Let’s be honest: the Solo 401(k) is one of the great marketing wins of the retirement plan industry. It sounds easy. It sounds empowering. It sounds like freedom—no employees, no complex administration, no fuss. But let me tell you something most of those free providers won’t: Solo really means solo. As in, you’re on your own. And when things go wrong—and they often do—you’re the one left holding the bag.
I can’t count how many times I’ve heard from sole proprietors or one-person LLC owners who set up a free Solo 401(k) online and thought they were good to go. No advisory fee, no document fee, no setup costs—what could go wrong? Well, a lot. Because those free plans come with a dangerous assumption: that you, the plan sponsor, actually understand your responsibilities. Spoiler: most don’t. And that’s not a knock—it’s just the reality.
Most Solo 401(k) sponsors don’t realize that the moment the plan exceeds $250,000 in assets, they need to file a Form 5500-EZ annually. And many don’t even know what a Form 5500 is, let alone how to file it. I’ve seen people go five, six, even ten years without ever filing one—and when they finally discover the mistake, they’re knee-deep in IRS penalties, trying to clean up a mess they didn’t even know they made.
But it gets worse. Let’s say you’re a consultant with a booming solo business and things are going well, so you hire a part-time employee. Congratulations—your Solo 401(k) is no longer a Solo 401(k). The moment you bring on that W-2 employee (even if they’re part-time), your plan may become subject to the full rules of ERISA. That means eligibility requirements, nondiscrimination testing, notices, disclosures—and guess who’s not going to tell you any of this? The platform that gave you the plan for free.
A Solo 401(k) can be a great vehicle if you understand what you’re getting into. But don’t be fooled by the simplicity of the name. There’s no one behind the curtain watching your compliance. There’s no TPA reminding you about your filing deadline. There’s no advisor helping you navigate plan design when your business grows. You’re the sponsor, the administrator, the compliance officer, and sometimes, the one left cleaning up a very expensive mess.
So before you click “set up now” on a free plan, ask yourself: Do I actually know what I’m responsible for? Because when the IRS or DOL comes knocking, “but I got it for free online” won’t be much of a defense.
And trust me, by the time you need an ERISA attorney to fix what went wrong, that “free” plan won’t be free anymore.
