Self Employed? Why You Should Consider A Solo 401(k)

Introduction

The 401(k) is a powerful retirement savings account available in the US, offering tax-deferred contributions, Roth options, loans, and unlimited creditor protection.

However, you must work for an employer that offers a 401(k), and only about half of US companies provided this benefit until recently. But, notably, this leaves those who are self-employed, such as shared-economy workers, without access to company 401(k) plans.

Enter the solo-401(k), a retirement plan for self-employed individuals who do not employ others but share many of the same benefits as a corporate 401(k) plan.

Benefits of a solo-401(k)

• Combined tax-deferred and Roth contributions up to $23,500 as of 2025

• Catch-up contributions of $7,500 for those 50+

• Super catch-up contributions of $11,250 for those 60-63

• Profit sharing contributions up to $70,000

• Unlimited Federal creditor protection

• No income limits or phase-outs

• Ability to invest in a plethora of securities

• Potential access to take a loan against the 401(k) balance

• Potential access to mega backdoor Roth contributions and conversions

• Potential access to Roth conversions & ladders

Notable Disclosures

• The IRS may permit certain features in a solo-401 (k), but the sponsoring company isn't required to include them. Benefits depend on the plan sponsor.  

• Contributions can only be made up to your self-employment income for both employee and employer contributions.  

• As both employee and employer, you can contribute in both roles. Once you hit the employee limit, you can add a profit-sharing contribution of up to 25% of net profits or $70,000, whichever is lower.  

• Your business structure (sole proprietorship, single-member LLC, or S-Corp) affects your contribution limits. Consult an accountant for clarity on contribution amounts.

What if my other job offers a 401(k)?

If you are one of the many who have access to a 401(k) at work, this does not disqualify you from also opening a solo-401(k)if you have self-employed income from a separate job. However, the combined contribution limits for employee and employer contributions apply across all of your 401(k) plans.

If you reach the $23,500 limit at your W-2 job, you cannot make an employee contribution to your solo-401(k). You can still make an employer contribution, provided that the total contributions from all plans do not exceed $70,000.

Closing Thoughts

Solo-401 (k) plans are a powerful retirement savings vehicle for individuals with self-employed income. At Lundeen Abrams Advisors, we regularly work with entrepreneurs and other types of business owners who need creative solutions to help save for their retirement. If you need help figuring out whether a solo-401(k) plan is right for your savings needs, please reach out to schedule a consultation with us today. We are here to help and look forward to talking with you.