How To Open a Solo 401k

If you're self-employed or run your own business, you've probably realized that the standard IRA contribution limits feel laughably small compared to what you're trying to save. A $7,000 annual cap doesn't cut it when you're pulling six figures and trying to build real wealth for retirement.

Enter the Solo 401k, one of the most underutilized retirement accounts for high earners who work for themselves.

This isn't just a slightly better IRA. A Solo 401k lets you sock away up to $70,000 in 2025 (or even more if you're over 50), reduce your taxable income dramatically, and maintain complete control over your investments. It's basically the corporate 401k you would have gotten at a Fortune 500 company, except you're both the employee and the employer.

Here's everything you need to know about opening one, how the contribution mechanics actually work, and whether it makes sense for your situation.

A Solo 401k (also called an Individual 401k or One-Participant 401k) is a retirement plan designed for business owners with no full-time employees other than yourself and potentially your spouse.

The structure is simple: you contribute to the plan as both the employee and the employer. This dual role is what unlocks the significantly higher contribution limits compared to SEP IRAs or traditional IRAs.

You can open one regardless of your business structure. Sole proprietors, LLCs, S-corps, C-corps, and partnerships all qualify. The only real requirement is that you have self-employment income and no full-time employees (other than a spouse).

This makes it ideal for consultants, freelancers, side hustlers with W-2 day jobs, online business owners, and anyone else generating 1099 income or running their own show.

This is where Solo 401ks get interesting, and where most people get confused.

You can contribute to a Solo 401k in two ways: as the employee and as the employer. Each side has its own rules and limits.

Employee contributions work like a regular 401k. You can defer up to $23,500 of your income in 2025. If you're 50 or older, you get an additional $7,500 catch-up contribution, bringing your employee side to $31,000.

Here's something new: if you're between 60 and 63, SECURE Act 2.0 introduced a "Super Catch-Up" contribution of $11,250 instead of the standard $7,500. That means your employee contribution could hit $34,750 if you're in that age bracket.

Employer contributions are where things get powerful. You can add up to 25% of your net self-employment income as a profit-sharing contribution. For S-corps and C-corps, it's 25% of W-2 compensation. For sole proprietors and single-member LLCs, the calculation is slightly more complex because you have to factor in the self-employment tax deduction, but it generally works out to around 20% of net income.

The combined total (employee + employer) caps at $70,000 for 2025. With catch-up contributions, you could reach $77,500, or $81,250 if you qualify for the Super Catch-Up.

That's more than 10x what you can put into a traditional IRA.

Solo 401ks aren't for everyone, but they're incredibly powerful for the right people.

You're a great candidate if you're:

You might want to skip it if:

One common scenario: you have a W-2 job and a side business. You can absolutely open a Solo 401k for the side business. Just remember that the $23,500 employee contribution limit is shared across all 401k plans. If you're already contributing $15,000 to your day job's 401k, you can only defer $8,500 as an employee contribution to your Solo 401k. But you can still make the full employer profit-sharing contribution based on your side business income.

Opening a Solo 401k is surprisingly straightforward. Most people overthink it.

If you're operating as a sole proprietor under your Social Security number, you'll need an Employer Identification Number from the IRS. It takes about 10 minutes online and it's free. If you already have an LLC, S-corp, or other entity, you already have one.

The big names—Fidelity, Schwab, Vanguard, E*TRADE—all offer Solo 401k plans with no setup fees, no annual fees, and access to the same investment options you'd get in any brokerage account. Stocks, bonds, ETFs, mutual funds, whatever you want. For more specialized providers, you could go with Carry.com or MySolo401k.

There's no "best" provider. They're all solid. Pick whoever you already use for investing or whoever has the interface you like. If you want to invest in alternative assets like real estate or private placements, you'll need a specialized custodian that allows "checkbook control" or self-directed investing, but most people don't need that.

Every provider has a plan adoption agreement. It's usually a few pages where you specify your plan details—whether you want Roth contributions available, loan provisions, things like that.

You'll sign it, your provider processes it, and you're done. Takes maybe 20 minutes.

One critical timing note: the plan must be established by December 31 of the year you want to start making employee deferrals. If you're reading this in November 2025 and want to contribute for 2025, you need to get the paperwork done before year-end.

Employee salary deferrals must be made during the calendar year (by December 31). Employer profit-sharing contributions can be made up until your business tax filing deadline, including extensions. For most people, that's April 15 of the following year, or October 15 if you file an extension.

This timing flexibility is huge. You can wait until you actually know your income for the year before deciding how much to contribute as the employer.

You transfer money from your business checking account into the Solo 401k just like you would with any investment account. Set up a recurring transfer if you want to make regular employee contributions throughout the year.

Most providers let you choose between traditional (pre-tax) and Roth (after-tax) contributions, or do a mix of both.

Traditional contributions reduce your taxable income now. If you're in a high tax bracket and want to lower your current tax bill, this is usually the move. The money grows tax-deferred and you pay taxes when you withdraw it in retirement.

