Opening a Solo 401k with Babylon Wealth Management enables self-employed individuals to maximize their retirement savings through a combination of high contribution limits and professional fiduciary guidance.

As a fee-only fiduciary firm, Babylon Wealth Management specializes in helping solo entrepreneurs and small business owners navigate the complexities of plan setup, tax optimization, and investment management.

What is a Solo 401k

A Solo 401k—also known as an Individual 401(k) or Personal 401(k)—is a powerful retirement savings plan designed specifically for self-employed individuals and business owners with no full-time employees other than a spouse.

It functions similarly to a traditional corporate 401(k) but offers unique advantages because you act as both the employer and the employee.

How It Works: The “Double” Contribution

The defining feature of a Solo 401(k) is your ability to contribute in two different capacities, allowing you to reach high savings limits even with a moderate income.

• As an Employee: You can defer up to 100% of your compensation, up to the annual limit. For 2026, this limit is $24,500.
• As the Employer: Your business can contribute a “profit-sharing” amount—typically up to 25% of your compensation (or roughly 20% of net self-employment income for sole proprietors).
• Combined Limit: For 2026, the total combined contribution cannot exceed $72,000.

Solo 401k Key Benefits

• Employee Contributions: You can make both employee and employer contributions in your Solo 401k plan.
• Catch-Up Contributions: If you are age 50 or older, you can contribute an additional $8,000 (totaling $80,000). For those aged 60–63, a “super catch-up” allows for $11,250 in 2026.
• Roth Option: Unlike a SEP IRA, many Solo 401k plans allow for Roth contributions. You pay taxes upfront, but the growth and future withdrawals are tax-free.
• Loan Access: You can typically borrow up to 50% of your account balance (up to $50,000) for any reason, penalty-free, as long as it is repaid in accordance with the plan rules.
• Mega Backdoor Roth: With the right plan structure, you can make “after-tax” contributions (distinct from Roth) and immediately convert them to Roth, potentially maxing out the full $72,000 limit in tax-free space.
• Supercharge your savings: For self-employed business owners, a Solo 401(k) isn’t just a savings account. It’s a powerful engine for tax efficiency and wealth creation.

Solo 401(k) + Mega Backdoor

If you’re self-employed and looking to shield more of your income from Uncle Sam, it’s time to talk about the “Holy Grail” of retirement accounts.

Setting up a Solo 401(k) with a Mega Backdoor option is a total game-changer for high-earning freelancers, consultants, and small business owners. While most people are capped at standard contribution limits, this strategy allows you to put away significantly more in post-tax dollars, which then grow tax-free forever.

Why do this with Babylon Wealth Management?

• Custom Plan Documents: Not all Solo 401(k) providers support the “Mega Backdoor” (after-tax contributions and in-plan conversions). Babylon builds plans specifically designed for this.
• Flexibility: You aren’t limited to a handful of mutual funds. You have the flexibility to invest in a wide range of assets that align with your strategy.
• Expert Guidance: Navigating the “conversion” part of the backdoor can be tricky. Babylon handles the heavy lifting and compliance so you don’t trigger an accidental tax bill.
• Higher Limits: For 2026, the total contribution limit has increased to $72,000. If you are 50+, that limit jumps to $80,000 (and up to $83,250 for those aged 60–63). The Mega Backdoor is how you actually hit those numbers.

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Comparison at a Glance (2026)

Feature	Solo 401k	SEP IRA
Total Limit	$72,000	$72,000
Ease of Maxing Out	High (Employee + Employer)	Moderate (Employer only)
Roth Option	Yes	No (Typically)
Loans Allowed	Yes	No
Catch-up (50+)	Yes	No

Compliance & Rules

1. The “No Employee” Rule: You cannot have full-time employees who work more than 1,000 hours per year. If you hire someone, you must generally convert the plan to a standard 401(k).
2. IRS Filing: Once your plan assets exceed $250,000, you are required to file a simple annual report with the IRS (Form 5500-EZ).
3. Deadlines: To make employee deferrals for a tax year, the plan must generally be established by December 31.

Determine Your Eligibility

Before beginning the process, ensure your business meets the IRS requirements for a Solo 401k:

• Presence of Business Income: You must have earned income from self-employment (Sole Proprietorship, LLC, S-Corp, C-Corp, or 1099 contracting).
• No Full-Time Employees: The plan is designed exclusively for business owners and their spouses. You cannot have any full-time employees (typically defined as those working 1,000+ hours per year) other than a spouse.

The Setup Process with Babylon Wealth

Babylon Wealth Management acts as your advisor and partner, leveraging our institutional relationship with Altruist Financial to host the plan.

Step 1: Initial Consultation

Schedule a discovery call with a Babylon advisor to discuss your business structure, tax bracket, and retirement goals. They will help determine if a Solo 401k is better for you than a SEP IRA or a Defined Benefit Plan.

Step 2: Establish an EIN

Even if you are a sole proprietor using your Social Security number for taxes, a Solo 401k requires its own Employer Identification Number (EIN) for tax reporting purposes.

Step 3: Plan Documentation

Babylon will help you complete the Adoption Agreement and Basic Plan Document. These documents officially establish the plan and outline its features, such as:

• Roth Option: Choosing to allow after-tax contributions.
• Loan Provisions: Deciding if you want the ability to borrow up to $50,000 from your plan.

Step 4: Account Opening & Funding

Once the plan is established, you will open the actual brokerage account (the “custodial account”). You can fund this via:

• New Contributions: Periodic or lump-sum transfers from your business bank account.
• Rollovers: Consolidating funds from previous 401(k), 403(b), SEP IRA, or Traditional IRAs.

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Solo 401k plan fees

Babylon Wealth Management charges the following for our advisory services

• $0 Set-up Fee
• 0.75% of assets under management

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What is included?

1. Plan Design & Custom Setup

We don’t believe in “one-size-fits-all” retirement plans. We handle the heavy lifting of tailoring the plan to your specific business needs.

• Custom Plan Document: Drafting of the Adoption Agreement and Basic Plan Document.
• Feature Selection: Setup of advanced options like Roth 401(k) provisions, Mega Backdoor Roth capabilities, and Plan Loans.
• EIN Assistance: Guidance on obtaining a dedicated Employer Identification Number (EIN) for your retirement trust.

2. Fiduciary Investment Management

As a fee-only fiduciary, we manage your retirement assets with your best interests as the only priority.

• Professional Portfolio Construction: Access to low-cost institutional funds, ETFs, and diversified model portfolios.
• Ongoing Rebalancing: We automatically adjust your holdings to keep your risk level aligned with your long-term goals.

3. Compliance & Administration Support

We help you stay on the right side of the IRS so you can focus on running your business.

• Contribution Calculations: Yearly assistance determining your maximum “Employee” and “Employer” contribution limits based on your net income.
• Form 5500-EZ Preparation: Proactive support and filing assistance once your plan assets cross the $250,000 threshold.
• Regulatory Updates: We ensure your plan documents remain compliant with evolving laws, including the SECURE 2.0 Act.

4. Holistic Financial Integration

A Solo 401(k) should not exist in a vacuum. We integrate your plan into your broader financial life.

• Retirement Projections: Regular reviews to see how your 401(k) contributions impact your “work-optional” date.
• Coordination with CPAs: We can work directly with your tax professional to ensure contributions are reported correctly on your business tax return.
• Spousal Inclusion: If your spouse works in the business, we include them in the plan setup to help you double your household’s tax-advantaged savings.