Main Street Business

#595 Benefits of a Solo 401(k) and How to Qualify

• Mark J Kohler and Mat Sorensen

Share episode

Take control of your retirement with our Solo 401(k) Special, starting at $895. The offer ends on October 17, 2025! Learn more: https://kkoslawyers.com/solo-401k-special-2025/?utm_source=buzzsprout&utm_medium=description-link&utm_content=solo-401k-p1-benefits&utm_campaign=main-street-business-podcast

Are you overlooking one of the most powerful retirement strategies available to entrepreneurs and small business owners? In this episode of the Main Street Business Podcast, Mark J. Kohler and Mat Sorensen take a deep dive into the Solo 401(k) — explaining exactly what it is, who qualifies, and how it can dramatically improve your retirement savings and tax strategy. If you’re self-employed, a freelancer, or running a small business, this plan could be a game-changer for your financial future.

Unlike traditional retirement accounts, the Solo 401(k) comes with higher contribution limits, flexible investment options, and unique tax advantages that put you in control. Mark and Mat walk you through how the plan works, the rules you need to know, and why so many entrepreneurs are using it to invest not only in the stock market, but also in real estate, private companies, and alternative assets. They’ll also cover common misconceptions, key mistakes to avoid, and practical strategies to maximize the benefits of this plan.

Whether you’re just getting started with retirement planning or looking for ways to reduce your tax burden while growing wealth, this episode breaks it all down in plain, actionable steps. By the end, you’ll understand why the Solo 401(k) stands out compared to SEP IRAs and other options — and how to know if you qualify.

 If you’re serious about building wealth, saving taxes, and gaining more control over your financial future, this is an episode you can’t afford to miss!

You’ll learn:

  • How a Solo 401(k) lets you save for retirement using any small business or side hustle income — even alongside a day job 401(k) or IRA
  • The major tax and contribution advantages that make Solo 401(k)s one of the most flexible retirement plans for entrepreneurs
  • How to borrow from your Solo 401(k) and pay yourself back with tax-free interest
  • Why Solo 401(k)s offer strong asset protection and rollover options from old retirement accounts
  • The power of self-directing your Solo 401(k) into real estate, small businesses, and other alternative investments

Get a comprehensive tax consultation with one of our Main Street tax lawyers that can build a tax strategy plan with an affordable consultation that will leave you speechless!! 

Here’s the link - https://kkoslawyers.com/services/comprehensive-bus-tax-consult/?utm_source=buzzsprout&utm_medium=description&utm_content=595-sol

SPEAKER_00:

You are allowed to have a solo 401k with any type of small business revenue. So if you have a side hustle, maybe you're driving Uber. You can find a solo 401k with your Uber revenue. You're selling something online, you're doing a small service, you run a janitorial business in the evenings with your family. I don't know. Any type of business income you're generating, you are allowed to have a solo 401k on top of a work 401k and on top of a Roth.

SPEAKER_01:

But you can also roll over existing retirement account dollars. So if I've got an old employer 401k with traditional 401k dollars, even Roth 401k dollars, I can roll that into my solo 401k. The gateway to entry is very, very low.

SPEAKER_00:

Welcome to the Main Street Business Podcast. My name is Mark Kohler. I'm here with my incredible podcast partner, Matt Sorensen, who I just learned from every time we go live on our podcast. And today we are starting part one, which means we have part two. And today is about all the good stuff. And do I qualify? Part two is gonna be how do I implement this and make it happen and make it even better and take shoot for the stars. So I think we're gonna, this is so powerful, so important.

SPEAKER_01:

Yeah, the solo 401k is the number one retirement account you should know about if you're self-employed. And if you're someone who's self-employed, we know we run across those clients all the time, real estate agents. You could be the doctor, the dentist, the consultant, the Uber driver, I don't care what you are, okay? You're self-employed, but you have no other employees. So the government said, hey, we should let these people have their own 401k too. It's not just for big companies that have all these employees. These self-employed people, this gig economy that's got so many people in it now, let's let them have their own 401k where they can put 70 grand a year in it, right? We know IRAs for individuals, you can put 7,000 a year in it, but we can put 10 times as much of that into a solo 401k.

