SECURE Act 2.0 & New SEP Roth IRA Contributions
On December 29, 2022, President Biden signed into law the Securing a Strong Retirement Act, known as the “SECURE Act 2.0." This legislation includes provisions from the House of Representative’s initial version of the SECURE Act 2 and two Senate bills - the EARN Act and the RISE & SHINE Act. SECURE Act 2.0 covers over 90 provisions related to retirement accounts in over 400 pages. It follows the original SECURE Act and has been met with overwhelmingly positive feedback in the retirement and tax industry. Several provisions in the Act have received quite a bit of media attention, such as increasing the RMD age to 73. However, numerous other provisions in the bill will have a real impact on retirement savers, such as the new Roth employer contribution options for SEP IRAs.
- The SEP IRA is a popular retirement plan among small business owners
- SECURE Act 2.0 contains provisions related to the SEP that could make it even more popular
- You can now make employer contributions to an after-tax Roth account
What is a SEP IRA?
A Simplified Employee Pension (SEP) is a profit-sharing plan that allows any business to establish for the benefit of its employees. In 2026, the maximum one can contribute to a SEP IRA is $72,000. As a profit-sharing plan, a sole proprietor or single-member LLC can make a maximum contribution of 20% of each eligible employee’s compensation up to the limit. Whereas, in the case of a corporation or partnership, the maximum contribution percentage is 25% of each eligible employee’s W-2, or guaranteed payment in the case of a partnership.
An eligible employee for a SEP IRA is an individual (including a self-employed individual) who meets all the following requirements:
- Has reached the age 21
- Has worked for the employer in at least 3 of the last 5 years
- Received at least $750 in compensation for 2025
SEP IRA Contributions Tax Rules Pre-2023
A SEP IRA can generally receive only employer contributions and generally cannot allow for employee elective deferrals like a 401(k) plan. SEP IRA employer contributions must be made to a traditional (pretax) IRA; a Roth IRA cannot be used. The contributions are made by the employer to the employee and vest immediately. Therefore, the employer receives an income tax deduction for the SEP IRA contribution. In the case of the employee that receives the employer profit-sharing contribution, any SEP IRA distribution taken after the age of 59 ½ would only be subject to ordinary income tax.
SEP IRA Contributions Tax Rules For 2023 & Beyond – Hello Roth
Thanks to Section 601 of SECURE Act 2.0, beginning on January 1, 2023, SEP IRA employer profit-sharing contributions can now be designated as a Roth IRA. The provision states that the employee must elect for the contributions made by the employer to be treated as made to a Roth IRA. It also appears that an employer would not be required to offer the Roth election.
One wrinkle to electing to receive employer Roth contributions is that SEP IRA participants should be aware that an election to receive contributions in Roth will trigger current taxation, even though they are employer contributions. Any designated Roth contribution made by the employer on the employee’s behalf is required to be included in the employee’s taxable wages as reported on Form W-2. Just like pretax contributions, which are tax-deductible to the employer, SEP Roth IRA contributions would be tax-deductible. In addition, any non-elective designated Roth contributions made by the employer are required to be fully vested.
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In essence, the SEP Roth IRA contribution option will allow the employee to have the chance to elect when they wish to pay the tax on the funds - on grant or upon distribution. Another way to look at the SEP Roth IRA option is to think of it as a Roth conversion, without the actual conversion taking place. The amount of the SEP IRA Roth contribution would be subject to tax just like a conversion.
One other issue that needs to be addressed by the IRS in connection with Section 601, is will a SEP Roth IRA contribution impact the amount of Roth IRA contributions that are available to the employee to be made individually. There is a thought based on how the provision is drafted the SEP IRA Roth employer contribution will reduce the amount that may be made by an individual to a separate Roth IRA for that year. This language does not impact the traditional IRA contribution limits. However, it is unclear whether this what the intent of the provision. We can expect the IRS to address this and other issues raised herein in the coming months.
Conclusion
Section 601 of SECURE Act 2.0 allowing SEP IRA employer contributions to be made in Roth provides employees greater control over the tax treatment of their funds. The fact that Roth employer contributions provided to the employee would be taxable will likely make the option somewhat unpopular. Nevertheless, the provision is worth understanding as the benefits of a Roth retirement plan are superior. All qualified distributions from a Roth are tax free. Who likes paying taxes? Generally, you're better off paying them before you contribute rather than at the time of distribution since the earnings generated by your investments are also tax-free. It's up to you, and your particular situation, to decide whether or not you wish to make Roth contributions to your SEP.
Why Choose a Solo 401(k) vs. SIMPLE IRA?
A SIMPLE IRA is similar to a Solo 401(k) plan in that it is funded by employee deferrals and additional employer contributions. However, unlike a Solo 401(k) Plan, a "SIMPLE" plan uses an IRA-type trust to hold contributions for each employee, rather than a single plan trust that is typical of a traditional employer 401(k) plan. It can be opened with a bank, insurance company or other qualified financial institution. But who wins the debate: Solo 401(k) vs. SIMPLE IRA?
Since 2001, the Solo 401(k) plan has overtaken the SIMPLE IRA as the most popular retirement plan for the self-employed or small business with no full-time employees (over 1,000 hours or three consecutive years of 500 hours). This article will examine the reasons why the Solo 401(k) is so much more popular than the SIMPLE IRA, despite its higher administrative burden.
Key Takeaways
- You can put away much more money each year with a Solo 401(k) than a SIMPLE IRA — nearly three times more in some cases.
- Solo 401(k) plans let you borrow from your account, make Roth contributions, and invest in things like real estate without needing an LLC.
- SIMPLE IRAs are quick to set up and don’t require as much paperwork, but they come with lower limits and fewer investment options.
Introduction to Retirement Plans
Retirement plans are an essential component of a small business owner’s financial strategy, providing tax benefits and a means to save for the future. As a small business owner, it’s crucial to understand the various types of retirement plans available, including the 401(k), SIMPLE IRA, and SEP IRA. Each plan has its unique features, contribution limits, and eligibility requirements.
For instance, a 401(k) plan offers higher contribution limits and a range of investment options, while a SIMPLE IRA is easier to administer and suitable for businesses with fewer employees. SEP IRAs, on the other hand, are ideal for self-employed individuals due to their flexibility and high contribution limits. Understanding these differences can help you choose the right retirement plan that aligns with your business needs and financial goals.
SIMPLE IRA
A SIMPLE IRA (Savings Incentive Match PLan for Employees) plan can be established by any employer who has less than 100 employees, who will receive at least $5,000 in compensation from the employer in the proceeding calendar year. The SIMPLE IRA plan has a lower deferral limit than a Solo 401(k) plan. However, unlike a Solo 401(k) plan, the SIMPLE IRA plan uses an IRA-style trust to hold contributions for each employee, rather than a single plan like a 401(k) or other qualified retirement plan.
For example, each employee of a business that adopted a SIMPLE IRA can have their own SIMPLE IRA account, which offers the SIMPLE IRA participant far greater investment options. Employers are required to make a matching contribution or a non-elective contribution to the SIMPLE IRA.
Solo 401(k)
A Solo 401(k) plan is an IRS-approved retirement savings vehicle designed specifically for self-employed individuals or small business owners who have no full-time employees other than themselves, a spouse, or business partners. This plan is also referred to as an Individual 401(k), Self-Employed 401(k), or Owner-Only 401(k). Despite the variety of names, it is not a new type of retirement plan—it is essentially a traditional 401(k) that has been adapted to suit businesses with only one participant.
A Solo 401(k) allows for both employee and employer contributions, enabling business owners to contribute more toward retirement than they typically could with other plans like a SEP IRA or SIMPLE IRA. Contributions can be made on a pretax (traditional) or after-tax (Roth) basis, giving plan participants added flexibility in how they manage current tax liability and future retirement income.
Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) took effect in 2002, there wasn’t much incentive for self-employed individuals to adopt a Solo 401(k). Other plans, such as profit-sharing plans or SEP IRAs, offered similar contribution limits without the complexity of a 401(k). However, EGTRRA significantly increased the annual contribution limits and allowed for employee salary deferrals in addition to employer profit-sharing contributions, making the Solo 401(k) a far more powerful retirement planning tool.
Thanks to these changes, Solo 401(k) plans have become popular among self-employed professionals, freelancers, consultants, and small business owners looking to maximize retirement contributions, reduce taxes, and maintain control over investment decisions—all within a cost-effective and administratively efficient structure.
Eligibility Requirements
When choosing the right retirement plan for yourself or your small business, understanding the eligibility rules is key. The Solo 401(k) is best suited for self-employed individuals or small business owners with no full-time employees other than a spouse. It requires earned income from the business, and if you hire a full-time employee (1,000+ hours/year), you may need to convert to a different type of plan.
A SEP IRA is designed for self-employed individuals and businesses of any size, but if you contribute for yourself, you must also contribute for all eligible employees. Employees must be at least 21 years old, have worked for you in 3 of the past 5 years, and have earned at least $750 in compensation in the current year. SEP contributions are employer-funded only.
A SIMPLE IRA is available to businesses with 100 or fewer employees and no other retirement plan. Employees are eligible if they have earned $5,000 in any two prior years and are expected to earn at least $5,000 in the current year. Employers are required to make either matching or non-elective contributions annually.
