Solo 401(k) Retirement Plans

solo 401(k)

A Solo 401(k) is a retirement account designed for self-employed business owners with no full-time employees. Solo 401(k)’s allow you to maximize retirement savings and have the flexibility to invest in traditional and alternative investments tax-free or by deferring taxes.

Who is a Solo 401(k) for?

Any small business owner with an Employer Identification Number (EIN) and no other employees (your spouse is one exception – more on that below!)

Examples of who meet the above criteria:

  • Freelancers
  • Consulting services with contract workers
  • Real Estate Agents/Investors
  • Side-hustlers
  • One-person businesses

Benefits of a Solo 401(k)

Solo 401(k)s provide several advantages over other types of retirement accounts. Most notable is that the contribution limits are typically the highest among retirement plans.

With a solo 401(k), you wear both hats and can make contributions as both employer and employee.

Employee Contribution Limits

  • For 2020 and 2021, the maximum employee contribution limit for a 401(k) is $19,500
  • For ages 50 and older, you can make an additional catch-up contribution of $6500

Employer Contribution Limits

  • For 2021, you can contribute up to the employer maximum of $38,500 or 25% of compensation
  • Mixed with the employee contribution, this equals a total of $58,000

Flexible Investing Options

  • You have ability to choose between Traditional and Roth Plans
  • If a spouse is employed by the same business, he/she is eligible for the full employee/employer contribution, effectively doubling the total contribution limit.
  • Solo 401(k) funds can be invested in real estate and other alternative assets in addition to stocks, mutual funds and bonds.

When a Solo 401(k) is not the best option

The primary limitation for a Solo 401(k) is the single employee rule. If you do take on additional employees, you will no longer be eligible for a Solo 401(k) and will have to look into other retirement options such as an SEP IRA, SIMPLE IRA, Defined Benefit Plan, or 401(k).

Is a Solo 401(k) right for you?

There’s no doubt – Solo 401(k)s are incredibly effective tools for self-employed business owners. Find out if it is the right move for your business and personal financial situation. Contact us to learn more, or check out our self-employed retirement plans page for more retirement options.