How to open a Solo 401(k)
Last updated August 2026
Short answer
More paperwork than a SEP and considerably more contribution room at ordinary self-employment income, which is the trade being made.
Confirm you qualify
The business must have no employees other than you and a spouse who works in it.
Any entity type works: sole proprietor, single-member LLC, partnership or corporation.
If you own another business with staff, controlled group rules may pull those employees in, which is worth checking before rather than after.
Get an EIN
The plan is sponsored by the business, so an employer identification number is generally required even for a sole proprietor.
Applying online at the IRS takes a few minutes and the number is issued immediately.
Using your Social Security number instead is not usually acceptable to providers, and it complicates the eventual Form 5500-EZ.
Choosing a provider
Large brokers offer free plan documents that are often restrictive: no Roth deferrals, no loans, sometimes no incoming rollovers.
Third-party providers charge a setup and annual fee for a document that permits more, including Roth, loans and rollovers in.
Decide which features you actually need first, because paying for flexibility you will never use is as wasteful as saving on features you will.
Try it in Walnut
Walnut connects to your brokerage, including a Solo 401(k) at a mainstream custodian, and reads it alongside your other accounts.
Adopting the plan and opening the account
Sign the adoption agreement, which is the legal act of establishing the plan, and keep it permanently.
Open the trust account with the custodian, which is where contributions are held and invested.
If a spouse participates, they need their own participant account under the same plan.
Make the deferral election in time
Employee deferrals require a written election, and for most entities that has to be in place before the year ends.
SECURE 2.0 gives sole proprietors additional flexibility in the first plan year, allowing deferrals up to the tax filing deadline.
The employer contribution can always be decided later, up to the filing deadline including extensions, once profit is known.
Ongoing obligations
Form 5500-EZ once plan assets exceed $250,000 at year end, and on termination regardless of balance.
Keeping the plan document current with legislative changes, which providers generally handle through restatements.
Tracking contributions by type, since employee deferral, employer contribution and any Roth amounts are reported differently.
A checklist for the first year
EIN obtained, plan document adopted and signed, account open, deferral election made in writing before the year ends.
Contributions recorded by type, since employee deferral and employer contribution are reported differently on your return.
Diary note for Form 5500-EZ once assets pass $250,000, because nothing prompts you and the penalty for missing it is avoidable.
Sources
Plan requirements, the Form 5500-EZ threshold and eligibility are published by the IRS at One-participant 401(k) plans, with contribution calculations in Publication 560 and 2026 figures in Notice 2025-67. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax advice.
FAQ
How do I open a Solo 401(k)?
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Obtain an EIN for the business, choose a provider, adopt their plan document, open the account, and make a written salary deferral election before the year ends if you intend to make employee contributions.
Do I need an EIN?
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Generally yes, even as a sole proprietor, because the plan is sponsored by the business rather than by you personally. Applying takes minutes on the IRS website and costs nothing.
What is the deadline?
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The plan generally must be established by the business tax filing deadline including extensions. SECURE 2.0 gives a sole proprietor extra flexibility to make employee deferrals for the first plan year up to that deadline.
What should I look for in a provider?
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Whether the plan document allows Roth deferrals, whether it accepts incoming rollovers, whether loans are permitted, and what it costs. Free plan documents from large brokers are often more restrictive than paid ones.
Why does accepting rollovers matter?
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Because rolling an existing traditional IRA into the plan removes it from the pro-rata calculation on Roth conversions. For anyone doing a backdoor Roth, that single feature can be the reason to open the account.
Can my spouse join?
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Yes, if they work in the business and are compensated. They make their own deferral and receive their own employer contribution, which roughly doubles what the household can contribute.
What ongoing paperwork is there?
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Form 5500-EZ once plan assets exceed $250,000 at year end, and on termination whatever the balance. The plan document also has to stay current with legislative changes, which providers usually handle.
Can I open one for side income while employed elsewhere?
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Yes. Your employee deferral limit is shared with the day job's plan, but the employer contribution from your own business is separate, which is the main reason consultants set one up.
What is the single most common mistake?
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Missing the deferral election deadline. The employer contribution can be decided after the year ends, but the employee deferral generally requires a written election in place before 31 December, and forgetting it costs the larger half of the contribution.
Can I have a Solo 401(k) and a SEP IRA?
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It is possible in some structures and rarely produces extra room, because the annual additions limit applies across plans of the same employer. Most people are better off funding one plan properly than maintaining two that share a ceiling.