Retirement Plan Eligibility Comparison
| Feature | Solo 401(k) | SEP IRA | SIMPLE IRA |
|---|---|---|---|
| Who Can Set It Up | Self-employed with no full-time employees (other than a spouse) | Any business owner, including sole props and corporations | Employers with 100 or fewer employees, no other retirement plan |
| Employee Eligibility | Must have earned income from the business | Age 21+, worked 3 of the last 5 years, earned $750+ | Earned $5,000 in 2 previous years, expected $5,000 in current year |
| Full-Time Employees | Not allowed (unless it’s your spouse) | Must include eligible employees if contributions are made for owner | Must offer to all eligible employees |
| Who Contributes | Employee + employer | Employer only | Employee + employer (required match or non-elective) |
| Business Types | Sole props, LLCs, S-corps, C-corps | Sole props, partnerships, LLCs, corporations | Any small business that meets the 100-employee limit |
Solo 401(k) vs. SIMPLE IRA
There are a number of options that are specific to Solo 401(k) plans that make it a far more attractive retirement option for a self-employed individual than a SIMPLE IRA. A breakdown:
1. Higher Contributions
A Solo 401(k) offers both employee deferral and employer profit-sharing contributions, making it a more robust retirement savings option compared to a SIMPLE IRA, which provides more limited employee deferral opportunities.
Solo 401(k) Contribution Limits for 2026:
- Under Age 50: Participants can contribute up to $24,500 as an employee deferral (pretax or Roth). Additionally, the business can contribute up to 25% of compensation (or 20% for sole proprietors or single-member LLCs) as a profit-sharing contribution, for a combined maximum of $72,000.
- Age 50 and Over: Participants can contribute up to $32,500, which includes the standard deferral plus a $8,000 catch-up. Combined with profit-sharing, the maximum contribution is $80,000.
- Ages 60 to 63: An enhanced catch-up of $11,250 applies, increasing the total contribution limit to $83,250.
SIMPLE IRA Contribution Limits for 2026:
- The employee deferral limit is $17,000, plus a $4,000 catch-up for those age 50 and older.
- Individuals between ages 60 and 63 may contribute an increased catch-up amount of $5,250.
- Employers must either:
- Match employee contributions dollar-for-dollar up to 3% of compensation, or
- Contribute 2% of compensation for all eligible employees who earn at least $5,000 during the year.
While both plans offer tax-advantaged retirement savings, the Solo 401(k) allows for significantly higher contribution limits—especially beneficial for high-earning self-employed individuals—compared to the more limited structure of a SIMPLE IRA.
2. After-Tax Roth Accounts
The Roth feature has been a popular option for years for Solo 401(k) plan participants. A couple of years ago, there was no Roth option for SIMPLEs. However, thanks to SECURE 2.0, that's no longer the case.
If the plan permits, a Solo 401(k) investor can make after-tax Roth contributions to the plan, and enjoy tax-free qualified withdrawals during retirement. So long as you are at least age 59 ½, and the Roth has been open for at least five years, all distributions will be without tax. And this is true for IRAs and 401(k) plans.
One could always convert a SIMPLE IRA to Roth. However, a two-year "hold rule" applied for conversions, imposing a 25% penalty for early conversions. Now, if their plan offers it, participants can direct both their own contributions and employer contributions directly into a new SIMPLE Roth account, bypassing this waiting period entirely.
3. Tax-Free Loan Option
With a 401(k) plan, a plan participant can borrow up to $50,000 or 50% of your account value, whichever is less. The loan can be used for any purpose but must be paid back over a five-year period using a minimum interest rate of Prime. Pay yourself back, with interest, instead of a bank or other lender.
With SIMPLE IRA, the IRA holder is not permitted to borrow even one dollar from the SIMPLE IRA without triggering a prohibited transaction.
4. Use Non-Recourse Leverage and Pay No Tax
With a Solo 401(k) plan, a plan participant can make a real estate investment using a non-recourse loan (a loan not personally guaranteed by the plan participant) without triggering the Unrelated Debt Financed Income (UDFI) rules and the Unrelated Business Taxable Income (UBTI) tax (IRC 514). The highest UBTI tax rate is a staggering 37%.
The exception is only applicable to 401(k) qualified retirement plans and does not apply to IRAs. In other words, using a SIMPLE IRA to make a real estate investment involving non-recourse financing would trigger the UBTI tax if there was greater than $1,000 of net income associated with the loan.
5. Open the Account at Any Local Bank
A Solo 401(k) offers significant flexibility, allowing its bank account to be opened at any standard local bank or trust company. In fact, IRA Financial can open an account for you at Capital One if you so choose.
An IRA which strictly requires a specialized custodian to hold its funds. While a Solo 401(k) provides this freedom in banking, financial institutions remain crucial for establishing the plan's legal framework, offering guidance on contributions and distributions, and often providing platforms for investment, even if they don't directly custody the initial bank account.
6. No Need for the Cost of an LLC
The 401(k) plan itself can make investments without the need for an LLC, which, depending on the state of formation, could prove costly. Since a 401(k) plan is a trust, the trustee (on behalf of the trust) can take title to a real estate asset without the need for an LLC.
While an LLC is not required, many self-employed individuals choose to form an LLC for reasons like:
- Liability protection: An LLC separates your personal assets from your business liabilities.
- Tax flexibility: An LLC can elect to be taxed as a sole proprietorship, partnership, S-corporation, or C-corporation, offering different tax advantages depending on your situation.
7. Better Creditor Protection
In general, a Solo 401(k) plan offers greater creditor protection than a SIMPLE IRA. The 2005 Bankruptcy Act generally protects all 401(k) plan assets from creditor attack in a bankruptcy proceeding. In addition, most states offer greater creditor protection to a Solo 401(k) qualified retirement plan than a SIMPLE IRA outside of bankruptcy. Solo 401(k) plans follow the same rules as traditional 401(k) plans in terms of asset and creditor protection.
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Investment Options
Both Solo 401(k)s and SIMPLE IRAs offer distinct investment landscapes. A Solo 401(k) provides extensive flexibility, often allowing for a "self-directed" approach. This means you can invest in a broad spectrum of assets beyond traditional stocks, bonds, mutual funds, and ETFs, including alternative investments like real estate, private equity, precious metals, and even cryptocurrencies. The specific options depend on your chosen custodian, with some specializing in allowing these less conventional assets, provided they comply with IRS regulations regarding prohibited transactions. IRA Financial does not place limits on the types of investments you can make!
In contrast, a SIMPLE IRA generally offers a more streamlined and limited selection of investment options. These plans are typically managed by traditional financial institutions that provide a curated menu of mutual funds, ETFs, individual stocks, and bonds. While suitable for those seeking simplicity and a standard diversified portfolio, SIMPLE IRAs typically do not accommodate direct investments in alternative assets like real estate or private businesses. Your investment choices within a SIMPLE IRA will be largely dictated by the specific offerings of the financial provider.
Of course, with the right custodian, you can choose a Self-Directed SIMPLE IRA. IRA Financial does offer this option, as do other providers. Carefully consider your options when deciding. Make sure to check out fees, investment options, and other services.
Administrative Responsibilities and Burden
Notwithstanding the above on the Solo 401(k), the SIMPLE IRA does have a number of attractive advantages for small businesses:
- Available to any small business – generally with 100 or fewer employees
- Easily established by adopting a SIMPLE IRA prototype or an individually designed plan document. In fact, you can establish a Self-Directed SIMPLE IRA quickly and easily with the IRA Financial app.
- No filing requirement for the employer since the IRA custodian would be required to file IRS Form 5498. In the case of a Solo 401(K) plan, if assets are above $250,000 as of December 31 of the previous year, IRS Form 5500-EZ must be filed.
- In addition, one quirky rule with a SIMPLE IRA, is that an employer that adopts a SIMPLE IRA cannot have any other retirement plan at the same time, so keep that in mind.
- SIMPLE IRA assets cannot be rolled into another IRA or 401(k) plan until the SIMPLE IRA has been opened at least two years.
Conclusion
Choosing between a Solo 401(k) and a SIMPLE IRA ultimately hinges on your specific needs as a self-employed individual or small business owner. If maximizing your annual contributions and having extensive control over diverse investments, including alternative assets, are your top priorities, the Solo 401(k) is likely the superior choice, despite its slightly greater administrative requirements.
However, if simplicity, ease of setup, and lower administrative burdens are paramount, particularly when looking to offer a straightforward retirement benefit to a small team of employees, the SIMPLE IRA stands out as an excellent, cost-effective solution. Evaluate your contribution goals, desired investment flexibility, and willingness to manage administrative tasks to determine which plan will best serve your long-term financial security.
Maximize Your Retirement Savings with the Right Plan:
Choosing between a Solo 401(k) and a SIMPLE IRA depends on your business structure and retirement goals. A Solo 401(k) offers higher contribution limits, Roth options, and more investment flexibility, while a SIMPLE IRA is easier to set up with lower administrative costs. Understanding these differences can help you select the plan that best aligns with your financial objectives.
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Maintaining Employer & Employee Deferral Contributions in Your Solo 401(k)
A Solo 401(k) plan is not a new type of retirement plan. It is a traditional 401(k) plan covering only one employee. In general, in order to be eligible to establish a Solo 401(k) plan, one must be self-employed or have a small business with no full-time employees other than a spouse or other owner(s).
One of the primary advantages of establishing a Solo 401(k) for a small business is the ability to generate high annual tax deductions and shelter related income and gains from taxation. The primary medium for generating deductions is through making employee- and employer-based plan contributions. In the case of an employer 401(k) plan that consists of not just owner-employees (i.e. Tesla), the maximum one would typically be able to contribute in 2026 is $24,500 or $32,500 if at least age 50.
Many employer's 401(k) plans tend to elect to be treated as a safe harbor 401(k) plan, which requires the employer to make a 3%-5% matching safe harbor contribution. Whereas in the case of a Solo 401(k) plan, the maximum one can contribute in 2026 is $72,000 or $80,000 if age 50 or older.
The primary reason a Solo 401(k) plan participant can contribute more than an employee at a business they do not own (i.e. safe harbor 401(k)), a participant can make employee deferral contribution plus up to a 25% employer profit sharing contribution (20% if self-employed), versus 3%-5% safe harbor 401(k) matching contributions.
