The Solo 401(k) plan, also known as an Individual 401(k) plan, has become the most popular retirement plan for the self-employed or small business owner with no full-time employees. So, do you need an EIN for your Solo 401(k)?

Solo 401(k) for Small Business Owners

Not all Solo 401(k) plans are created equal! A business can get a Solo 401(k) plan from a bank or traditional financial institution, but the plan will not have many of the most popular plan features, such as Roth contributions, a loan feature, and the ability to make alternative asset investments, such as real estate. Solo 401(k) plans have higher contribution limits than traditional IRAs, making them great for high earners and self-employed individuals.

But companies, like IRA Financial, will help you set up a Self-Directed Solo 401(k) plan that has all the IRS-permitted options, including a Roth sub-account, if desired, the ability to borrow up to $50,000 without tax or penalty, as well as the ability to invest in both traditional and alternative asset investments on your own as trustee of the plan.

Solo 401(k) plans are not subject to adjusted gross income limits which can affect eligibility to contribute to accounts like Roth IRAs. You can contribute to a Solo 401(k) regardless of your income level. Plus, income taxes are handled differently for traditional and Roth contributions. The Internal Revenue Service allows many plan options. This equals flexibility and benefits for the account holder.

Eligibility

To qualify for a Solo 401(k), you must meet certain eligibility requirements. First and foremost, you must be self-employed or a small business owner with no employees, except for a spouse or other owners. Your business must be generating income which can be verified through your tax records. Whether you’re a sole proprietor, independent contractor, or freelancer, you can get a Solo 401(k) as long as your business is structured as a sole proprietorship, limited liability company (LLC), limited partnership, or S corporation.

If you have other full-time employees, you may not be eligible for a Solo 401(k). However, if your business has multiple owners, each owner can get a Solo 401(k) by having a separate business entity. This flexibility makes the plan a great retirement savings plan for many business owners.

Solo 401(k) Benefits

A Solo 401(k) has many benefits for self-employed individuals and small business owners. One of the top features is the higher contribution limits. Unlike traditional IRAs, Solo 401(k)s allow you to contribute much more so you can build a larger retirement nest egg.

The tax advantages are another big plus. Contributions to a Solo 401(k) are tax deductible so they reduce your taxable income and lower your overall tax liability. This is a great way to keep more of your hard earned money while saving for the future. On the other hand, Roth 401(k) plans are funded with after-tax money, and all qualified distributions are tax free. If you’re 50 or older, you can make catch-up contributions allowing you to save even more for the future.

If your plan allows for it, you may borrow up to $50,000 or one half of your account balance, whichever is less. You can use this loan for any purpose. Be careful since failure to pay back the loan in a timely fashion will lead to taxes and penalties!

When it comes to investment options, Solo 401(k) plans are super flexible. You can invest in a wide range of assets including mutual funds, stocks, and other traditional offerings, as well as alternatives like real estate, metals, and hard money loans. This allows you to diversify your portfolio and tailor your investments to your financial goals.

Lastly, Solo 401(k) plans have low administrative costs. Compared to traditional 401(k) plans, the administrative burden is minimal so it’s easier and more cost effective to manage your retirement savings.

Solo 401(k) Employer Identification Number (EIN)

An Employer Identification Number (EIN), issued by the IRS, is also referred to as a Federal Tax Identification Number, or FIN. The EIN is used to identify a business entity or trust, such as a retirement plan. In general, an EIN will be acquired on behalf of the plan and is used to allow the plan to open a bank account.

There is no formal requirement that an EIN be acquired for a Solo 401(k) plan since it is an owner-only plan. Many plan sponsors will use the plan participant’s social security number or business EIN as the plan tax identification number.

However, any Solo 401(k) plan that wants to establish a bank account for checkbook control of the plan will likely need an EIN. When using IRA Financial, they will establish the plan’s bank account via Capital One without an EIN. However, if you wish to use your own bank, you will need to have IRA Financial acquire an EIN for you.

Does the Solo 401(k) Plan Trust Need an EIN?

The IRS requires that a 401(k) plan is a trust, and, under IRS Code Section 401, plan assets must be held in trust. There is no IRS or Department of Labor requirement that a separate trust be created in connection with the establishment of the plan. As a result, a separate trust is often not established as per the plan documents.

This is the reason why, in such a case, no separate trust agreement is required to be included in the plan documents, and it is also why a separate EIN is not required to be acquired for the plan trust. Typically, an EIN would only be acquired for the plan itself. Most Solo 401(k) plans will acquire an EIN for the plan for purposes of opening a bank or brokerage account.

Process for Acquiring a Solo 401(k) Plan EIN

For purposes of this article, let’s assume that Mike and his business ABC LLC establish a Solo 401(k) plan. He requests IRA Financial to acquire an EIN for the plan so he can open a plan bank account. An EIN can be acquired by completing an online questionnaire at the IRS website or by completing and sending in IRS Form SS-4 to an IRS representative. When securing an EIN for a Solo 401(k) plan, the IRS will require the following information:

• Name of adopting employer
• Address and phone number of adopting employer
• Name of the trustee of the Solo 401(k) plan
• Name of plan

The IRS website will then provide the EIN# that can be used to open a bank account. Typically, the bank will require a copy of the plan adoption agreement, basic plan document, and EIN to open a plan bank account.

Contribution Limits and Rules

The contribution limits for a Solo 401(k) plan are quite generous, allowing you to maximize your retirement savings. For employee contributions, you can contribute up to 100% of your compensation, with a maximum limit of $23,500 in 2025. This is a significant amount that can help you build a substantial retirement fund.

In addition to employee contributions, you can also make employer contributions. These can be up to a percentage of your compensation (either 20 or 25% depending on the type of entity you have), with a maximum limit of $70,000 in 2025. This dual contribution capability is one of the reasons why Solo 401(k) plans are so attractive to small business owners.

If you’re 50 or older, you can take advantage of catch-up contributions, which allow you to contribute an additional $7,500 in 2025 or $11,250 if you are between the ages of 60 and 63. This is a great way to boost your retirement savings as you approach retirement age.

By understanding these contribution limits and rules, you can make the most of your Solo 401(k) and secure a comfortable retirement.

Planning Your Future with Expert Guidance

It’s important to work with a company that has tax expertise to help establish an IRS-approved Solo 401(k) plan. Here are a few things that we feel sets us apart from other providers:

• We wrote the book on the Solo 401(k) plan
• Get started in minutes with our app!
• Customized plan design based on your retirement & investment goals
• Never step foot in a bank—we open your self-directed bank account for you
• We handle all IRS reporting and offer annual IRS compliance services
• No hidden fees
• No minimum balance
• Invest in anything you want
• Dedicated one-on-one support from a 401(k) plan specialist

In general, one is not required to acquire an EIN for his or her Solo 401(k) plan. However, most plans will acquire an EIN from the IRS for purposes of opening a bank account or establishing a plan brokerage firm. Contact our team of experts if you have any questions about the Solo 401(k) plan and when you need to acquire an EIN for your plan.