The term "Solo 401(k)" is a misnomer; it can be used by any business with no non-owner employees. This means a partnership with several partners, and even their spouses, can all participate in the same plan. Each individual becomes eligible for their own contribution limit, assuming company income is sufficient.
It's a common misconception that Solo 401(k)s offer the same robust ERISA creditor protection as corporate 401(k)s. Because they don't cover non-owner employees, they lack this enhanced protection, leaving assets with the same vulnerability as a standard IRA—a critical distinction for professionals in litigious fields.
Many don't realize the $72,000 annual retirement contribution limit applies per plan, not per person. A solo practitioner with a side business can max out their primary employer's 401(k) and still contribute up to another $72,000 to a separate Solo 401(k) or SEP IRA, provided their side income is sufficient.
Once a Solo 401(k) plan's assets exceed $250,000, the owner must file Form 5500-EZ annually. Failure to do so incurs steep penalties of $250 per day, up to $150,000. While the form is simple, this compliance requirement is often overlooked, and regulatory enforcement has recently increased.