Note – a safe harbor 401(k) plan can technically make employer contributions as well, but it is very uncommon since that would require the employer to make the employer profit sharing contributions (up to 25% of the employee’s salary) for every eligible participant.
Below is a detailed breakdown of how the employee and employer contribution rules work for a Solo 401(k) plan participant and employer.
Employee Elective Deferrals
For 2026, up to $24,500 per year can be contributed by the participant through employee elective deferrals. An additional $8,000 can be contributed for persons at least age 50. These contributions can be up to 100% of the participant’s self-employment compensation. Employee deferral contributions can be made in pretax or Roth. If you're over the age of 50 and made more than $150,000 in 2025, you're contributions will need to be in Roth, due to the new Secure Act 2.0 rule.
In order to determine how much one can contribute to a Solo 401(k) plan as an employee deferral in 2024, the following items must be considered:
- One cannot contribute more than they earn. For example, if one earns $10,000 in earned income from the adopting employer business, only up to $10,000 can be contributed to the plan, minus any FICA and social security taxes.
- Only earned income or W-2 from the adopting employer or a related business can be used to determine the aggregate earned income amount.
- If one makes any employee deferral contributions to another 401(k) plan, that amount needs to be taken into account to reduce the maximum employee deferral contribution amount.
- For example, Joe is 35 and works full-time at a software company he does not own. Joe made a $10,000 employee deferral contribution to the plan. Joe also has a side business where he does consulting work and earned $40,000. If Joe set up a Solo 401(k) plan for the consulting business, he would be able to make another $14,500 employee deferral contribution to the plan ($24,500 maximum, minus $10,000 employee deferral contribution he already made.)
- Employee deferral contributions can be made in pretax or Roth.
Employer Profit Sharing Contributions
Through the role of employer, an additional contribution can be made to the plan in an amount up to 25% of the participant’s W-2 income or 20% in the case of a sole proprietor or single member LLC. As a result of the SECURE Act 2.0, employer profit sharing contributions can now be made in pretax or Roth. If Roth employer profit sharing contributions are made, the employee must recognize income on the amount of the employer contribution and the employer would receive a corresponding income tax deduction.
Example 1: Jane has a sole proprietorship business and earned $100,000 of net schedule C income in 2024. Jane would be able to make up to a $20,000 employer profit sharing contribution to her plan (20% of $100,000 Schedule C income).
Example 2: Amy is the sole owner of a S corporation and earned $100,000 in W-2 income for the year. The business generated $2 million in profit. Amy would be able to make up to a $25,000 employer profit sharing contribution to her plan (25% of $100,000 W-2). Note – in the case of a corporation, employee and employer profit sharing contributions are based on the W-2 amount and not the profits of the business.
Total Limit
The sum of both contributions can be a maximum of $72,000 for 2026 or $80,000 for persons age 50 and older. If the business owner’s spouse elects to participate in the Solo 401(k) and earns compensation from the business, the spouse is allowed to make separate and equal contributions doubling the couples’ annual total contribution to $144,000 for or $160,000 if both spouses are at least age 50.
| Employee Deferral Max | Employer Profit Sharing Max | Total Solo 401(k) Max Contributions for 2026 | |
|---|---|---|---|
| Sole Proprietor Under 50 | $24,500 of Net Schedule C Income | 20% of Net Schedule C income | $72,000 |
| Sole Proprietor Age 50+ | $32,500 of Net Schedule C Income | 20% of Net Schedule C income | $80,000 |
| C Corp Owner Under 50 | $24,500 of W-2 Income | 25% of W-2 | $72,000 |
| C Corp Owner Age 50+ | $32,500 of W-2 Income | 25% of W-2 | $80,000 |
| S Corp Owner Under 50 | $24,500 of W-2 Income | 25% of W-2 | $72,000 |
| S Corp Owner Age 50+ | $32,500 of W-2 Income | 25% of W-2 | $80,000 |
| Partner of a 1065 Partnership Under 50 | $24,500 of Guaranteed Payment Amount | 25% of Guaranteed Payment Amount | $72,000 |
| Partner of a 1065 Partnership Age 50+ | $32,500 of Guaranteed Payment Amount | 25% of Guaranteed Payment Amount | $80,000 |
Why Should I Choose IRA Financial to Set up My Solo 401(k)?
IRA Financial “literally” wrote the book on the Self-Directed Solo 401(k). Our founder, Adam Bergman, Esq, has written nine books on self-directed retirement plans and, over the last 15+ years, has helped over 27,000 self-directed clients invest over $5 billion in alternative assets. IRA Financial is the leading provider of Self-Directed Solo 401(k) plans with “checkbook control." Our expertise and experience in designing and customizing Solo 401(k) plan solutions for entrepreneurs and small businesses is unmatched.
Our solution is specifically designed and customized for each type of investment. Whether it is real estate, private equity, venture capital, hedge funds, private businesses, cryptos, precious metals, hard money loans, etc., our Solo 401(k) tax experts will work with you to design the perfect solution for your business and investment goals, including tax optimization, Roth maximization, and UBTI protection. Additionally, IRA Financial is the only self-directed retirement company that provides annual consulting, IRS tax reporting/filings, BOI FinCEN reporting, and full IRS audit guarantee.
Stay compliant and optimize contributions in your Solo 401(k)
Managing both employer and employee deferrals in your Solo 401(k) means understanding the rules, keeping proper documentation, and maximizing your tax-advantaged savings. Our specialists at IRA Financial can help you structure contributions correctly, stay IRS-compliant, and get the most out of your plan.
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How to Set Up a Self-Directed IRA with Checkbook Control in 4 Steps
For many investors, traditional IRAs can feel restrictive. Stocks, bonds, and mutual funds may play an important role in long-term planning, but they leave out an entire universe of alternative investments like real estate, private businesses, precious metals, notes, cryptocurrency, and more. That is where the Self-Directed IRA comes in.
A Self-Directed IRA allows you to take control of your retirement investing by dramatically expanding what you can invest in. When paired with checkbook control through a special purpose LLC, it becomes one of the most flexible and tax-advantaged retirement structures available today.
Below, we explain what a Self-Directed IRA is, why investors use it, how checkbook control works, and the simple four-step process to open your own Checkbook Control IRA with a leading custodian like IRA Financial.
1. What Is a Self-Directed IRA?
A Self-Directed IRA is an individual retirement account that allows you to invest in a far broader range of assets than a traditional or Roth IRA held at a bank or brokerage firm. While all IRAs follow the same tax rules under the Internal Revenue Code, Self-Directed IRAs differ in one crucial way.
You, not the custodian, decide what to invest in.
A Self-Directed IRA can hold:
- Real estate, including residential, commercial, and raw land
- Private equity, startups, and LLC interests
- Precious metals that meet IRS requirements
- Promissory notes and private lending
- Cryptocurrency
- Tax liens and tax deeds
- Farmland and mineral rights
The IRS does not publish a list of approved investments. Instead, it defines a short list of prohibited assets, making the Self-Directed IRA one of the most flexible retirement vehicles available.
2. Advantages of a Self-Directed IRA
Self-Directed IRAs offer two major advantages: powerful tax benefits and expanded investment flexibility.
Tax Advantages
The tax treatment mirrors that of traditional and Roth IRAs.
- Traditional Self-Directed IRA: Contributions may be tax-deductible, and earnings grow tax-deferred until withdrawal.
- Roth Self-Directed IRA: Contributions are made with after-tax dollars, and earnings grow tax-free. Qualified withdrawals are tax-free if you are over age 59½ and the Roth IRA has been open for at least five years.
When alternative assets generate income such as rent, interest, or capital gains, those profits flow back into the IRA tax-deferred or tax-free, depending on the account type.
Investment Advantages
A Self-Directed IRA offers:
- Diversification: Reduced reliance on stock market volatility
- Higher return potential: Access to private deals and real estate opportunities
- Control: Full authority over investment choices and strategy
For investors who want to take an active role in their retirement planning, a Self-Directed IRA provides unmatched flexibility.
3. Types of Self-Directed Accounts and the Power of Checkbook Control
There are several types of Self-Directed retirement accounts, including:
- Self-Directed Traditional IRA
- Self-Directed Roth IRA
- Self-Directed SEP IRA
- Self-Directed SIMPLE IRA
- Self-Directed Solo 401(k) for self-employed individuals
Among these, the most flexible structure is the Self-Directed IRA with checkbook control.
What Is Checkbook Control?
Checkbook control allows you to make investments directly, without waiting for custodian approval on every transaction. This is accomplished by forming a special purpose LLC that is owned by your IRA. You serve as the manager of the LLC.
This structure provides several key benefits.
- Limited Liability Protection: The LLC creates legal separation between your retirement assets and other activities, protecting assets held inside the LLC from liabilities unrelated to the investment.
- Greater Control: As manager of the LLC, you can write checks, send wires, and execute transactions immediately without custodian delays.
- Greater Privacy: Investments are made in the name of the LLC rather than the IRA custodian, adding an extra layer of privacy.
- Administrative Simplicity: Eliminates repeated authorization forms, transaction fees, and long processing times by allowing investments via checks or wires from the LLC account.
- Tax Efficiency: The IRA-owned LLC is a pass-through entity that does not pay federal income tax, with profits flowing back into the IRA tax-deferred or tax-free.
Single-Member vs. Multi-Member LLCs
Most investors use a single-member LLC, which is treated as a disregarded entity for tax purposes. This means the IRS ignores the LLC and treats all income as belonging directly to the IRA, resulting in no additional tax filings.
Multi-member LLCs are treated as partnerships and generally require Form 1065. These structures are useful when multiple IRAs or family members invest together but involve additional complexity and reporting.