SPEAKER_00:

Well, and I think we need to start with as we go into these benefits, is let's debunk a few myths. May we? Can I? I just want to say a few things. Number one, you can have a work 401 if you have a day job and a solo 401k. Number two, your spouse could have a day job and participate in your solo 401k in your small business. You can have a IRA and a solo 401k and a work 401k. You can have all three. Nothing wrong with that. And number four, I'm I'm see if you can come up with format. I'm gonna do number four, man.

SPEAKER_01:

I got some more.

SPEAKER_00:

You can invest your solo 401k in anything you want. It does not have to be in Wall Street marketable securities. So you the those are I think those are important.

SPEAKER_01:

I'll just that was the one I wanted to make sure we got off the table is like your solo 401k can buy real estate. It can invest in a private company, it could buy precious metals, it could buy crypto, okay? These are many of these assets that our clients are buying every day using solo 401k. And so we give you that option. This is not just Wall Street put more money in Wall Street, okay? You can do that. We're not against that, but a lot of self-employed individuals, they might be in the real estate industry. They like real estate, they might be into crypto investing personally. Did you know your solo K could buy crypto? So we can help you do that. So you just know as we're talking about building wealth in this solo 401k account, right? And remember, this is a retirement account. Long-term wealth building, you can access at 59 and a half. But as we're talking about building wealth, we want you to invest in the assets you know and believe in they're going to get a great return. One thing I want to note about, too, when we're talking about a solo 401k, you can do Roth accounts, all right? The solo 401k can be entirely Roth dollars, the whole 70,000. Old solo 401k and 401k rules used to be the only contribution into a solo 401k was the employee contribution that could be Roth. And any of the company match or any of these other dollars that go into the mix had to be traditional dollars. That changed a couple years ago. You could do 100% Roth now on a solo K. So that 70K max could be all Roth dollars.

SPEAKER_00:

Yeah, no, awesome. And I it what's funny is a lot of the myths turn into the benefits. And I think a lot of people realize, hold it, I thought that wasn't true. Yeah, that's one of the benefits of the solo. So I'll just point out one other potential myth that I hear a lot of times is well, I'm too old. Or once I'm, you know, I get rid of my business or whatever, I I don't qualify or whatever. And so we're gonna be talking about some of those um misconceptions about whether or not you can participate in one as we develop this show today. So uh as we talk about these benefits, and again, like I said, sometimes you're you're able to flip a myth into a benefit, uh, and we start going through this, and maybe we can come up with a list of benefits. I'm gonna start backtracking through what I thought were some of the myths. And the one is that you are allowed to have a solo 401k with any type of small business revenue. So if you have a side hustle, maybe you're driving Uber. You can find a solo 401k with your Uber revenue. You're selling something online, you're doing a small service, you run a janitorial business in the evenings with your family. I don't know. Any type of business income you're generating, you are allowed to have a solo 401k on top of a work 401k and on top of a Roth. So I think that's a major benefit of the solo 401k, is that you the the entry or the the gateway to entry is very, very low.

SPEAKER_01:

Yeah, and I think this is the last client I was just talking to about a solo K yesterday who was a real estate agent, right? And she uses her solo K to invest in real estate. And this is the first retirement account she had had, she'd heard of SEP IRAs, and everyone's like, oh, you're a self-employed person, you should do a SEP IRA. And we set her up with a solo K a while ago, and I just kind of going back on how it was going. And but this solo 401k is is for those self-employed persons, and that, like we said, we it doesn't matter the type of business it is, but there is one important distinction here you got to know. This is not investment income. So a lot of times we get real estate investors that say, well, Matt, I go out, I got some rental properties. Can my LLC that owns my rentals, can that adopt a solo 401k? Because the business adopts a 401k. All right, and I want you to think about, I'm trying to teach two points here. But think of like Microsoft, okay? It has a 401k plan. It's the Microsoft 401 plan, and there's tens of thousands of employees that have an account in the Microsoft 401k plan. Like, you know, we have a KQS Lawyers 401k, directed IRAR company has a 401k, right? And each employee has an account in the 401k. When you have a solo K, there's still a business that adopts the 401k plan for the benefit of its employee, which may just be you or your spouse if they're working in it, or maybe a business partner too. But but that's what it is. There's still a plan adopted by the company. Now that company must be one that provides goods or services. It can't be one that has rental income or investment income. Okay, that is not qualifying. So that's the first thing is this must be an operating business. Think of small business, big business, side business, I don't care what it is, but it's um it's selling goods or services typically, it's in the operating income. As you guys know, our trifecta that we talked about. This is left side on the trifecta businesses.

