Solo 401(k)
A Solo 401(k) is a retirement plan designed for self-employed individuals with no employees, allowing contributions of up to $69,000 per year (or $76,500 if age 50+) as both employer and employee.
The Solo 401(k), also called an Individual 401(k), is one of the most powerful retirement savings tools available to self-employed business owners. It allows significantly higher contributions than a SEP IRA or traditional IRA because you contribute in two roles: as employee and employer.
As an employee, you can contribute up to $23,000 (2025 limit), plus an additional $7,500 catch-up if you're 50 or older. As the employer, you can contribute up to 25% of your net self-employment income (or W-2 wages if S-Corp). Combined, the total can reach $69,000 ($76,500 with catch-up).
Solo 401(k) plans also offer a Roth option, allowing after-tax contributions that grow and are withdrawn tax-free in retirement. This flexibility is not available with a SEP IRA.
Another unique advantage: Solo 401(k) plans allow loans of up to $50,000 or 50% of your account balance. This can serve as an emergency funding source without triggering taxes or penalties.
The plan is only available to business owners with no full-time employees other than a spouse. Once you hire employees, you'll need to transition to a standard 401(k) or another plan type.
Practical Example
Tom, age 45, earns $180,000 through his S-Corp and pays himself a $90,000 salary. He contributes $23,000 as employee deferrals plus $22,500 as employer match (25% of salary), for a total of $45,500 sheltered from taxes. At a 32% tax rate, this saves him $14,560 in taxes this year.