For simplicity, speed, and cost efficiency, most investors choose a single-member LLC unless partnership investing is required.
4. How Easy It Is to Set Up a Self-Directed IRA with IRA Financial
Setting up a Self-Directed IRA used to be complicated. Today, with IRA Financial, the process is fast, streamlined, and user-friendly.
IRA Financial was founded by Adam Bergman, widely recognized as the pioneer of the checkbook control IRA structure. He literally wrote the book on Checkbook IRAs and has helped tens of thousands of investors access alternative investments inside retirement accounts.
Opening a Checkbook Control IRA with IRA Financial follows a simple four-step process.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
The 4 Steps to Open a Checkbook Control IRA
Step 1: Choose Your Alternative Investment
Before opening the account, decide what type of investment you want to make. With a Self-Directed IRA, you can invest in almost anything except:
- Life insurance
- Collectibles such as art, cars, wine, rugs, or stamps
- Prohibited transactions that personally benefit you or certain family members
If an investment is not prohibited by the IRS, it can likely be held inside your IRA.
Step 2: Open Your Account Online or Through the IRA Financial App
IRA Financial makes opening an account simple.
- You can apply from your phone or computer
- The onboarding process takes about three minutes
- The IRA Financial team handles documentation and compliance
Step 3: Fund Your IRA and IRA-Owned LLC
There are three primary ways to fund a Self-Directed IRA: contributions, transfers, and rollovers.
Contributions
A contribution involves adding new money to your IRA.
- Under age 50: $7,000
- Age 50 and older: $8,000
2026 IRA contribution limits:
- Under age 50: $7,500
- Age 50 and older: $8,600
Traditional IRA contributions may be tax-deductible depending on income and employer plan participation. Roth IRA contributions are subject to income limits.
Transfers
A transfer moves funds from one IRA custodian to another.
- Direct transfers move funds custodian to custodian and are the safest option
- No taxes or penalties
- Unlimited per year
Indirect transfers involve receiving the funds personally and redepositing them within 60 days. These are limited to once per year and carry significant risk if not handled properly.
Rollovers
Rollovers move funds from former employer plans such as:
- 401(k)
- 403(b)
- 457(b)
- Thrift Savings Plan
- Pension plans
Direct rollovers are recommended. Indirect rollovers must be redeposited within 60 days and may trigger withholding if mishandled. IRA Financial coordinates the entire funding process and sets up your special purpose LLC.
Step 4: Invest Using Checkbook Control
Once the IRA owns the LLC and the LLC bank account is funded, you are ready to invest.
You can:
- Write a check
- Send a wire
- Use an LLC debit card if applicable
Investments are executed immediately and titled in the name of the LLC, preserving all IRA protections.
Conclusion: Why Checkbook Control and IRA Financial Matter
A Self-Directed IRA with checkbook control offers:
- Maximum investment flexibility
- Greater privacy and liability protection
- Faster execution with no custodian delays
- Full checkbook authority
- Tax-advantaged growth
- Low, predictable fees
With IRA Financial, the setup process is faster and simpler than ever.
Founded by Adam Bergman, the pioneer of the checkbook control structure, IRA Financial has helped thousands of investors open compliant Self-Directed IRAs and take full control of their retirement investing.
If you are ready to invest beyond Wall Street and unlock the power of alternative assets, a Self-Directed IRA with checkbook control is one of the most powerful tools available, and IRA Financial makes it easy to get started.
Why the Self-Directed IRA UBIT Regime Exists and How It Serves Wall Street
For decades, large brokerage firms and banks have dominated the retirement industry. They built a system where the vast majority of retirement savings flows into publicly traded securities like mutual funds, ETFs, and corporate bonds. The Unrelated Business Income Tax (UBIT) rules, first created nearly a century ago, now function as a quiet but powerful advantage for Wall Street’s control over retirement dollars.
UBIT was not designed to punish self-directed investors. Yet in practice, it discourages them from doing what the IRS otherwise allows: investing in real assets, private businesses, and leveraged real estate inside their IRAs. To understand why this happens, it helps to look at how UBIT originated and why it no longer fits today’s retirement landscape.
The Origins of UBIT: A Rule from a Different Era
UBIT was created in 1950 under Sections 511 through 514 of the Internal Revenue Code, long before IRAs even existed. At the time, Congress was concerned that tax-exempt organizations such as universities, churches, and charities were competing unfairly with private businesses. These organizations were operating profit-generating ventures while paying no tax.
To address this issue, lawmakers decided that if a tax-exempt organization engaged in a business activity unrelated to its charitable purpose, the income from that activity should be taxed. The idea was straightforward. A university should not be able to operate a chain of car washes and pay no tax simply because it is tax-exempt.
When Individual Retirement Accounts were introduced in 1974 under ERISA, Congress applied these same exempt-organization tax rules to IRAs without fully considering how different an IRA actually is. Unlike charities, IRAs have no public or charitable mission. They are personal retirement savings vehicles owned by individuals.
Why UBIT Was Misapplied to IRAs
The logic behind UBIT does not align with how IRAs work. Charities are tax-exempt because they serve a public purpose. IRAs are tax-deferred because individuals are saving for retirement. There is no public subsidy to protect and no unfair competition to correct.
Still, because IRAs do not pay tax until funds are withdrawn, the Treasury applied UBIT to IRAs that invest in active trades or businesses through pass-through entities, or that use leverage to acquire assets. As a result, when an IRA investor buys rental real estate with a non-recourse mortgage or invests in a private operating business, a portion of the income may be subject to UBIT. These taxes are often imposed at trust tax rates that can exceed 35 percent.
In practice, UBIT penalizes investors who choose to diversify beyond Wall Street products.
How UBIT Protects the Brokerage Monopoly
From a policy perspective, UBIT creates a built-in bias toward publicly traded investments. These are the same products sold and managed by large financial institutions.
Consider the contrast. A mutual fund can use leverage, operate an active business model, and distribute income to IRA holders without triggering UBIT because it is structured as a corporation. But if that same IRA investor purchases a private REIT, finances a multifamily property, or invests in a local operating business, the identical income or leverage can suddenly be classified as unrelated business taxable income.
This inconsistency funnels trillions of retirement dollars back into public markets while discouraging investment in private markets, entrepreneurship, and real assets. The result is predictable.
- Public companies benefit from a steady, tax-advantaged stream of retirement capital.
- Private businesses face higher effective taxes even when owned inside tax-deferred retirement accounts.
UBIT has effectively become a regulatory barrier that protects the existing financial system under the guise of fairness.
The Real Estate Paradox
Real estate provides one of the clearest examples of this imbalance.
A Self-Directed IRA investor can purchase a rental property outright and defer taxes on the income until retirement distributions begin. However, if that same investor uses a non-recourse mortgage to finance part of the purchase, the portion of income attributable to the debt becomes taxable under IRC Section 514, known as Unrelated Debt-Financed Income.
Meanwhile, publicly traded REITs use leverage constantly and face no UBIT at all. The only real difference is structure and scale. Large institutions can compound gains tax-deferred through complex fund vehicles, while individual investors are penalized for applying the same leverage transparently within their own retirement accounts.
Why UBIT No Longer Makes Policy Sense
UBIT assumes a clear distinction between tax-exempt entities and taxable ones. That distinction does not apply to retirement accounts. IRAs are not permanently tax-exempt. They are tax-deferred. Every dollar withdrawn is eventually taxed.
Because of that reality:
- The government ultimately collects tax on all IRA income at distribution.
- There is no competitive imbalance since the tax is deferred, not eliminated.
- UBIT simply accelerates taxation on certain private investments and discourages diversification.
In effect, UBIT functions as a form of double taxation on self-directed investors while favoring public markets and institutional custodians.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
The Economic Consequences
By discouraging leverage and direct ownership, UBIT keeps trillions of retirement dollars locked into publicly traded assets. This limits capital flowing into small businesses, local real estate, and entrepreneurial ventures that drive economic growth.
Passive investment in public securities is rewarded, while active wealth creation through private ownership is penalized.
The beneficiaries are clear:
- Large banks and brokerage firms whose products dominate retirement accounts.
- Public corporations that benefit from a constant inflow of retirement capital.
The cost is borne by everyday investors who want to build wealth through real estate, private equity, or small business ownership.
Toward a Fairer Future for Retirement Investors
Reforming UBIT for IRAs would not eliminate taxation. It would make it more rational. Congress could exempt IRAs from UBIT while preserving the rules for true tax-exempt organizations. That change would encourage diversification, support entrepreneurship, and create a more balanced retirement system.
Until reform happens, self-directed investors must navigate UBIT carefully and work with custodians who understand its complexities.
Why IRA Financial Leads This Movement
At IRA Financial, we have long maintained that the current UBIT framework is outdated and misaligned with modern retirement investing. With more than 27,000 clients and over $4.4 billion in assets under administration, we help investors understand UBIT exposure, implement compliant strategies, and take control of their retirement futures.
The Self-Directed IRA movement is not just about flexibility. It is about fairness.
Until policy catches up with reality, IRA Financial will continue advocating for a retirement system that works for investors, not institutions.
Solo 401(k) vs. Keogh: Which Retirement Plan Is Best for the Self-Employed?
When it comes to retirement savings for self-employed individuals and small business owners, choosing the right plan can significantly impact long-term financial security. Two of the most common options are the Solo 401(k) and the Keogh plan. Both offer valuable tax advantages and high contribution limits, but they differ in flexibility, complexity, and eligibility.
This article compares the Solo 401(k) and Keogh plan in detail, covering their key features, benefits, drawbacks, and which type of self-employed professional each plan best suits.
Key Takeaways
- The Solo 401(k) often offers lower administrative costs, Roth options, and broader investment flexibility, including real estate and alternative assets.