Roth contributions don't reduce your taxes today, but all the growth and withdrawals are tax-free in retirement. This makes sense if you expect to be in a higher tax bracket later, or if you just want to diversify your tax exposure.

One wrinkle from SECURE Act 2.0: starting in 2026, if you earn over $145,000 (adjusted for inflation), any catch-up contributions must go into a Roth account, not traditional. This means high earners will be forced to make those extra contributions after-tax. Plan accordingly.

Employer profit-sharing contributions are always traditional (pre-tax). You can't make Roth employer contributions.

Once you hire full-time employees (defined as working 1,000+ hours per year), your Solo 401k stops qualifying as a solo plan. At that point, you'd typically need to convert to a standard 401k plan, which comes with additional compliance requirements, nondiscrimination testing, and potentially employer matching obligations.

Part-time employees and contractors generally don't count, but the rules can get nuanced depending on hours worked and plan design.

If you're planning to scale and hire, that's fine—just know you'll eventually need to transition to a traditional small business 401k. It's not a dealbreaker, just a different cost and complexity level.

Solo 401ks are remarkably low-maintenance until your account balance hits $250,000. Once you cross that threshold, you're required to file Form 5500-EZ annually with the IRS. It's a simple form that reports basic plan information—assets, contributions, that sort of thing.

Under $250,000, there's no annual filing requirement at all.

Beyond that, you just need to make sure you're staying within contribution limits, keeping records of contributions, and following basic retirement account rules (no early withdrawals before 59½ without penalties, required minimum distributions at 73 if you're no longer working, etc.).

Most providers send you annual statements and tax forms automatically. It's honestly less paperwork than managing rental properties or dealing with quarterly estimated taxes.

People often compare Solo 401ks to other self-employed retirement plans. Here's the quick breakdown.

SEP IRA: Easier to set up, but contribution limits are lower. You can only contribute as the employer (up to 25% of income, capped at $70,000 total). No employee deferrals, no Roth option, no catch-up contributions. Good if you want simplicity and don't need to maximize contributions.

SIMPLE IRA: Lower limits ($16,500 employee contribution in 2025), mandatory employer contributions. Generally not ideal unless you have employees and need something uncomplicated.

Solo 401k: Highest contribution potential, both employee and employer contributions, Roth options, catch-up contributions, loan provisions. Slightly more paperwork once you hit $250,000, but still pretty minimal.

For most high earners, the Solo 401k wins on raw contribution capacity. If you're making $200k+ in self-employment income, the ability to put away $70k+ annually is hard to beat.

This isn't your grandfather's retirement account. You're not stuck with a menu of 15 mediocre mutual funds.

With a Solo 401k at Fidelity, Schwab, or Vanguard, you can invest in virtually anything: individual stocks, ETFs, bonds, mutual funds, CDs, money market funds. You control the allocation completely.

If you want to get more exotic—real estate, private equity, cryptocurrency, precious metals—you'll need a self-directed Solo 401k with a specialized custodian. Those come with higher fees and more complexity, but they're an option if you're into alternative investments.

Most people are perfectly happy with standard brokerage investments. Low-cost index funds, a diversified portfolio, maybe some individual stocks if that's your thing. The point is, you have full control.

Unlike IRAs, Solo 401ks allow you to borrow against your balance. You can take a loan of up to 50% of your account value (capped at $50,000), and you pay yourself back with interest.

This can be useful in a pinch, but it's generally not recommended unless you have a specific short-term need. You're borrowing from your retirement, and if you don't pay it back on time, it gets treated as a taxable distribution plus a 10% penalty if you're under 59½.

Some plans also allow Roth conversions, where you can convert traditional 401k funds to Roth and pay the taxes upfront. This is an advanced strategy, but it's available if your plan documents allow it.

If you're pulling $300k+ from your business, the Solo 401k becomes a cornerstone of tax planning.

Let's say you're a single-member LLC taxed as an S-corp, paying yourself a $150k salary and taking $150k in distributions. You could contribute $23,500 as an employee deferral, then add $37,500 as an employer contribution (25% of your W-2), putting away $61,000 total and reducing your taxable income accordingly.

That's a $15k+ tax savings if you're in the 24% bracket, and potentially more when you factor in state taxes.

You can layer this with other strategies too. Backdoor Roth IRA conversions, HSA contributions if you have a high-deductible health plan, donor-advised funds for charitable giving. The Solo 401k is just one piece, but it's a big one.

As covered in resources like Silly Money, high earners often benefit from stacking multiple tax-advantaged accounts to systematically reduce taxable income while building wealth across different buckets.

Opening a Solo 401k isn't complicated. The paperwork takes an afternoon, the ongoing maintenance is minimal, and the tax benefits are significant.

If you're self-employed and earning meaningful income, it's one of the highest-leverage moves you can make. You're essentially giving yourself access to the same retirement benefits that corporate employees get, except you're maximizing both sides of the equation.

The contribution limits are high, the flexibility is real, and the tax savings add up quickly. Whether you're a full-time entrepreneur or running a profitable side business, it's worth setting up.

Most people wait too long to open one. Don't be most people.