The Solo 401(k)
The nineteenth episode of our 401(k) season explains the solo 401(k), the one-participant plan for America's smallest businesses — owners with no employees besides a spouse. John, Maria, Melissa and Steve explain the two hats idea at the heart of the plan (employee elective deferrals plus a discretionary employer profit-sharing contribution in the same account), the deferral limits for twenty twenty five and twenty twenty six including the regular and enhanced catch-ups, the overall annual ceiling, and the circular compensation math that turns twenty five percent into an effective twenty percent for sole proprietors — worked in full on an eighty thousand dollar profit (about fourteen thousand eight hundred seventy dollars of employer contribution plus twenty three thousand five hundred of deferrals, about thirty eight thousand three hundred seventy in total) and contrasted with a corporation paying a one hundred thousand dollar salary (forty eight thousand five hundred in total). The episode covers the December thirty first election deadline, plan setup timing including the first-year sole proprietor rule, the working spouse's full second set of limits, Roth deferrals, the honest comparison with SEP and SIMPLE IRAs, plan loans, rollovers in, the Form 5500-EZ filing duty once assets pass two hundred fifty thousand dollars, the hiring and controlled-group cliff edges, six administrative mistakes, and a clearly labelled invented case study of Dana and Marcus Whitaker, a fictional Austin couple whose household shelters about fifty eight thousand three hundred seventy dollars in one year. Plus a nine-step checklist. Education only — no recommendations, no predictions.
Sources referenced (public, dated): Internal Revenue Service — guidance on one-participant 401(k) plans, elective deferral and overall contribution limits for 2025 (Notice 2024-80) and 2026 (Notice 2025-67), the self-employed compensation worksheet and rate table in Publication 560, Form 5500-EZ filing requirements and the one-participant late-filer penalty relief program, and Solo 401(k) material on irs.gov; U.S. Department of Labor, Employee Benefits Security Administration — participant and plan information on one-participant plans, on dol.gov. Plan rules on eligibility, Roth features, loans and rollovers vary by provider document and are described in general educational terms; listeners should read their own plan documents, which govern their own accounts, and confirm compensation calculations with a qualified tax professional. The case studies and worked examples are invented and illustrative; the arithmetic examples are teaching calculations using stated assumptions, not forecasts or tax advice.
Audio format: MP3, 128 kbps CBR, 44.1 kHz, mono, -16 LUFS.
This episode is for financial education only and is not investment advice. Narration is AI-generated.
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