- Solo 401(k)s are more flexible and typically a better fit for self-employed individuals with no employees.
- Keogh plans are ideal for those with employees or who want a defined benefit (pension-style) structure.
What Is a Solo 401(k)?
A Solo 401(k) (also known as an Individual 401(k) or One-Participant 401(k) plan) is designed for self-employed individuals or business owners without employees (other than a spouse or other business owner). It functions similarly to a standard 401(k) but allows the account holder to contribute as both employee and employer.
Key Features:
- Eligibility: Available to anyone with self-employment income and no ineligible employees.
- Contribution Limits (2026):
- Employee: Up to $24,500 ($32,500 if age 50+).
- Employer: Up to 25% of compensation, with a combined maximum of $72,000 ($80,000 if age 50+).
- Tax Advantages:
- Pretax or Roth contributions.
- Tax-deferred investment growth.
- Investment Flexibility: Wide range of options, including real estate, private businesses, and cryptocurrencies.
- Administrative Requirements: Minimal paperwork; Form 5500 required only if assets exceed $250,000.
What Is a Keogh Plan?
A Keogh plan (or HR-10 plan) is a tax-deferred retirement plan for self-employed individuals and small businesses, including partnerships. While once popular, it has declined in use due to the rise of simpler plans like the Solo 401(k) and SEP IRA.
Key Features:
- Eligibility: Available to self-employed individuals and partnerships; can include employees.
- Types of Keogh Plans:
- Defined Contribution: Similar to profit-sharing or money-purchase plans.
- Defined Benefit: Operates like a traditional pension with fixed annual contributions.
- Contribution Limits (2026):
- Defined Contribution: Up to 25% of compensation (max $72,000).
- Defined Benefit: Contributions based on actuarial calculations—often much higher.
- Tax Advantages:
- Tax-deductible contributions.
- Tax-deferred growth.
- Administrative Requirements:
- Formal plan document required.
- Annual IRS reporting via Form 5500.
- Typically higher administrative costs.
Solo 401(k) vs. Keogh Plan: A Detailed Comparison
| Feature | Solo 401(k) | Keogh Plan |
|---|---|---|
| Eligibility | Self-employed individuals with no employees (except spouse) | Self-employed individuals or partnerships; can include employees |
| Contribution Limits (2026) | Up to $72,000 ($80,000 if 50+) | Up to $72,000 for defined contribution; higher for defined benefit |
| Employee Contributions | Yes – up to $24,500 ($32,500 if 50+) | Not applicable |
| Tax Benefits | Pretax or Roth options, tax-deferred growth | Tax-deductible, tax-deferred growth |
| Investment Options | Broad, including alternative assets | Broad, but may have restrictions |
| Administrative Burden | Low | Moderate to high |
| Best For | Solo entrepreneurs and freelancers | Businesses with employees or pension-seekers |
Pros and Cons
Solo 401(k) Pros:
✔ High contribution limits with both employee and employer contributions.
✔ More investment flexibility, including real estate and alternative assets.
✔ Roth contribution option for tax-free withdrawals in retirement.
✔ Lower administrative burden than Keogh plans.
Solo 401(k) Cons:
✖ Only available for businesses with no employees (except a spouse or business partner).
✖ Must file IRS Form 5500 once assets exceed $250,000.
Keogh Plan Pros:
✔ Higher potential contributions with a defined benefit structure.
✔ Suitable for businesses with employees.
✔ Allows for a structured pension-like plan with predictable retirement benefits.
Keogh Plan Cons:
✖ Higher administrative complexity and costs.
✖ Requires annual IRS filings and actuarial calculations (for defined benefit plans).
✖ Less flexibility than Solo 401(k) for self-employed individuals without employees.
Which Plan Should You Choose?
Choose a Solo 401(k) if you’re a freelancer, independent contractor, or small business owner without employees who wants maximum contribution flexibility and minimal paperwork.
Choose a Keogh plan if you have employees or want to establish a defined benefit plan for predictable retirement income and higher contribution potential.
Final Thoughts
For most self-employed professionals, the Solo 401(k) remains the more efficient and flexible choice. It combines high contribution limits, tax advantages, and broad investment options with lower administrative costs. However, for business owners with employees or those seeking a structured pension, a Keogh plan can still be a powerful tool.
Before deciding, consult with a retirement expert or tax advisor to ensure your plan aligns with your income, business goals, and long-term retirement strategy.
Which retirement plan fits your business?
Deciding between a Solo 401(k) and a Keogh plan can be confusing — each has different rules, tax implications, and contribution limits. Get expert help to assess which option meets your retirement goals and business structure most efficiently.
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Frequently Asked Questions
Can I have both a Solo 401(k) and a Keogh plan?
Why are Keogh plans less popular today?
Can I invest in real estate with a Keogh plan?
How to Invest in Real Estate with a Self-Directed Solo 401(k)
For entrepreneurs, consultants, and small business owners, the Self-Directed Solo 401(k) has become one of the most powerful wealth-building tools available. Unlike traditional retirement accounts that limit investments to stocks and mutual funds, a properly structured Solo 401(k) allows you to invest directly in real estate while preserving the full tax advantages of a retirement plan. When executed correctly, it combines high contribution limits with investment control, enabling business owners to grow assets faster and more strategically than most people realize.
The Solo 401(k) is built specifically for self-employed individuals. It provides the same retirement benefits that large corporations offer executives, without the bureaucracy and restrictions that often limit flexibility.
What Is a Solo 401(k)?
A Solo 401(k), also called an Individual 401(k), is a retirement plan for self-employed individuals or businesses with no full-time employees other than a spouse. Eligibility is straightforward: if you own or operate a business, generate earned income, and do not employ W-2 workers outside your household, you likely qualify.
Unlike an IRA, where contributions are made only as an individual, a Solo 401(k) allows you to act as both employee and employer. This distinction is powerful because it lets you make employee salary deferrals while also contributing as the business owner, resulting in significantly higher contribution limits than any IRA could offer.
Not All Solo 401(k) Plans Are the Same
Many entrepreneurs assume that opening a Solo 401(k) at a large brokerage firm gives full investment flexibility. Unfortunately, that is rarely the case.
Brokerage firms operate product-driven platforms. They earn revenue by selling investments, managing assets, and collecting fees tied to account balances. As a result, their Solo 401(k) plans are often limited to publicly traded securities and managed portfolios. While these may work for some investors, they do not allow direct ownership of real estate or other alternative investments.
Companies like IRA Financial operate differently. They focus on creating plan structures, managing compliance, and providing administrative and legal expertise. This open-architecture design gives clients full control over where and how their money is invested. With the right plan documents, investors can hold real estate, cryptocurrencies, private companies, precious metals, and other IRS-approved alternative assets.
The Power of Contribution Limits
One of the defining features of the Solo 401(k) is how much you can contribute.
As an employee, you may defer salary into the plan each year.
- 2025: $23,500 under age 50, $31,000 if over 50, $34,750 for ages 60–63
- 2026: $24,500 under age 50, $32,500 if over 50, $35,750 for ages 60–63
The business can also contribute up to approximately 25 percent of compensation, or roughly 20 percent of self-employment income.
Combined, total annual contributions reach remarkable levels:
- 2025: $70,000 under 50, $77,500 for over 50, $81,250 for ages 60–63
- 2026: $72,000 under 50, $80,000 for over 50, $83,250 for ages 60–63
For real estate investors, this means faster deal flow, larger capital reserves, and the ability to scale portfolios more rapidly than with an IRA.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
Borrowing From Your Own Plan
The Solo 401(k) allows participants to borrow against their account balance.
- Borrow up to 50 percent of your balance, capped at $50,000
- No taxes or penalties if repayments follow IRS rules
- Interest goes back into your account
- No credit check or lender approval required
This feature provides liquidity for high-opportunity moments while maintaining tax-deferred growth.
The Mega Backdoor Roth Strategy
A properly structured Solo 401(k) allows contributions beyond Roth IRA limits and conversion to Roth.
- 2025: $70,000 total contributions can convert to Roth
- 2026: $72,000 total contributions
High-growth real estate investments benefit enormously from Roth treatment. All future income and appreciation can become completely tax-free.
Simplicity in Administration
Despite its power, the Solo 401(k) is simple to manage.
There is no Form 5500 filing obligation until plan assets exceed $250,000. There are no nondiscrimination tests, no required third-party administrators, and no mandated annual valuations.
This makes the plan highly efficient for solo operators.
Checkbook Control and Real Estate Execution
In a Self-Directed Solo 401(k), you are the trustee of the plan. You open the bank account, control transactions, sign contracts, and receive income directly.
There is no custodian approval required for each transaction. No paperwork delays. No middlemen.
For real estate, this level of control is critical. Competitive markets reward speed, and checkbook control allows investors to act without hesitation.
Why Real Estate Works Well Inside a Solo 401(k)
When held in a retirement account, real estate income is sheltered, and appreciation compounds.
- Rental income reinvests tax-deferred or tax-free
- Capital gains are eliminated
- Inflation protection is built in
- Diversification reduces exposure to Wall Street volatility
This makes the strategy financially productive and structurally resilient.
Using Leverage Without UBIT
Unlike IRAs, Solo 401(k) plans are exempt from UBIT when using non-recourse leverage under IRC Section 514(c)(9).
This allows investors to finance real estate while avoiding taxes that could reach 37% under IRA rules. This is a major advantage over Self-Directed IRAs.
Prohibited Transactions and IRS Rules
The IRS prohibits:
- Self-dealing or personal use of the property
- Transactions with disqualified persons (family members, related entities)
- Personally guaranteeing loans
Violations can disqualify the plan, so professional guidance is critical.
