How to Make Solo 401(k) Contributions: 7 Ways to Fund a Self-Directed Solo 401(k) at Fidelity Investments

A Solo 401(k) can be an excellent retirement savings option for self-employed individuals or small business owners. It offers the potential for substantial tax advantages and higher contribution limits than traditional IRAs. Fidelity Investments, a well-known financial services firm, provides a reliable platform for managing these accounts. If you’re looking to make contributions to your Solo 401(k), here are seven ways to fund your self-directed Solo 401(k) at Fidelity.

1. Salary Deferral Contributions

If you run a business and pay yourself a salary, you can make salary deferral contributions to your Solo 401(k). For 2023, you can contribute up to $22,500 (or $30,000 if you’re age 50 or older). These contributions are made pre-tax, which can significantly reduce your taxable income for the year. To contribute, simply set aside the appropriate amount from your salary and direct it into your Solo 401(k).

2. Employer Profit-Sharing Contributions

As both the employer and employee, you can also make profit-sharing contributions to your Solo 401(k). These contributions can be up to 25% of your compensation, capped at a total of $66,000 (or $73,500 if you’re over 50) for 2023. To fund this, calculate your eligible compensation and allocate the appropriate percentage directly from your business revenue.

3. Rollover from Other Retirement Accounts

If you have existing retirement accounts (like a traditional IRA or an old employer 401(k)), you can roll over those funds into your Solo 401(k) at Fidelity. This process typically involves filling out a rollover request form, which Fidelity can guide you on. Rolling over funds can not only consolidate your retirement savings but also allow for more flexible investment options.

4. Contributions from Your Business Income

If you’re a sole proprietor or have your own LLC, you can contribute directly to your Solo 401(k) from your business income. This direct contribution can be applied to both salary deferral and employer profit-sharing contributions. It’s essential to keep clear records of your business income and set aside a portion for your retirement savings.

5. Borrowing Against Your Solo 401(k)

While not a typical funding method, you have the option to borrow from your Solo 401(k) if your plan allows it. You may borrow up to $50,000 or 50% of your account balance, whichever is less. The loan must be paid back within five years, and the interest you pay goes back into your account. However, use this option sparingly and responsibly, as borrowing can affect your long-term retirement growth.

6. Making After-Tax Contributions

If you’ve already maxed out your standard contribution limits, consider making after-tax contributions to your Solo 401(k). Fidelity allows after-tax contributions, enhancing your retirement savings potential. You can make after-tax contributions up to your total contribution limit (combined employee and employer contributions, capped at $66,000 or $73,500). Don’t forget that earnings on these after-tax contributions grow tax-deferred until withdrawal.

7. Regular Monthly Contributions

Establishing a regular monthly contribution plan, whether through automatic payroll deductions or direct deposits into your Solo 401(k), can simplify your saving strategy. This method helps in dollar-cost averaging, allowing you to contribute consistently without actively managing the timing of your contributions. Fidelity’s online platform allows you to set up automatic transfers easily.

Final Thoughts

Funding a Solo 401(k) at Fidelity Investments offers multiple avenues to strengthen your retirement savings. Whether you choose salary deferrals, profit-sharing, rollovers, or after-tax contributions, understanding these options can empower you to make the most of your retirement strategy. Always consult with a financial advisor or tax professional to tailor your contributions to your specific financial situation and retirement goals. By being proactive and strategic with your contributions, you can build a robust nest egg for your future.

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