SPEAKER_00:

Okay, so as we kind of deal with these two pieces of the equation of the benefits of the solo, and do I qualify uh again, everything relates to everything here, that the barrier to entry is very low. You just have to have business income. So that's one of the qualifications is having business income, and it's also one of the benefits is that I can use that solo 401k against side hustle income on top of a Roth and on top of a day job 401k. Now, I one of the other benefits I like about the solo 401k is that you can borrow against it. It's not like an IRA where I have to wait till I'm 59 and a half. Um, I I can start borrowing against my own 401k for an opportunity or a problem, and I can borrow up to 50% or$50,000, whichever's less. And what's nice about that is you're paying interest back to yourself tax-free. So that interest payment, as you pay back that 401k loan, goes all back into that 401k bucket that continues to grow and snowball. So I love that borrowing provision. What's another benefit you like, Matt?

SPEAKER_01:

Yeah, and I'd say that borrowing provision, we've seen a lot of people use that. Let's say they're starting up a new business and they're rolling an old employer 401k, and so they set up the solo K, they receive those old 401k dollars, or maybe an old IRA that's been laying around that they just roll over into the solo K, then they do this loan to help with some startup expenses in the business. It's not a distribution, it's not taxable. You got that five years to pay back that loan. We've seen people use that participant loan in the solo K to pay off high interest debt. Um, it's a good strategy. Um, so uh I love that one. I don't even think about that one. So um glad to do that.

SPEAKER_00:

And I think you really just highlighted one of the other benefits is you can roll over into your solo 401k um old IRA money or old 401k. Why don't you explain that a little bit more? Because you started to touch on that.

SPEAKER_01:

Yeah, so in a solo 401k, you can put new contributions in. We talked about that 70,000, and we'll hit that in part two on how you calculate that and actually do that, the mechanics of it. But um but you can also roll over existing retirement account dollars. So if I got an old employer 401k with traditional 401k dollars, even Roth 401k dollars, I can roll that into my solo 401k. Or let's say that you have a traditional IRA at you know, TD Ameritrade, you can transfer that, roll that over into the solo 401k in a traditional account. And so um, so we can get existing retirement account dollars into the solo 401k as well.

SPEAKER_00:

I love it. I'm working a master list here, so everybody, you have to stay tuned until the end of this podcast because I'm gonna rattle all these benefits off. Um, the next one that I love is that the 401k is asset protected. Now, if you're a bad enough individual or your the creditors have a large enough claim against you, the solo 401k, like an IRA, it's gonna be based on your state of how much that 401k is protected from a creditor, but it's pretty significant. And so this is a major point in that there's really only two people that can get at your 401. The IRS, if you don't pay your tax bills, or if you're in a divorce, you're gonna typically have to split that 401 with your ex-husband or ex-wife to keep the an equitable divorce happening. Now, again, a lot can happen in a divorce as well. But the point is, creditors can't just dip into your 401k if you owe someone a bad debt. Car accident, a business deal gone bad, anything like that. It takes a lot to break into those 401ks. We think of the OJ Simpson story. I've written a lot about that. Now, that was a planned 401k, kind of a group 401k, which is going to have maybe a little more significant benefits, but the solar 401k is no slouch either. They it really can be qualified as an asset protection vehicle.

SPEAKER_01:

Yeah, and what Mark was talking about there with the OJ Simpson, just on this asset protection to illustrate the point is, right, like not guilty criminally, but got held liable civilly and had like a$30 million judgment against him. Well, the Goldman family, who received that judgment, could never collect on it because eventually his income and that he ended up living off of after he went broke was his NFL pension and retirement account, which they could not take. They couldn't seize. Yet he was living off of hundreds of thousands of dollars coming out of this thing every year. And so, but that's how your retirement account is. It's this asset that is virtually impossible for a creditor to attach and get. So um, so we've seen a lot of clients that have asset protection risks. We see physicians or contractors or people that are like, we just in our space, we just get sued every once in a while, that are like, that's a huge selling point and value point, is just that asset protection uh benefit.