Investors can perform activities such as:
- Finding and analyzing deals
- Hiring third-party contractors for improvements
- Approving and documenting expenses
- Monitoring work completion
The Cherwenka case provides guidance for permissible actions when using a retirement account for real estate.
Using a Roth Solo 401(k) for Real Estate
Not all custodians allow this, but IRA Financial permits Roth Solo 401(k) funds to invest in real estate.
- Contributions with after-tax dollars
- Tax-free growth of income and gains
- Tax-free qualified withdrawals in retirement
- Ability to turn real estate profits into tax-free retirement income
How to Open a Solo 401(k) for Real Estate
- Open Your Account: Easily open online with IRA Financial. A tax specialist helps customize your plan.
- Fund Your Plan: Roll over pretax retirement funds or contribute self-employment income. Roth contributions are also supported.
- Invest in Real Estate: Purchase directly with checkbook control.
- Perform Due Diligence: Research properties, neighborhoods, and market trends. IRA Financial ensures compliance but does not give investment advice.
Why IRA Financial
IRA Financial is the national leader in Self-Directed Solo 401(k) plans, serving over 27,000 clients and managing more than $5 billion in assets.
Founded by Adam Bergman, a published self-directed retirement attorney, IRA Financial provides:
- Customized plan documents
- Roth conversion options
- Checkbook control
- Loan structures
- Compliance support
The company allows clients to invest in real estate, cryptocurrencies, private businesses, precious metals, tax liens, and other alternative assets without charging asset-based fees.
Conclusion
For real estate investors, no retirement vehicle offers more power than a Self-Directed Solo 401(k). It combines high contribution limits, loan access, Roth strategies, leverage advantages, and direct control. Paired with IRA Financial, it provides institutional-grade tools without institutional restrictions.
With proper planning and a trusted custodian, a Solo 401(k) makes real estate investing in a tax-advantaged retirement account accessible, strategic, and highly effective.
Top Retirement Plans for LLC Owners: Options You Need to Know
Wondering what the best retirement plans for LLC owners are? This article breaks down top options like SEP IRAs, Solo 401(k) plans, traditional and Roth IRAs, SIMPLE IRAs, and Defined Benefit Plans. We’ll cover contribution limits, tax benefits, and setup processes, helping you find the right fit for your retirement goals.
- SEP IRAs and Solo 401(k) plans offer high contribution limits and significant tax advantages, making them attractive options for LLC owners.
- Traditional and Roth IRAs provide different tax implications based on current and future expected tax rates, allowing LLC owners to choose based on their financial situation.
- Consulting with financial advisors can aid LLC owners in selecting the best retirement plan by tailoring strategies to individual business needs and compliance requirements.
SEP IRA for LLC Owners
The SEP IRA, or Simplified Employee Pension Individual Retirement Account, is a popular choice among small business owners. This retirement plan is particularly appealing because it offers significant tax advantages and high contribution limits, making it an excellent option for self-employed individuals and LLC owners looking to maximize their retirement savings.
Contribution Limits
When considering retirement plans, contribution limits play a crucial role. For 2026, the maximum contribution to a SEP IRA for an LLC can reach up to $72,000, or 25% of annual compensation, whichever is less. For unincorporated LLCs, this cap is set at 20% of their modified net profit.
LLC owners should consider retirement plans’ contribution limits and tax benefits to optimize their savings.
Tax Benefits
SEP IRAs offer significant tax advantages. Contributions are generally tax-deductible, reducing the LLC owner’s taxable income in the year they are made. Moreover, the earnings within a SEP IRA grow tax-deferred until withdrawal, allowing the retirement savings to compound without immediate tax implications.
Setup Process
Setting up a SEP IRA is relatively straightforward. LLC owners can generally open an account online. The process involves creating a formal agreement using IRS Form 5305-SEP, and each eligible employee, including the owner, must have a separate SEP IRA account established. IRA Financial can help!
The deadlines for establishing a SEP IRA align with the employer’s tax return filing deadline, including extensions.
Solo 401(k) Plans for LLC Owners
Solo 401(k) plans are another excellent retirement option for LLC owners, particularly those without full-time employees. These plans allow for large contributions from eligible compensation, offering substantial retirement savings potential.
Eligibility Requirements
Solo 401(k) plans are tailored specifically for self-employed individuals or business owners without employees. This unique eligibility criterion allows entrepreneurs to have greater flexibility and control over their retirement savings. The absence of full-time employees enables the business owner to make higher contributions to their Solo 401(k).
Contribution Limits
For 2026, the total contributions to a Solo 401(k) plan cannot exceed $72,000. Individuals aged 50 or older can make an additional catch-up contribution of $8,000, raising the total limit. Beginning in 2025, you can take advantage of the "super" catch-up if you are between the age of 60 and 63.
This plan allows LLC owners to contribute as both an employee and an employer, maximizing their employee contributions and retirement savings potential.
Tax Advantages
Solo 401(k) plans provide notable tax advantages. Contributions can be made pretax, thereby reducing the taxable income in the contribution year, or in Roth, which come with qualified tax-free distributions. This can result in substantial tax savings for LLC owners, helping them grow their retirement savings more efficiently.
Traditional and Roth IRAs for LLC Owners
Traditional and Roth IRAs are also viable retirement plan options for LLC owners. Traditional IRAs offer tax-deductible contributions, while a Roth IRA provides tax-free withdrawals. These plans can be self-directed as well. With a Self-Directed IRA LLC, also known as the Checkbook IRA, you have greater control and more freedom with your retirement funds.
The choice depends on current income levels, anticipated future tax rates, and the type of investments you wish to make.
Traditional IRA
Contributions to a Traditional IRA may be tax-deductible, significantly reducing taxable income based on individual circumstances. However, the deductibility of these contributions varies depending on income levels and participation in an employer-sponsored retirement plan.
Additionally, required minimum distributions must begin at age 73 to ensure that funds are withdrawn for income tax purposes.
Roth IRA
Roth IRAs, on the other hand, do not offer an immediate tax break. However, qualified distributions from Roth IRAs are tax-free in retirement, making them an excellent choice for those expecting higher tax rates later. Moreover, Roth IRAs do not impose required minimum distributions during the account holder’s lifetime, allowing for prolonged tax-free growth.
Roth IRAs also offer flexibility, as contributions can be withdrawn at any time without penalties.
SIMPLE IRA for Small LLCs
A SIMPLE IRA is another retirement plan option geared towards small LLCs, particularly those with 100 or fewer employees. These plans are easy to manage and do not require discrimination testing. For 2026, the contribution limits for a SIMPLE IRA is $17,000, with an additional $4,000 available for individuals aged 50 or older.
Employers must choose between providing a matching contribution of up to 3% of an employee’s compensation or a 2% non-elective contribution for all eligible employees. The contributions to each employee’s SIMPLE IRA must adhere to an annual limit that adjusts for cost-of-living increases.
Like other plans on this list, SIMPLE IRAs offer tax-deductible contributions for LLC owners, along with delayed taxes on earnings until withdrawal.
Defined Benefit Plans for High-Income LLC Owners
Defined benefit plans, also known as Keogh plans, are designed for high-income LLC owners looking to secure significant retirement savings. These plans offer robust retirement benefits but come with more complex administrative requirements.
Annual contributions to a defined benefit plan are tailored based on the individual’s age, income, and retirement goals. Employers can contribute up to 25% of their net earnings to a defined benefit plan, enhancing overall retirement savings.
Setting up and managing defined benefit plans is expensive. They are also quite complex. However, they allow business owners to deduct all contributions made towards future guaranteed retirement income.
Health Savings Accounts for Retirement
Health Savings Accounts (HSAs) can be an effective retirement savings tool for LLC owners who maintain high-deductible health plans. HSAs are beneficial as they provide a way to save for current and future medical expenses with tax advantages.
This year, individuals with self-only HSA coverage can contribute up to $4,400, while those with family coverage can contribute up to $8,750. Individuals aged 55 and older can make an additional contribution of $1,000 to their HSAs. These contribution limits ensure that LLC owners can maximize their retirement savings through HSAs.
Triple Tax Advantage
HSAs offer a unique triple tax advantage that makes them an attractive addition to retirement savings strategies. Contributions to HSAs are generally tax-deductible, providing immediate tax savings. Additionally, the earnings within HSAs grow without tax, further enhancing the growth potential of the account. Finally, withdrawals used for qualified medical expenses are tax exempt, offering a way to reduce tax liabilities while covering healthcare costs.
Choosing the Right Retirement Plan for Your LLC
Selecting the right small business retirement plan for your LLC involves careful consideration of factors such as business size, income levels, and long-term financial goals. Evaluating plans based on contribution limits, tax benefits, and administrative requirements helps LLC owners find the best fit. For instance, SIMPLE IRAs are straightforward and cost-effective, making them ideal for small businesses without existing retirement plans. On the other hand, defined benefit plans, while offering substantial retirement savings, involve more complex regulatory compliance and higher administrative costs.
Involving a financial advisor in your retirement planning process can be immensely beneficial. Financial advisors offer tailored advice that aligns with your specific business circumstances and personal financial goals. They can help navigate the complexities of different retirement plans, ensuring you make informed decisions that optimize your retirement savings.
Professional legal or tax advice is vital for effective retirement planning. Of course, we're here to help as well! Comparing different retirement plans’ features is key to choosing the best option for your LLC. Understanding these features helps business owners make informed choices that align with their retirement goals.
Top Retirement Plans for LLC Owners: Options You Need to Know - A Summary
Navigating the myriad of retirement plan options available to LLC owners can be challenging. From the high contribution limits and tax benefits of SEP IRAs and Solo 401(k) plans to the flexibility and tax-free growth of Traditional and Roth IRAs, each plan offers unique advantages. SIMPLE IRAs and defined benefit plans cater to specific business sizes and income levels, providing tailored solutions for different needs. HSAs further enhance retirement strategies with their triple tax advantage, making them a valuable addition to any plan.
