Own your own business? With an individual 401(k) plan, often called a solo 401(k) plan, you may be able to build your retirement savings with impressive tax advantages. This plan combines the features of a traditional 401(k) with a profit-sharing plan. This setup lets you contribute as both the “employee” and the “employer” of your business, allowing you to unlock higher contribution limits than standard retirement plans. In this article, we’ll be breaking down why a solo 401(k) can be a great option for solo-preneurs.
Who Can Open a Solo 401(k)?
Before learning about the benefits, it’s important to know who’s allowed to use a solo 401(k). Primarily, you must be self-employed with no employees other than your spouse. That’s right: if you have employees, you are not eligible for this plan.
For those who are married, you can both have individual accounts within the same solo 401(k). However, be mindful that businesses owned by the same person are considered related. This means that if you own any businesses with qualifying employees, you may not be eligible to open a solo 401(k). Additionally, if you are a partner paid on a K-1 or have formed an S Corporation, you will not be eligible to open a solo 401(k) for that entity.
Though there are restraints for who can open a solo 401(k), there is more flexibility for how many 401(k)s overall you can participate in. In fact, it is common for some professionals to have a 401(k) from their regular job as well as a solo 401(k) from their side business, e.g. as a consultant.
What Are Solo 401k Contributions Limits?
Like other retirement accounts, solo 401(k)s have contribution limits. For 2025, employees can contribute up to $23,500 to your 401(k). Those aged 50 and older can contribute up to $7,500 more into your account as a catch-up contribution for a total employee contribution of up to $31,000. For those aged 60-63, you can contribute up to $34,750 as an employee with a higher catch-up contribution limit of $11,250 instead of $7,500.
If you have a regular 401(k) offered by an employer as well as a solo 401(k), it’s important to keep track of your employee contributions as the contribution limits apply to all accounts. In other words, if you have more than one 401(k), your total employee contribution for all accounts combined cannot be more than $23,500 if younger than 50.
One perk is that you can contribute to the account as both the employee and the employer. As an employer, you can make contributions up to 20% of net self-employment income. Meaning that if you make $50,000 in net self-employment income, you can contribute up to $10,000 to your account as the employer.
Still, there are total maximum contribution limits for 401(k)s. In 2025, the combined employee and employer contribution limit is $70,000. This total does not include catch-up contributions for those aged 50 and older.
Recap: Benefits of a Solo 401(k)
Many choose to open a solo 401(k) to garner its tax advantages and benefits designed specifically for entrepreneurs. Let’s explore what a solo 401(k) can offer.
Solo 401(k)s have both traditional and Roth options. Traditional contributions are tax-deductible, reducing current taxable income. Roth contributions are not deductible in the year they are made, but qualified withdrawals in retirement are tax-free, including both the initial contribution amount and subsequent growth.
Solo 401(k)s are designed for entrepreneurs including sole proprietors, freelancers, and independent contractors. Since you are an individual and not a corporation, the paperwork involved with opening and managing your 401(k) is significantly reduced. On top of this, solo 401(k)s do not have yearly contribution requirements. While consistent contributions are ideal for long-term growth, you’re not obligated to contribute every year, so you’re able to manage your finances based on your current situation.
One of the more favorable benefits of a solo 401(k) is its higher contribution limit, since it accepts contributions from both the employee and employer. As an entrepreneur, you can make contributions in both of these roles, increasing your typical contribution limit.
Solo 401(k)s may offer more investment choices than regular company-sponsored 401(k)s. However, while your investment options may be broadened, there are a few limits imposed by the IRS on what you can invest in. According to IRS publication 590-A, the following cannot be held in a solo 401(k): life insurance, certain types of derivative strategies, antiques or collectibles, most coins (not all), and real estate for personal use.
Disclaimer: We are not accountants, tax professionals, financial advisors, or attorneys. We do not provide tax, legal, accounting, business, or similar advice. All guides and information provided here are for informational purposes only.
