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Directed IRA

Solo 401(k) Part 1: the Top 10 Benefits for Small Business Owners

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Mark J. Kohler October 6, 2025 • 5 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 any kind of small business revenue, you can have a Solo 401(k). Drive Uber on weekends, sell online, consult after hours? Yes, you qualify. You can stack it on top of a day-job 401(k) and a Roth IRA, and the gateway to entry is very, very low. Here’s who qualifies and the ten benefits that make the Solo 401(k) the #1 retirement plan for the self-employed and side-hustlers.

Who Actually Qualifies

You don’t need a big company or payroll department. You need two things:

Self-employment income from goods or services. You are allowed to have a Solo 401(k) with any type of small business revenue. Side hustles count.
No full-time W-2 employees (other than a spouse) in that business. Your spouse can participate if they work in it.

Two quick clarifications:
Rental income isn’t qualifying by itself. If you’re a landlord, use the “side-door Solo 401(k)”: create a simple management company (Schedule C or single-member LLC), charge reasonable management fees to your rentals, and adopt the plan there.
You can have multiple plans. It’s fine to have a work 401(k), a Solo 401(k), and a Roth IRA together. Your employee deferral limit is shared, but the employer/profit-share is based on your business profits.

The Top 10 Benefits of a Solo 401(k)

1. Big Contribution Potential

IRAs cap you at a modest annual limit. With a Solo 401(k), you can combine employee deferrals plus employer profit-share for a much larger total (we’ll run the math in Part 2). Translation: bigger deductions with traditional dollars or more tax-free growth with Roth.

2. 100% Roth Option

Old rules forced employer dollars to be pretax. That changed. You can do 100% Roth now in a Solo 401(k). If you want every eligible dollar going in as Roth Solo 401(k) money, go for it. Tax-free compounding is a beautiful thing.

3. Works With Your Day-Job Plan

Have a company 401(k) at work? You can still adopt a self-employed 401(k) for your side business. Many clients “stack” the Solo 401(k) on top of a work plan and a Roth IRA for maximum flexibility.

4. Invest Beyond Wall Street (Self-Directed)

Your Solo 401(k) can buy real estate. It can invest in a private company. It could buy precious metals. It could buy crypto. If you’ve got an edge in alternatives, a self-directed Solo 401(k) lets you use it within the rules.

5. Checkbook Control as Trustee

You get to self-trustee your Solo 401(k)… and really control the checkbook. With the right plan documents, you can be the trustee, open a 401(k) trust bank account, write checks for deals, receive income, and pay expenses from the plan. Faster, cleaner, and often cheaper than routing every move through a third party.

6. Participant Loan (Cash When You Need It)

Need short-term capital? You can borrow up to 50% of your balance, max $50,000, and pay yourself back over five years. It’s a loan, not a distribution. That means no taxes, no penalties, just a smart way to tap your own money when you need it. Many clients use it to launch a project, bridge cash flow, or wipe out high-interest debt while the interest paid goes back into their own account.

7. Rollovers From Old Accounts

You can also roll over existing retirement account dollars. Consolidate old employer 401(k)s and eligible IRAs into your Solo 401(k) to simplify control and deploy into the investments you actually want.

8. Solid Asset Protection

State rules vary, but retirement accounts are among the most protected assets you own. Creditors can’t just dip into your 401(k). The two big exceptions: the IRS and divorce. Otherwise, it’s a strong shield compared to holding assets personally.

9. Estate-Friendly for Family Wealth

Solo 401(k) dollars can pass to a spouse, or to kids as inherited retirement accounts with continued tax-advantaged growth for a period of time. If those dollars are Roth, your family benefits from extra years of tax-free compounding.

10. Tax Advantages to Set Up and Fund

Plan setup and the legal consult are business deductions. On top of that, new small plans may qualify for a startup plan tax credit. Then come the contributions: traditional dollars can reduce this year’s tax bill; Roth dollars build your tax-free bucket for later.

Real-World Uses We See Every Week

• Agent or consultant with a side hustle: Adopt the plan, make big contributions, choose Roth or traditional based on your bracket, and invest in what you know.

• Landlord using the side-door Solo 401(k): Create a simple management company to generate earned income, adopt the plan there, and fund aggressively.

• Entrepreneur who wants control: Self-direct into rentals, private notes, or operating companies you understand, and use checkbook control to move fast.

• Debt or startup need: Use the participant loan to pay high-interest debt or jump-start a new project, then repay yourself on schedule.

The Bottom Line

If you have any small-business revenue, you can adopt a Solo 401(k), stack it with your day-job plan, choose Roth or traditional, invest beyond Wall Street, and even access short-term liquidity with a plan loan. The barrier to entry is low; the planning power is enormous.

Want a compliant plan tailored to your situation? Book a free 15-minute call with my team at KKOS Lawyers to adopt the right Solo 401(k) for your structure, then open and fund the account at Directed IRA to self-direct into real estate, private deals, metals, or crypto.

Don’t miss Part 2 where we break down how to set up, maintain and maximize your Solo 401(k).

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Mark J. Kohler