A Solo 401(k) plan is an IRS-approved retirement plan, which is designed for self-employed and small business owners without full-time employees, and is one of the most flexible retirement accounts available. It has become the most popular retirement plan for the self-employed, largely because one can contribute as much as $70,000 in 2025 ($77,500 if at least age 50), borrow up to $50,000 tax free, as well as gain the ability to make alternative investments as the trustee.

This is why some business owners inquire about establishing multiple Solo 401(k) plans. This article will explore the significant advantages of the plan and then explain why the IRS controlled group rules limit most business owners from establishing more than one Solo 401(k) plan.

What is a Solo 401(k) Plan?

A Solo 401(k) plan, also known as a One-Participant 401(k) or Individual 401(k) plan, is a specialized retirement plan designed for self-employed individuals and small business owners with no employees. This type of retirement account offers higher contribution limits and significant tax advantages compared to traditional IRAs, making it an attractive option for those looking to maximize their retirement savings and reduce their income taxes.

With a Solo 401(k), small business owners can take advantage of both employee and employer contributions, allowing for substantial annual contributions and greater flexibility in retirement planning.

Eligibility Requirements

To be eligible for a Solo 401(k) plan, you must be a self-employed individual or a small business owner with no full-time employees, excluding another owner or spouse. Eligibility hinges on having business income, which can be verified through tax records. This makes Solo 401(k) plans ideal for sole proprietors, freelancers, and independent contractors who want to take control of their retirement savings. The plan’s flexibility and high contribution limits make it a powerful tool for business owners looking to build a robust retirement nest egg.

The Solo 401(k) Advantages

Any business owner who is self-employed and does not have any employees that work more than 1,000 hours, excluding a spouse or other partner, can set up a Solo 401(k) plan, which offers high annual contribution limits. Here are the chief reasons the Solo 401(k) plan has become the most popular retirement plan for the self-employed

High Contributions with Higher Contribution Limits

For 2025, the maximum one can contribute to an IRA is $7,000 (with a $1,000 additional “catch up” contribution for those age 50+). On the other hand, the Solo 401(k) annual contribution limit is $70,000 with an additional $7,500 catch-up contribution. In addition, if your spouse generates compensation from the business, he or she can also make contributions to the plan.

Based on the contribution rules, a plan participant can make a maximum employee deferral contribution of $23,500. That amount can be made in pretax or Roth. On the profit-sharing side, the business can make a 25% (20% in the case of a sole proprietorship or single member LLC) contribution up to that combined maximum, including the employee deferral, of $70,000.

If you are at least age 50, you can make that additional catch-up contribution of $7,500 as the employee, for a total of $31,000. Added to the profit sharing, you may contribute up to $77,500 for 2025.

The 401(k) Loan Feature

You are not allowed to borrow any money from an IRA. It’s prohibited! However, if your plan documents allow for it, you can borrow up to $50,000, or one-half of your account balance (whichever is less) from your 401(k) plan. The loan can be used for any purpose and is tax- and penalty-free. Interest rates are much lower than a traditional bank loan (usually the Prime Rate plus one percent), and that interest is paid back into the plan.

Related: Solo 401(k) & SEP IRA – Can You Have Both?

Self-Directed Investment Options

When you self-direct your Solo 401(k) plan, you can invest in almost anything you want. You’re only limited by the IRS prohibited transaction rules, which include collectibles and transactions involving a disqualified person. You can invest in any kind of real estate, both foreign and domestic, residential and commercial, precious metals & coins, private businesses, tax liens, cryptos, investment funds, and so much more.

A growing number of business owners are attracted to the Solo 401(k) plan to gain the ability to invest in alternative investments and better diversify their retirement portfolio.

Related: Solo 401(k) Investments

Use Leverage to Buy Real Estate

If you are interested in holding real estate in your retirement plan, the Solo 401(k) is the best option because it is exempt from Unrelated Debt-Financed Income (UDFI), a type of Unrelated Business Income Tax (UBTI). It is a type of tax assessed when using leverage to make a real estate investment.

However, that only applies to IRAs. The Internal Revenue Code (IRC) exempts this form of UBTI tax from 401(k) plans. Therefore, you can use leverage to purchase a real estate property with 401(k) funds and not be subjected to an additional tax. This allows your retirement funds to grow unhindered.

Mega Backdoor Roth Strategy

The Mega Backdoor Roth 401(k) is a strategy that allows high earners to contribute significantly more to a Roth account than the usual limits. It involves making after-tax contributions to a 401(k) plan, beyond the standard pretax or Roth limits, up to the total annual contribution limit ($70,000 in 2025 including employer contributions). This is is significantly more than an IRA.

These after-tax funds are then immediately converted either to a Roth 401(k) within the plan or rolled over to a Roth IRA. Once converted, the money grows tax free and can also be withdrawn tax free in retirement. This strategy only works if the 401(k) plan allows both after-tax contributions and in-plan conversions or in-service rollovers, which IRA Financial plans allow for.

Own Two Businesses and Want Multiple Solo 401(k) Plans?

Because of the enormous benefits of establishing a Solo 401(k) plan, and the lack of income restrictions, the question often arises if a business owner with two or more businesses can establish two or more Solo 401(k) plans. The answer is…maybe?

The IRC established its Controlled Groups Provisions as part of the Revenue Act of 1964. A control group relationship exists if the businesses have one of the following relationships:

• Parent-subsidiary,
• Brother-sister,
• Combination of the above
• Affiliated Service

Parent-Subsidiary

A parent-subsidiary controlled group exists when one or more chains of corporations are connected through stock ownership with a common parent corporation; and 80 percent of the stock of each corporation, (except the common parent) is owned by one or more corporations in the group; and Parent Corporation must own 80 percent of at least one other corporation.

For example, John owns 100% of Corporation A, which owns 90% of Corporation B = controlled group rules will apply. This means that the IRS will treat Company A and Company B as one corporation for purposes of the 401(k) plan.  In other words, Company A and Company B employees would be eligible to be part of any 401(k) plan established by either company.

Brother-Sister

A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners (a common owner must be an individual, a trust, or an estate) own directly or indirectly a controlling interest of each group and have “effective control.”

• Controlling interest – 1.414(c)-2(b)(2) – generally means 80 percent or more of the stock of each corporation (but only if such common owner own stock in each corporation); and
• Effective control – 1.414(c)-2(c)(2) – generally more than 50 percent of the stock of each corporation, but only to the extent such stock ownership is identical with respect to such corporation

Affiliated Service

IRC Section 414(m) was enacted to expand the idea of control to separate, but affiliated, entities. Proposed Treas. Reg. § 1.414(m) provides that all employees of the members of an affiliated service group shall be treated as if they were employed by a single employer.  The affiliated service rules are very broad and complex and essentially group together a set of somewhat interconnected companies.

Hence, if a business owner has two or more businesses that will be deemed parent-subsidiary, brother-sister, or treated as affiliated, the controlled group rules would apply and treat all companies as one for purposes of 401(k) eligibility.  In other words, all eligible employees of these businesses would need to be offered plan benefits.  While having two or more plans would be okay, it would not offer any additional benefit.

Double Dipping 401(k) Contributions

The primary reason a business owner would want to establish two plans is to be able to make excess 401(k) plan contributions, while managing self employment tax implications. The issue is that IRC Section 402(g) limits the employee deferral amount per individual, not per plan. This means even if one were able to establish two or more plans, once the individual reached the maximum 402(g) limit, no additional employee deferral contributions would be allowed.

However, in the case of the employer profit sharing contribution, that amount is per plan, which could make having multiple plans advantageous. The problem is that the IRS controlled group rules, as explained above, would limit a business owner’s ability to have two businesses treated as unrelated, for purposes of 401(k) contributions. Although, it is possible.

Generally, this would occur when one has a “regular” job at a business, plus additional self-employment income on the side. In that instance, you can contribute to your full-time 401(k) plan as the employee, and then use a Solo 401(k) for your side job. You could make profit sharing contributions to that plan, plus top off your elective deferral if you did not max it out with the regular 401(k) plan.

Example 1: Jen is an executive of a software business and participates in the businesses 401(k) plan. Jen maxes out her employee deferrals contributions to the 401(k) plan. Jen does not own any of the software business she works for. However, on her free time, Jen does software consulting and earned $60,000 through a single member LLC and elected to establish a Solo 401(k) for the consulting business.

Because Jen does not own any interest in the software business, Jen can still do employer profit sharing contributions of 20% of the $60,000 or $12,000. This would be on top of the $23,000 employee deferrals she made to the software business 401(k) plan in 2024. Whereas if Jen only contributed $10,000 to the software business 401(k) plan, she would be permitted to contribute $13,000 employee deferral to a Solo 401(k), plus the $12,000 employer profit sharing contribution made to the Solo.

Example 2: Ellen is self-employed and owns two businesses with no employees. One business does consulting and the other business is a service business. Ellen set up a Solo 401(k) for her consulting business and maxed out her contributions. She then wants to set up another Solo 401(k) for her service business. Because Ellen owns more than 80% of both businesses, the businesses are considered part of a controlled group and treated as one business for purposes of making 401(k) contributions. Ellen would not be able to make additional 401(k) contributions to the service business.

Conclusion

While having two or more Solo 401(k) plans is technically possible under certain circumstances, it is important to understand the reach of the IRS controlled group rules. Accordingly, because of the controlled group rules, it is difficult to open multiple Solo 401(k) plans for separate businesses if they are part of a controlled group. In many instances, establishing multiple plans is possible and actually very tax advantageous.

For example, if you work both a regular job and have a self-employed income, you can take advantage of multiple 401(k) plans and maximize your annual 401(k) contributions. The one benefit of the controlled group rules is that you can combine multiple business incomes to reach the maximum contribution faster. Additionally, your 401(k) contributions may not affect any IRAs you may have; you can still generally contribute the maximum allowed to your IRA. Consulting a financial advisor can help you navigate these options effectively.