth 401k sub-account. Investments in your Roth Solo 401k grow tax free. Investments which may result in a significant appreciation may be ideal in your Roth 401k account. You will not pay taxes on the gains. One example of this, would be to house your bitcoin in your Roth 401k account. This means that if you purchased Bitcoin with Roth 401k funds, and Bitcoin increases dramatically in price, you will not have to pay capital gains taxes on the gains or even withdrawals from your retirement plan.

5) Keep Good Records

What are your roles when you set up your Solo 401k? Because this is a checkbook control plan, you wear many hats: plan administrator, participating employee, sponsoring employer/business, and the trustee. Let’s put ourselves in the plan administrator role. As the plan administrator it is imperative that you keep good records. 

The 401k plan administrator will often handle all aspects of plan paperwork to include: contributions, distributions, rollovers, participant loans, investment gains, investment losses, etc. It is important to keep your pre-tax and Roth funds records clean and/or separate because they are in different tax classes. This can be done easily by having separate bank accounts and keeping records of all transactions.

Helpful Hints for Record Keeping

For some people, paperwork can be overwhelming but Nabers Group retirement experts are here to help. Our website has various guides, tools, and resources to make good record keeping easy: 

Helpful Hints for the Solo 401k Plan Administrator

IRS Form 1099-R Filing and the Solo 401k

How to File Form 5500-EZ

-Roth vs Traditional Contribution Calculator

When you open a Solo 401k with Nabers Group, you will get instant access to your dashboard which includes document creators and other great tools to help with your administrative duties.

There are tons of software that can be used in conjunction with our resources. Some of the best record keeping software can be downloaded online. Simply searching in google or even watching a youtube video can help you clean up and/or advance your record keeping skills. 


As always, It is recommended that you work with your tax professional or CPA to ensure your records are clean. If you do not have a tax professional or CPA, we can provide you a list of qualified professionals.

Are you ready to take control of your financial freedom? We will be here every step of the way.

It is time to choose your destiny:

I am ready to set up a Solo 401k. Take me to the Online application!

I have more questions, we’ve got answers!

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