Key Takeaways
A solo 401(k), also known as a self-employed or one-participant 401(k), lets small business owners save for retirement as both employer and employee.
Solo 401(k) plans feature higher contribution limits than IRAs and flexible options for business owners without common-law employees.
With a modern retirement solution, setup and management can be simple.
What should self-employed professionals know about solo 401(k)s?
Solo 401(k)s help self-employed individuals save for the future while benefiting from high contribution limits and flexible tax options. Whether you’re running a one-person business or employing a spouse, solo plans can offer a path to retirement.
For many professionals—from freelancers to small business owners—navigating savings plans can feel complex. As a Retirement Industry Disruptor™, