What Is a Solo 401(k)? A Smart Retirement Option for the Self-Employed

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If you’re self-employed, saving for retirement can feel overwhelming — especially without access to a traditional employer 401(k). That’s where the Solo 401(k) comes in. Also called an individual 401(k), this plan is designed for self-employed workers (with no full-time employees) who want to take advantage of high contribution limits, tax flexibility and even loan options.

In 2025, contribution limits are higher than ever, and the Solo 401(k) could allow you to save far more than a traditional IRA or Roth IRA. Here’s how it works, how much you can contribute and why it may be one of the best self-employed retirement plans out there.

How a Solo 401(k) Works

A Solo 401(k) is a savings-maximizing retirement plan for self-employed individuals or those who are partners in businesses whose employees consist only of those partners and their spouses. There are three important distinctions you’ll need to keep in mind with a solo 401(k).

Here’s a breakdown of each one:

You Act As Both Employer and Employee 

One of the unique features of a Solo 401(k) is that you wear two hats: employee and employer. That dual role means you can contribute from both sides — dramatically boosting your savings potential.

Contributions Can Be Made in Both Roles 

• As an employee: You can contribute salary deferrals up to the IRS annual limit.
• As an employer: You can also make profit-sharing contributions, up to a percentage of your net business earnings.

This setup lets you save far more than with most other retirement accounts.

Setup Deadlines Matter

To make contributions, the Solo 401(k) must be set up by December 31 of that year. This deadline applies to any employee-deferred contributions. Employer profit-sharing contributions must be made by the business’s tax-filing deadline. 

Solo 401(k) Contribution Limits for 2025

Here’s what you can save in 2025 under current IRS rules:

If you’re ages 60 to 63, new “super catch-up” provisions allow even higher contributions — up to $81,250.

The total annual contribution limits for both plans are identical for most workers. However, a Solo 401(k) offers additional savings potential, particularly for individuals aged 50 and over. 

How Self-Employment Income Affects Limits 

If you’re self-employed, employer contributions are calculated slightly differently. Instead of 25% of compensation, the formula generally works out closer to 20% of net adjusted earnings after accounting for self-employment taxes.

Contribution Deadlines for Employee vs. Employer Portions

Employee Deadlines

• The deadline is by December 31 of the tax year (or the end of the business’s fiscal year).
• Deposits can be made up to the April 15 regular deadline or the October 15 extension deadline.

Employer Deadlines

• Can be made up to the business’s tax-filing deadline, including extensions
• For sole proprietors, this is usually April 15 or October 15, with an extension
• For S-corps or partnerships, it’s the corporate-filing deadline

Solo 401(k) vs. Other Retirement Plans

Not sure if a Solo 401(k) is right for you? Here’s how it compares to a SEP IRA and a traditional employer plan.

When to Choose Solo 401(k) Over SEP IRA

A Solo 401(k) is often better if you:

• Want catch-up contributions at 50+.
• Need a loan option for emergencies.
• Want the choice of Roth or traditional tax treatment.

SEP IRAs are simpler, but they don’t allow loans, Roth contributions, or catch-ups — meaning older, high-earning solopreneurs may leave money on the table.

Stat to know: More than 16.5 million Americans (about 10 percent of the total workforce) are self-employed, according to the Bureau of Labor Statistics, making plans like Solo 401(k)s increasingly relevant for retirement security

Why a Solo 401(k) May be Better for Older, High-Earning Solopreneurs

With a Solo 401(k), you have more opportunity to maximize your retirement savings. You have the option to take advantage of higher contribution limits as well as catch-up contributions. The SEP IRA doesn’t allow for catch-up contributions. You may be able to rack up at least $10,000 to $20,000 more in a Solo 401(k) over a SEP IRA. 

Roth vs. Traditional Solo 401(k) 

In a Roth Solo 401(k), the plan is funded through after-tax dollars. You pay taxes when you make the transfer in the Roth, but you can withdraw in retirement without any tax consequences. This approach typically favors individuals in lower tax brackets. 

For a traditional Solo 401(k), you defer taxes. When you withdraw funds, you will pay tax. Presumably, you’re in a higher tax bracket when you make the transfer, and when you withdraw, you are in a lower tax bracket. You essentially defer taxes until retirement. 

If your plan allows it, you can split contributions between both a traditional Solo 401(k) and a Roth 401(k) Solo Plan. 

Who Can Open a Solo 401(k)? 

• Must have self-employment income. Whether you’re a freelancer, sole proprietor, LLC owner or contractor, you’ll qualify if you earn business income.
• No full-time employees allowed. The only exception is your spouse. You may hire part-time help, but they can’t exceed 1,000 hours per year.

Common professions: Freelancers, consultants, real estate agents and small business owners.

Stat to know: The IRS estimates that more than 60 million U.S. taxpayers contributed to defined contribution plans like 401(k)s in 2022 — proof of how widely used and trusted these accounts are.

How to Set Up a Solo 401(k)

1. Choose a provider: Major brokerages like Fidelity, Vanguard and E*TRADE offer Solo 401(k) plans. Compare fees, Roth options and loan availability.

2. Complete adoption paperwork: This includes legal documents like the plan application, trust agreement, and adoption agreement.

3. Apply for an EIN: The IRS requires an Employer Identification Number for your plan. You can get one free on the IRS website.

4. Open your brokerage account: This is where contributions will be deposited and invested.

5. Fund your account: Employee contributions by December 31; employer contributions by your tax-filing deadline.

Benefits of a Solo 401(k)

• High contribution limits: Save up to $69,000 per year ($76,500 with catch-up).
• Flexibility: Choose between Roth or traditional contributions — or both.
• Loan options: Borrow up to $50,000 or 50% of your vested balance.
• Rollovers allowed: You can roll over old 401(k)s, 457(b) plans or thrift savings plans into your Solo 401(k).

Stat to know: Research from the Transamerica Center for Retirement Studies shows that only 36% of small business owners feel “very prepared” for retirement, highlighting the need for stronger self-employed retirement tools.

Limitations and Rules to Know 

• No full-time employees: Having just one full-time employee (outside of your spouse) disqualifies you.
• IRS filing requirements: If your plan assets exceed $250,000, you must file Form 5500-EZ annually by July 31 of the next year.
• Contribution deadlines: Employee vs. employer contributions have different deadlines tied to the tax year and filing.

Final Take to GO: Should You Open a Solo 401(k)?

A Solo 401(k) is one of the most powerful retirement tools available to self-employed workers. It offers higher contribution limits than IRAs, tax flexibility with both Roth and traditional options and the ability to take loans if needed.

If you’re self-employed, earn a steady income and want to maximize savings before retirement, opening a Solo 401(k) could be a smart move.

Next step: Compare providers, run the numbers with a retirement calculator and decide whether a Solo 401(k) fits your long-term financial plan.

Information is accurate as of Sept. 29, 2025.

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