Ultimately, the best retirement plan for your business depends on your specific business circumstances and long-term financial goals. Consulting financial advisors and comparing plan features can help you make informed decisions that optimize your retirement savings and ensure a secure financial future. Take proactive steps now to choose the right retirement plan and pave the way for a comfortable and worry-free retirement.
Choose the Right Retirement Plan for Your LLC
Selecting the optimal retirement plan is crucial for maximizing your savings and minimizing tax liabilities. Whether you're considering a SEP IRA, Solo 401(k), or another option, understanding the benefits and requirements of each can help you make an informed decision.
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Frequently Asked Questions
Can I have a retirement plan if I'm the only employee in my LLC?
What’s the difference between a SEP IRA and a Solo 401(k)?
Can I contribute to multiple retirement plans?
Are contributions tax-deductible?
Do I need to file anything with the IRS?
How do SIMPLE IRAs benefit small LLCs?
IRA Custodian for Private Investments | Trusted SDIRA Services
Choosing the right IRA custodian is one of the most important decisions an investor will make, especially when private investments are involved. While many people assume all IRA custodians operate the same way, the reality is far more complex. For investors seeking to move beyond stocks and mutual funds into real estate, private equity, hedge funds, or other alternative assets, working with the right Self-Directed IRA (SDIRA) custodian is not optional. It is essential.
A properly selected custodian does more than hold paperwork. It protects your tax advantages, enforces IRS compliance, supports alternative investments, and helps ensure that your retirement account remains legally protected for decades to come.
What Is an IRA Custodian?
An IRA custodian is the financial institution legally responsible for holding IRA assets and administering the account in accordance with the Internal Revenue Code. IRC Section 408 requires that all IRAs be maintained by a qualified trustee or custodian, such as a bank, trust company, or federally approved non-bank custodian.
The custodian’s role is not to provide investment advice or manage your portfolio. It does not select investments or guarantee returns. Instead, the custodian acts as the official administrator of the IRA, handling reporting, recordkeeping, and compliance with federal tax law.
Without a custodian, an IRA cannot legally exist.
Traditional IRA Custodians vs. Self-Directed IRA Custodians
Not all custodians are created equal. Traditional IRA custodians, such as brokerage firms and large banks, are built around publicly traded securities. They are structured to process trades, manage portfolios, and earn revenue based on assets under management.
Self-Directed IRA custodians, on the other hand, exist to facilitate ownership of private investments. They allow IRA account holders to hold real estate, private businesses, venture capital, cryptocurrency, private lending, precious metals, and other nontraditional assets that brokerage firms do not support.
The reason traditional firms exclude alternative assets is not legal. It is structural. Private investments do not fit into brokerage trading systems, generate predictable fees, or integrate cleanly into asset management platforms.
A Self-Directed IRA custodian operates under a fundamentally different business model.
The Role of a Self-Directed IRA Custodian
A Self-Directed IRA custodian serves as the compliance anchor for alternative investing. While the custodian does not give investment advice or endorse opportunities, it plays a vital operational and regulatory role.
Each year, the custodian is responsible for preparing and filing IRS forms such as Form 5498 for IRA contributions and fair market value reporting, and Form 1099-R for distributions.
Unlike many brokerage firms, a sophisticated SDIRA custodian goes further by supporting the tax complexities that accompany alternative investments. This includes coordinating filings related to Unrelated Business Income Tax (UBIT), entity taxation, and investment reporting. The custodian’s function is not passive. It ensures that contributions are tracked, distributions are reported correctly, ownership documents are properly recorded, and the account remains compliant with IRS regulations.
Why Choosing the Right Custodian Matters
With self-direction comes responsibility.
When investments move beyond public markets, complexity increases. Documents must be reviewed carefully. Tax exposure must be monitored. Ownership must be titled correctly. Errors can jeopardize the very tax advantages IRAs were designed to provide.
This is why selecting the right Self-Directed IRA custodian often matters more than selecting the investment itself.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
Fees Matter: Flat Fees vs. Asset-Based Fees
Many IRA custodians charge fees based on assets under management. While this may seem modest on paper, such as a one percent annual fee, it becomes extremely costly over time.
A $300,000 account paying one percent annually loses $3,000 every year. Over twenty years, that account forfeits tens of thousands of dollars, not including lost compounding.
Flat-fee custodians operate differently. Costs remain predictable regardless of account growth. Your success benefits you, not the custodian.
Investors who use Self-Directed IRAs for real estate and private equity often experience accelerated growth. Asset-based fees penalize that success. Flat fees reward it.
Expertise Is Not Optional in Alternative Investing
Alternative investments are not simply different assets. They operate under different tax rules. Private equity, real estate, hedge funds, and startups involve partnership agreements, operating income, depreciation, leverage, and complex reporting that traditional brokerage firms never encounter.
Without tax professionals who understand these structures, investors risk:
- Triggering prohibited transactions
- Paying unnecessary taxes
- Misreporting income
- Making ownership or titling errors
- Losing tax-deferred or tax-free status
This is why working with a firm founded by a tax attorney matters.
IRA Financial was founded by Adam Bergman, one of the most widely published authorities in the self-directed retirement industry. His legal background brings a tax-first mindset to how accounts are structured and maintained.
The Importance of Annual Consulting and Compliance
A Self-Directed IRA does not operate on autopilot.
Investors need ongoing guidance on:
- Prohibited transactions
- Disqualified persons
- Income categorization
- Entity structure
- Debt rules
- Distribution planning
Without professional support, compliance quickly becomes guesswork.
A trusted SDIRA custodian should do more than process transactions. It should act as a long-term partner that helps ensure your IRA remains compliant year after year.
Tax Filing and Reporting Beyond Basic IRS Forms
Many Self-Directed IRA custodians stop at Form 5498 and Form 1099-R.
IRA Financial goes further. Alternative investments often require tax services that most custodians cannot or will not provide, including:
- LLC tax returns (Form 1065)
- Corporate filings (Form 1120)
- UBIT filings (Form 990-T)
- State-level reporting and compliance
- Valuation coordination
Without professional tax oversight, IRA investors are often left scrambling at filing season.
IRA Financial integrates tax reporting into its service model, offering a unified platform for retirement investing and compliance.
The IRA Financial Difference
IRA Financial operates on one core principle: investors deserve both freedom and protection.
With more than 27,000 clients and over $5 billion in assets under administration, IRA Financial is the largest independent Self-Directed retirement firm in the industry.
Founded and led by Adam Bergman, IRA Financial combines:
- Legal expertise
- Deep tax knowledge
- Flat-fee pricing
- Comprehensive reporting
- Ongoing compliance support
Unlike firms that push financial products, IRA Financial empowers investor choice.
Conclusion
A Self-Directed IRA is one of the most powerful retirement tools available when paired with the right custodian. Private investments demand more than paperwork. They demand expertise, structure, and accountability.
IRA Financial was built on tax law, not financial products. That foundation matters. If your IRA is meant to support your long-term financial future, your custodian should be more than a name on an account.
It should be your partner.
Integrating Solo 401(k) Plans and HSAs for Retirement Success
Combining a Solo 401(k) with an Health Savings Account (HSA) can help self-employed individuals maximize tax benefits and plan comprehensively for retirement. This article will show you how to integrate a Solo 401(k) with an HSA to boost your financial security and cover healthcare costs.
Key Takeaways
- Solo 401(k) plans and Health Savings Accounts (HSAs) have high contribution limits and tax benefits to maximize retirement savings and healthcare cost management.
- Integrating Solo 401(k)s with HSAs can be tax efficient and overall financially secure by allowing you to manage contributions and withdrawals strategically.
- Proper planning and management of both accounts and avoiding common mistakes is crucial for long-term financial growth and stability in retirement.
What are Solo 401(k) Plans and HSAs?
HSAs and Solo 401(k) plans are great additions to traditional retirement accounts like IRAs and 401(k) plans. Solo 401(k) plans are for the self-employed or small business owners with no full time employees other than their spouse. HSAs are for those enrolled in high deductible health plans (HDHP) with a tax-advantaged way to save for healthcare expenses.
If you want to enhance your retirement planning strategies you need to understand the eligibility criteria and benefits of each type of account.
What is a Solo 401(k)?
A Solo 401(k) is for self employed individuals or small business owners with no full time employees, except a spouse or business owners. It allows you to save a lot for retirement due to its high contribution limits and has the unique feature of allowing you to contribute as both the employee and employer which can increase growth potential.
Those who participate in Solo 401(k)s have many investment options, such as real estate, hard money loans, and gold. This flexibility allows them to diversify their investment portfolios in line with their long term financial goals.
What is an HSA?
An HSA, or Health Savings Account, is for those enrolled in HDHPs with a tax-favored way to save for medical costs. HSAs have three tax advantages: contributions are tax deductible, growth is tax free and distributions taken out for qualified medical expenses are also tax free. So, HSAs are not only a way to save on medical expenses but also to plan for retirement.
Proper management of assets in the HSA can increase your savings for health related needs so you will have enough funds to pay for future medical bills.
Eligibility Requirements
To open an HSA you must be covered under a HDHP, not be enrolled in Medicare, and not be claimed as a dependent on someone else’s tax return. You must fulfill all these eligibility requirements for the HSA.
For Solo 401(k) plans, only self employed or small business owners with no full-time employees. Fulfilling these conditions allows you to fully benefit from both accounts while following the rules.
Contribution Limits and Tax Benefits
To maximize Solo 401(k) plans and HSAs, you need to understand their contribution limits and tax benefits. Solo 401(k) plans have high contribution limits so you can save a lot for retirement. HSAs have tax benefits such as contributions are tax deductible and growth is tax free.
