Solo 401(k) Part 2: How to Set Up, Fund, Invest, and Maintain Your Plan

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Mark J. Kohler October 10, 2025 • 4 min

Mark J. Kohler, CPA and attorney, has helped millions of Americans improve their finances through practical, trustworthy tax and wealth strategies. Mark's mission is simple: deliver credible, actionable financial advice and guidance you can always rely on.

Business Building

If you’ve got a side hustle, small business, or any self-employment income, the Solo 401(k) is the most powerful retirement tool out there. In Part 1, we covered who qualifies and the top ten reasons it blows every other plan out of the water. Now let’s talk about how to actually set it up, get money into it, and make it work for you.

Quick Recap: Who Qualifies

If you missed Part 1, here’s the 30-second version. You qualify if you’re self-employed and don’t have full-time employees other than a spouse or business partner. That’s it. Whether you’re consulting on the side, flipping houses, or driving Uber, this plan was made for you.

Getting It Set Up the Right Way

You can’t just fill out a form online and call it good. The IRS wants a legitimate, pre-approved plan document and a separate EIN for your Solo 401(k) trust. That’s the foundation, it’s what defines how your plan works and what you can invest in.

If you only want to play in the Wall Street sandbox, you can open one at a brokerage like Fidelity or Schwab. But if you actually want to invest in what you know—real estate, crypto, private companies, precious metals—you need a self-directed Solo 401(k). That’s what gives you open architecture. You make the decisions, you control the checkbook, and you get to invest your way.

Making Contributions That Count

Here’s where the Solo 401(k) crushes everything else. For 2025, you can put away up to $70,000 between employee and employer contributions. The first chunk, up to $23,500, is your employee deferral. The rest, up to 25% of W-2 wages (or 20% of net profit if you’re a sole prop), comes from your business as the employer.

If your spouse works in the business, double it. The key is balancing your salary and profit share so you can max out contributions without overpaying self-employment tax. Just don’t wait until the last minute—the plan must be set up before December 31 to get the write-off for the year.

Rolling Over and Borrowing from Yourself

Got an old IRA or dusty 401(k) from a previous job? Roll it into your Solo 401(k) and take full control. You can move funds from traditional IRAs, SEP IRAs, and old employer plans right into your new structure. Roth IRAs can’t roll into Roth 401(k)s, but a Roth 401(k) can roll out to a Roth IRA later if you want that flexibility.

And here’s one of my favorite features: the participant loan. You can borrow up to 50% of your balance, up to $50,000, and pay yourself back over five years with interest. It’s not taxable, it’s not a distribution, and every payment goes right back into your own account. That’s how you finance smart—not with credit cards or bank loans, but with your own money working for you.

Investing Beyond Wall Street

This is where it gets fun. A self-directed Solo 401(k) lets you take your investing off the stock market treadmill and into something you actually understand. Real estate, private lending, metals, small business investments, crypto—it’s all on the table if it’s done right.

Already have a Solo 401(k) that’s stuck inside a brokerage? No problem. You can “restate” it, basically upgrade your plan documents, so it allows alternative assets. The plan name and EIN stay the same, but now you’ve got freedom to invest how you want.

Staying Compliant and Out of Trouble

Setting it up is easy. Keeping it clean is where most people screw up. The IRS wants plan documents updated at least every six years, sometimes sooner if new laws kick in. Once your plan hits $250,000 in assets, you’ll need to file Form 5500-EZ every year. It’s just an informational form, no taxes due, but it needs to be accurate.

Keep good records of your contributions and investments. If you don’t want to deal with it yourself, get a professional team that handles maintenance and filings for you. It’s not expensive, and it’s a lot cheaper than fixing mistakes after an audit.

The Bottom Line

The Solo 401(k) gives small business owners and side hustlers complete control: high contribution limits, tax savings, and the power to invest in what they actually believe in. It’s how Main Street builds wealth without waiting on Wall Street.

If you’re ready to get one set up, my team at KKOS Lawyers can help you establish a compliant, self-directed plan. Then open and fund the account at Directed IRA and start putting your money to work in real estate, private deals, or crypto. Do it now so your 2025 contributions count. And so your retirement plan finally starts working as hard as you do.

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Mark J. Kohler