MySolo401k Review: Self-Directed Solo 401k Accounts

Investing in your retirement account is usually a can’t-go-wrong move. But if you’re running a business on the side while working a full-time job, where do you put those extra funds? 

Or, if your side gig is now your full-time job (i.e., you’re a business owner), what retirement account options do you have?

There’s a sea of retirement account options to choose from. By going with a solo 401k, you’ll get some of the highest annual contribution limits, the ability to take a loan against your 401k, and plenty of investment options.

For that last one, you’ll a need self-administered 401k, which means finding a provider for that type of plan. MySolo401k is one of those providers. In this article, we’ll see what they have to offer for solo 401k account holders.

MySolo401k offers self-administered solo 401k plans as well 401k Business Financing and IRA LLCs. In today's article, we'll reviewing its self-directed 401k plans. 

Self-administered 401ks are different from fully-administered or brokerage Solo 401k plans. Fully-administered plans are offered by Schwab, Vanguard, Fidelity, and many other brokerages. And many of these plans are FREE.

If fully-administered solo 401k plans are often free, why would someone go with MySolo401k? To answer that question, let’s first go over what a solo 401k is.

A solo 401k is also called an individual 401k. Contributions to a solo 401k are tax-free. In this regard, it’s similar to a 401k that is offered by employers. Employees (W2 wage earners) contribute pre-tax money to their employer-sponsored 401k plan.

To contribute to a solo 401k, you must be a self-employed individual of an owner-only business. An owner-only business doesn’t have any employees. The business can have contractors but no W-2 wage earners or those with 1,000 or more hours per year working for the business. A big benefit of a solo 401k is that the owner’s spouse can work for the business.

With a solo 401k, you also have checkbook control. This means you can write checks directly from your 401k. The ability to write checks can be critical for any time-sensitive investments.

A solo 401k has higher contribution limits than an IRA. For 2021, those limits are $58,000 total for the year or $63,500 if you are 50 or older.

The $58,000 breaks down into an employee (i.e., owner) maximum contribution of $19,500. Additionally, the business can contribute up to 25% of business revenues toward the employee’s 401k plan. For those 50 or older, a $6,500 catch contribution is available.

For example, imagine that a business made $100,000. The owner contributed $19,500 and the business contributed $25,000 (25% x $100,000) for a total of $44,500. The owner is 51 so the $6,500 catch contribution is also available, bringing the total contribution to $51,000.

Note that 401k contribution limits are combined across 401k plans. If you are still working a W2 full-time job and contributing to your employer-sponsored 401k, those contributions plus your solo 401k contributions are combined.

A popular feature of a Solo 401k is the participant loan. You’re able to borrow up to 50% of your solo 401k balance, not to exceed $50,000. The loan term is for five years or 30 if the money is used for a primary residence.

The loan is tax-free but be aware that you’ll be paying it back using taxed dollars. Also, if you allow the loan to lapse, you’ll incur a 10% penalty. Certainly, you want to be careful if you decide to borrow against your 401k.

Let’s say you have a solo 401k with Schwab. Stocks, ETFs, and bonds are the only investments available. You decide to set up a Solo 401k plan with MySolo401k. Instead of Schwab being your solo 401k plan provider, now MySolo401k is the plan provider.

Your funds remain at Schwab, but you get a new account (since it is a new plan). Also, you can still invest in the stocks, ETFs, and bonds offered by Schwab. But now, you have the flexibility to invest in alternative investments as well.

If you want to go beyond stocks, ETFs, and bonds with your solo 401k, MySolo401k may certainly be worth it. Compared to other self-directed retirement account companies like Rocket Dollar and Alto IRA, MySolo401k's set up fee is a bit high; but you may pay less in ongoing fees.

If you're not interested in alternative investments, however, you'd be better off opening a solo 401k account with a traditional broker. Many of the best solo 401k providers charge no fees and offer a wide range range of investment options including stocks, mutual funds, ETFs, bonds, and more.