By taking advantage of these contribution limits and benefits you can increase your retirement savings and have more financial stability in the future.
Solo 401(k) Contribution Limits
In 2026, individuals under 50 can contribute up to $72,000 in a Solo 401(k). For those 50 and older you can contribute more, up to $80,000 including an additional $8,000 "catch-up" contribution.
These high limits allow for significant retirement savings and makes Solo 401(k)s the best option for self-employed professionals and small business owners looking for ways to secure their financial future.
HSA Contribution Limits
For 2026, the individual HSA contribution limit is $4,400 and family limit is $8,750. For those 55 or older, a catch-up contribution of $1000 is available. To fully benefit from an HSA, you should contribute the maximum amount each year. Not doing so means missing out on tax benefits and not having enough funds for healthcare needs.
Making HSA contributions a priority will help you be financially prepared for future healthcare costs.
Tax Benefits Comparison
Solo 401(k) plans and HSAs both have tax benefits. HSAs have a triple tax benefit: tax-deductible contributions, tax-free growth, and distributions for qualified medical expenses are also tax free. Solo 401(k)s allow you to deduct your contributions from your taxable income and growth is tax free. Distributions are taxed as ordinary income when you withdraw them in retirement. Be careful because you may be penalized for early withdrawals.
By funding both types of accounts strategically you can save thousands a year in taxable income and increase overall retirement savings. Proper management and use of these accounts can lead to financial stability and a more comfortable lifestyle in retirement.
Integrating Solo 401(k) Plans and HSAs
Combining Solo 401(k) plans and HSAs can give you tax savings and efficiency and an immediate tax benefit. This tackles healthcare costs and retirement planning for a complete financial strategy. Investing HSA funds and strategic disbursements from each account can increase retirement savings and have enough resources for future healthcare expenses.
You should try to fully contribute to both plans to take advantage of their tax benefits. Investing HSA funds can provide tax-free growth so you have more resources for retirement. Using them to pay out of pocket medical expenses helps preserve other sources of retirement savings so they are available for other future needs.
The same is true for Solo 401(k) plans. As the employee, you can contribute dollar-for-dollar up to the annual limit, which, for 2026, is $24,500 or $32,500 if you are at least age 50. As the employer, you can contribute up to a percentage of your self-employment income, up to the limit.
You should distribute investments between your plans to reduce risk and have enough for retirement and healthcare expenses. By diversifying your assets, you can reduce risk and increase the possibility of growth. Maximizing contributions and managing a balanced retirement portfolio helps improve your overall well-being.
Allocating funds into both types of accounts takes into account different risk tolerance and contributes to overall financial stability.
Withdrawals
Withdraw funds from the HSA and 401(k) to minimize taxes and maximize the amount one has for healthcare needs. By withdrawing specifically from the HSA for regular medical expenses, an investor is preserving the balance in his or her Solo 401(k) for retirement only.
By using HSA funds for approved health expenses individuals can pay for medical costs in retirement without depleting other retirement savings accounts. This strategy allows for uninterrupted growth of those other retirement assets.
Investing with Solo 401(k) plans and HSAs
Investing in Solo 401(k) plans and HSAs is key to long term financial success. Solo 401(k)s are versatile with many traditional investment options such as stocks, bonds, and mutual funds, as well as alternatives, like real estate and cryptos, that can fit different growth strategies. HSAs also offer the opportunity to increase medical savings through interest-accruing accounts, mutual funds and exchange-traded funds (ETFs). Further, at IRA Financial, one can self-direct his or her HSA to invest in alternative asset investments.
To accumulate assets in both types of accounts over time requires strategic investment approaches that take into account market conditions and individual goals.
Investment Options
Participants have many investment options including conventional assets such as stocks, bonds and mutual funds. They can also allocate their funds into alternative investments like real estate, commodities or private equity that offer flexibility and growth. By spreading their investments across different asset classes, individuals can balance risk and potential gains. This strategy is designed to grow retirement savings over time.
HSAs offer many investment options such as interest-accruing accounts and cost-efficient index funds that can provide steady income and exposure to market trends. As mentioned, if you choose the right custodian, you diversify even further. It’s important to diversify the investments within an HSA to reduce risk and increase returns. Finding the right balance between risk and return when investing HSA funds is key to success.
Long Term Growth Strategies
Having a diversified investment strategy across both plans can lead to substantial growth over time. For retirement savings to reach their full potential it’s important to adopt strategies that focus on long term growth like choosing assets with good performance records and consistently rebalancing your portfolio.
Choosing assets that have performed well is key to growing your savings and securing retirement.
Using Funds in Retirement
When using Solo 401(k) plans and HSAs in retirement, you need to plan carefully to cover healthcare expenses as well as everyday non-medical costs. Using HSAs can provide big financial benefits, reduce medical bills and help conserve other retirement savings.
Knowing the rules for withdrawals from these accounts is crucial to avoid penalties and make the most of them.
Qualified Medical Expenses
Qualified medical expenses can be paid with HSA funds without tax liability. These HSAs can pay for a wide range of medical services that meet IRS criteria such as doctor visits, surgical procedures and medications prescribed by a doctor. Using HSA funds to pay for these qualified medical expenses helps conserve other retirement savings for later years.
Non-Medical Withdrawals
If you withdraw HSA funds for non-medical purposes before 65 you will be hit with a 20% penalty. This is on top of regular income tax on the withdrawn amount. Once you turn 65 you can withdraw HSA funds for non-healthcare expenses without the penalty. These withdrawals are still taxable. Using HSAs allows you to conserve other retirement accounts for healthcare expenses.
Bridging Healthcare Costs
HSA funds are used to cover medical expenses before you’re eligible for Medicare. These funds work like regular retirement plans like 401(k)s and IRAs. By using HSA funds to manage healthcare costs you can bridge the gap between your immediate health needs and eventual Medicare support, so you have enough to cover medical expenses.
Avoiding Common Mistakes
It’s important to avoid common mistakes when using Solo 401(k) plans and HSAs to fully benefit from them. Mismanagement can mean a big shortfall in your retirement years. Common mistakes include not contributing enough, withdrawing money too soon, and choosing the wrong investments.
Being aware of these mistakes and planning carefully can grow your retirement savings and secure your financial stability in later years.
Under-Funding
You need to max out Solo 401(k) plan and HSA contributions as doing so allows you to fully access the tax benefits and savings growth. By prioritizing these contributions you can get the tax benefits and have enough healthcare coverage in retirement.
Not funding either account enough can impact your retirement readiness. Distributing investments between both accounts reduces risk and increases asset accumulation, helping you achieve long term retirement goals.
Early Withdrawals
Taking money out early from Solo 401(k) plans and HSAs can greatly reduce your retirement funds. If you take money from a Solo 401(k) before age 59 1/2, you will be hit with a 10% penalty on top of regular income tax. Using HSA funds for expenses not related to qualified medical needs also means penalties and taxes. When these non-medical withdrawals happen, you have to pay ordinary income tax and additional income tax which includes penalties, draining your savings even more. By not withdrawing early you allow your retirement savings to grow undisturbed and have enough resources for future needs.
Bad Investment Choices
Bad investment choices can severely limit retirement savings and financial security in later years. Solo 401(k) plans have various investment options, but choosing high fee or underperforming investments can hinder growth. HSAs can hold cash, mutual funds and ETFs but investing in low yield accounts can mean lost growth opportunities. Long term growth strategies like diversifying and rebalancing the portfolio helps avoid bad investment choices.
Real-Life Examples
Simple examples from real life show the benefits of combining Solo 401(k) plans and HSAs. These examples illustrate how people can grow their retirement savings and manage healthcare expenses. These strategies will give readers an idea of the real world impact and benefits of fully contributing to these accounts, managing investments within them and deploying resources from each.
Sarah - The Self-Employed Consultant
At age 38, she makes $120,000 annually, and wants to maximize tax shelters to reduce taxable income.
- Solo 401(k): Sarah contributes $24,500 as an employee + ~$20,000 as employer (profit sharing)
- HSA: She contributes the family max because she’s on a high-deductible family plan
- Invests both accounts in index funds
Sarah shields around $50,000 from taxes annually, grows it tax free, and uses her HSA as a stealth retirement account (pays medical expenses out of pocket now, saves receipts, reimburses herself in retirement tax-free).
James - The Solo Business Owner with Kids
James makes around $200,000 per year. He is 45 years old, with a wife and two kids. He wants to minimize taxes and gain medical security.
- Solo 401(k): Contributes $30,000 employee + $25,000 employer = $55,000 total
- HSA: Contributes family max
- Uses HSA to invest in healthcare REITs and biotech ETF
James lowers taxable income by over $60,000, and since he has a wife, kids, and medical costs, he uses his HSA for actual expenses now, saving him money year to year while still investing excess funds for future needs.
Summary
Combining Solo 401(k) plans and HSAs is a powerful way to grow retirement savings and manage healthcare expenses. Knowing the contribution limits, tax benefits and qualification criteria of each account allows you to make smart decisions that benefit your financial well being.
Strategic coordination between these accounts means fully contributing whenever possible, balancing investments and synchronizing distributions for growth over time and more tax savings. Learning from real life examples and avoiding common mistakes solidifies these strategies. By planning smart you can have a financially stable and comfortable retirement life.
Maximize Retirement & Healthcare Savings Together
By combining a Solo 401(k) with an HSA, you unlock powerful tax-advantages, greater flexibility, and smarter planning for both business owners and self-employed professionals. Let our specialists help you structure both accounts properly, coordinate contributions, and align your investment strategy to cover healthcare costs today and retirement goals tomorrow.
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