SPEAKER_00:

Well, now moving along, one of the benefit benefits we already highlighted, but I want to bring it to bear with the second uh they're kind of go hand in hand, is Matt already gave the big reveal, or I guess I did too, that you can self-direct your 401k. You can invest it in other small businesses, real estate, do lending out of it. Oh, beautiful. The concept of self-directing. Please get over to our sister podcast, the directed IRA podcast, where we talk about the self-directed ability and all of the options and really not a lot of rules there either. There's a lot of opportunity. So that's one of our benefits here on the list. But the sister to that is you get to self-trustee your solo 401k. Yeah. And and and really control the checkbook, if you will, for the 401. So you can uh be in charge of your 401 without having to pay big fees to a third-party administrator. Would you agree? How would you explain that, Matt?

SPEAKER_01:

Yeah, so when you put money in that solo 401k, right? Let's say you put a you roll over some funds or there's a transfer or you put your new contributions in, right? You're gonna want to go and invest those. Now we've talked about real estate. Like someone might buy a single family rental, right? They may go do private money lending out of it, where they're lending money out at 12% interest in two points. Well, if you think about self-directing, and if you're new to this, your custodian needs to handle that. And that's what we do at our company directed diary. Well, we'll do custody of these actual accounts. But if you're like, can we just put that money in a checking account and I'll just write the checks out for the investments I'm making and I'll hold it in the name of the 401k, but I'll have this checkbook control to go make the investments and receive the income, pay any expenses on it. Real estate would be a common one. That's what that self-trustee and that checkbook control is. So in our solo K docs, you can be trustee of the Solo 401k. And our 401k documents, by the way, are pre-approved by the IRS. They're fully open to any asset allowed by law, whether that's crypto or real estate or precious metals or small business notes, whatever you're doing, you can do those with our solo 401k plan documents. As the trustee, which means you can sign on the stuff and even have a checkbook to go do this. Now, our lawyers at KKOS Lawyers will do a consult when you set this up. We're going to explain how this works. Make sure it works in your situation. Go over the things you might be thinking about investing in and how that might work and answer your questions. So just know this is not like a hit the easy button and you just get some document. We are here to help you get it set up, make sure it's structured properly for your business and your situation, and answer the inevitable questions that come as you're new to this, and you get a real tax lawyer helping you along in the way.

SPEAKER_00:

Oh, I love it. I mean, the list continues to grow every time you start speaking, Matt. Next benefit that I'd like is that when you pay to set up your solo 401k, it's a tax deduction. It is a tax write-off to meet with your lawyer, get this done, and KCOS Lawyers is going to walk you through all the provisions of what you should look out for or not and tailor it to your situation. And we have a special every year in the month of October to help you get this done because it's got to be a year-in strategy. So, I mean, dude, yeah, we almost forgot the tax write-off, right?

SPEAKER_01:

I know. How could we forget? I mean, we always love a good tax write-off. Who doesn't? Plus, there's also a tax credit available too, so we'll have more detail on that. Um, and that if you do some, you have to do a couple extra step there to get that credit, but even works on the solo 401ks. So a lot of incentives to get that set up and start saving for retirement. Um, let alone, you know, because we talk about year-end tax planning. If you're trying to get tax write-offs today and do traditional dollars, like that's a big ticket item that saves you taxes today. If you're looking at these year-end and being like, I'm I had a great year this year, I need some tax deductions. Well, we're talking about the contributions going in as being a tax deduction too, if you do traditional dollars.

SPEAKER_00:

Well, and I want to bring that up too, as probably uh the next benefit that we're gonna uh really dive deep into in part two of this series is the contribution amounts. There's a lot of flexibility there. You might put in Roth money, you might put in traditional money, you might have your company match, you might do an after-tax contribution to even get more in there. Um you might set up a 401k contribution amount for your spouse. Your kids can even be in the solo 401k. It includes your spouse and children. So all of these contribution amounts amount to flexibility. It kind of gives you a lot of planning opportunity, which I put down here is uh one of our key benefits are these high contribution amounts and the flexibility in the contribution amount.

SPEAKER_01:

All right, now another benefit to this, and again, we're thinking long-term wealth building and also legacy building here, is this retirement account when you pass away, this solo 401k, can be transitioned over to your surviving spouse if you have one, or over to your kids as an inherited IRA and continue to being invested for up to 10 years in a tax-advantaged manner. What this was Roth dollars, you're gonna get another 10 years of tax-free growth. And so retirement accounts become one of the best assets to inherit, because whatever assets you get in there, you can continue to keep growing them, and then you can pull them out whenever you want in that 10-year window, but you just have to pull it out within 10. So, particularly if this is a Roth solo 401k, very powerful strategy and something to inherit, a great way to pass down wealth and help build a legacy for your family. All right, now one other last benefit here, because I know we talked about qualifying for a solo 401k. You got to be self-employed with a business, selling goods or services type thing, you know, ordinary income. And you can't have any other employees, right? That's the solo 401k where you fit. We talked about that real estate investor, and this is a client we get a lot. We have a lot of real estate investor clients that might have rental properties, for example, and they've got an LLC, and it's got maybe, or they've got 10 LLCs and 10 different properties, for example. And they might be like, Well, how I want to do a solo K. I've got great cash flow, great income. I want to be building this tax-free bucket, maybe doing a Raw solo K, whatever your motivation is. How do I do that? How do I do that? Well, that's the side door solo 401k. So what we will do there is we set up a management company. This could be Schedule C sole proprietorship. Um, you know, you could do an S corporation, probably not, probably just doing a Schedule C sole proprietorship. This could be an LLC, maybe not. I probably just do an LLC if you're in this scenario here. You're gonna pay a management fee from the rental real estate entities that you're taking an expense for over there, and you're gonna pick it up in the management entity. Now, generally, you never push rental income over to management fee income and ordinary income because you're picking up self-employment tax, right? But if we're gonna use it to fund a retirement account to build a bucket of tax advantage dollars, whether those are Roth or traditional, we want to do that and think about that. So that's the side door solo K where you can qualify is by doing a management entity. You need enough assets over here to management on your right side of the trifecta here. And I'm for those of you listening on the podcast, the hand gestures I know are totally worthless, but you can imagine, right? We got the rentals and that expense you're picking up over there, but you pick it up as income over here in your management entity, and we're using that to adopt the solo K and then make the contributions there.

SPEAKER_00:

All right. Well, gosh, I love that one too. All right, I'm gonna do my best here to summarize these top 10 benefits of the solo 401k. Number one, I can have a day job and even a Roth IRA and a solo 401k. The solo 401k can be stacked on top of these other retirement accounts for maximum benefit and growth. Number two, I can borrow against the solo 401k up to 50% or$50,000 and pay interest back to my own account. Three, I can have complete asset protection for almost any possible lawsuit with this solo 401k, far better than an LLC or some sort of irrevocable trust. The solo 401k are time tested. Number four, I can roll over money from an old IRA or an old 401k to fund the solo on top of new contributions. I get to choose. Number five, I can self-direct my solo 401k and creative investments and all the types of uh self-directed assets that we talk about on our sister podcast. And number six, I can even self-trustee the 401 with its own checkbook. I can create LLCs with my 401k to self-direct and have more control. Number seven, I have flexible contribution amounts that um can be create tax deductions or be Roth structured and create massive write-offs with year-end planning if I feel so inclined. And number eight, I can put it as part of my estate plan. The 401k can roll out into the form of an IRA for my spouse or children upon my passing. Number nine, I get a tax deduction for any consultations or setup fees with my lawyer and maybe even a possible tax credit. Not to mention, we have a special this month in October. Make sure you look down in the description below for that special. And then number 10, I can even manufacture a solo 401k out of passive income with my real estate portfolio. These solo 401ks are freaking absolutely amazing.

SPEAKER_01:

Wow, the top 10. I there's probably more benefits to get into, and everybody's situation is unique and how you're gonna use it and how these benefits are gonna affect you. Um, so make sure you get over to kquslawyers.com, take advantage of the special, get it set up. Don't wait till year end. If you want to make 2025 contributions and you want to be able to maximize though those, you need the solo 401k set up in 2025. All right. So let's get some time, let's give you some time so you're not rushing at year end. Let you enjoy the holidays, okay? We want you to enjoy the holidays and not be doing this last-minute planning. Get in early to get some consultation on this if this is something that could work for you. Um, and our attorneys would be happy to help you walk you through this. It's included in the fee to get this set up. So um, and if you love this podcast, I'll just say that too. Please like it, share it with your friends and family, subscribe to the podcast if you're not already. We've got so many episodes here to help you save on taxes, protect your assets, and build wealth. Um we'll be back next time for another incredible episode of the Major Business Podcast. We'll see you then. See you then.

People on this episode

Head Shot

Mark J. Kohler

Host