Frequently Asked Questions

A Solo 401(k), also known as an Individual 401(k), is designed for self-employed individuals or small business owners with no full-time employees other than a spouse. This includes consultants, freelancers, independent contractors, and real estate investors operating as an LLC, S-Corp, or sole proprietor.

You can still hire independent contractors, and part-time employees may be excluded depending on hours worked. However, once you hire a full-time W-2 employee (other than a spouse), your plan must transition to a traditional 401(k). We guide clients through this process to keep them fully compliant.

Both allow for high contributions, but the Solo 401(k) is almost always the superior choice for high earners:

Solo 401(k)s allow contributions as both employee and employer — up to $70,000 in 2025 (plus catch-up if age 50+).

SEP IRAs only allow employer contributions, usually capped at 25% of net income.

Solo 401(k)s can include a Roth option, while most SEPs cannot.

Solo 401(k)s allow loans up to $50,000 from your account; SEPs do not.

Solo 401(k)s unlock advanced strategies like the Mega Backdoor Roth, unavailable in SEP IRAs.

In short: SEP IRAs are simple, but Solo 401(k)s are far more powerful for tax planning, higher contributions, and investment flexibility.

Yes. With a self-directed Solo 401(k), you can use retirement funds to invest in real estate, private equity, notes, and other alternative assets — not just stocks and mutual funds. Real estate investors often prefer Solo 401(k)s because they provide:

Checkbook control – you can write checks directly from your plan-owned account.

Diversification – protect your portfolio from stock market swings.

Tax advantages – rent, appreciation, and returns flow back into your plan tax-deferred (or tax-free if Roth).

Important: You must avoid “prohibited transactions,” such as renting the property to yourself or family members. We provide education and compliance support to ensure you invest confidently.

A prohibited transaction occurs when your retirement plan engages in activities that personally benefit you or “disqualified persons” (spouse, kids, parents, or your businesses). Examples include:

Renting a property in your plan to a family member.

Personally fixing or improving a plan-owned property (“sweat equity”).

Using your retirement funds to buy an asset you already own.

Penalties are steep — starting at 15% of the transaction amount and escalating to 100% if not corrected.

That’s why compliance matters. BestSelfDirected.com provides clear guardrails and automated documentation so you can enjoy the benefits of alternative investing without fear of IRS penalties.

Once your Solo 401(k) plan balance exceeds $250,000, the IRS requires you to file Form 5500-EZ annually. Failure to file can lead to penalties of up to $250 per day, capped at $150,000 per year.

For many professionals, this filing requirement is a dealbreaker — but we turn it into a service advantage. Our system automates Form 5500-EZ preparation and submission, ensuring you remain compliant and penalty-free.

Our digital setup process is fast. Most plans are created within minutes, and once your rollover or contribution clears, you can begin investing. Compared to legacy custodians, which may take weeks, our streamlined system gets you investing and saving sooner.

We believe in transparent, flat-fee pricing — no asset-based charges, no hidden costs. Our setup fee covers plan establishment, documents, and onboarding. Annual maintenance includes compliance filing (Form 5500-EZ), recordkeeping, and ongoing support.

This model ensures our incentives are aligned with yours — we don’t profit by managing your assets; we help you grow them.