Mark Kohler and Matt Sorenson explain how self-employed and S-corp owners set up a Solo 401(k). You need a business entity, a pre-approved trust document from an attorney or firm (not DIY), and must adopt the plan before year-end to claim deductions. You can roll over existing IRA or 401(k) assets and add your spouse as a participant.
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Hi, I'm Matt Sorenson, here to talk about how to set up a solo 401k.
My name is Mark Kohler and I'm here to talk about it. We're here to talk about it together.
Am I like Mac and your PC, is that what we're doing?
Yeah, maybe. Alright, let's break this down.
Now.
The Solo 401K is a huge opportunity for small business owners and there's a lot of questions of how this might look. So can I whiteboard it? Can we get it out there? Yeah. All right. So what we normally want to do is see our clients on their operations side versus their asset side. Realize there's a difference here. And this would be your business typically going to be an S corp that you grow into. And then the 401ks over here, I mean you want the pen, you can have the power.
Wow. Yeah. Now remember the first thing here. What do we have? A business. Solo 401ks are adopted by businesses. Think of Microsoft, they have a 401k plan for their employees. But if you're self employed, you got your own business. Why don't you do the solo K for yourself? But the business creates the solo 401k for the benefit of you down here. I mean, hang with me here.
Oh, that's good man. That's much more artistic than I would have been. I love this. The beauty of that 401k is that you're going to make contributions out of your W2. You'll be able to roll old money over from maybe old IRAs or even an old 401k from another job. So to get this 401k going, it could be new contributions or rollovers. And we've got other videos on this you're going to watch down below. You can see the links to get into those. But I think the big issue here is that you're going to have to pay to set these up. It's not something like an IRA where you can walk into the local bank. We've got a couple options at our firm. But you're going to actually adopt this agreement. It's kind of like a trust document. How would you describe it?
Yeah, you're going to have a Pre approved solo 401k document. And 401ks are trusts by law. So it is technically a trust document included in the Solo 401K. Now that is not something you can get on LegalZoom. That is not something you can create on your own. I've even had lawyer clients of mine Try to create one on their own. You cannot do it. You're going to wait about two years to get approved by the irs. So you want to use someone that has a pre approved document to let you do what you want to do. Maybe you want to self direct, maybe you want to trustee it and have the checkbook control. Make sure you get a document that lets you do that. Of course ours does.
Yep. I love it. Now a couple final takeaways here. To set up a solo 401k. You need to do it before the end of the year to make it effective in that particular year. It's not like a SEP or an IRA where you can contribute the next year and get the write off for the prior year. You want to be on top of this, make sure you're adopting it in October or November. You if you want to take a write off in any particular year, you'll use an attorney or law firm or trust company that has a pre approved documents. Maybe get a lawyer consultation or just kind of a DIY structure. We have both options and you're off to the races. Then you're going to have a check, a checking account for this. We have other videos on how to maintain it, but really they're not that hard to set up. But it's like giving a loaded gun to a kid. You got to know the rules here. You got to be careful. Yeah.
You're in the driver's seat here. Okay. And you got to know what you're doing. So maybe you take a little bit of driver's ed, maybe you know, get the car out on the course a little bit, make sure you don't hit some cones. But what we want here is we want you to have a lot of flexibility. Once you have the options to self direct. The option of a brokerage account, the option to take a loan when you need it, the option to put a ton of money in there every year. You got to know what you're doing though. Make sure it's set up right. And then follow the other videos that we have, take a look at them to understand how do I contribute, how do I get the money in, how do I make the investment and how
much can I contribute? And can I add my spouse over here? And. And you might be again an owner or part owner. It just opens up into so many possibilities. So check those other videos. Check out the links below. And thanks for watching.
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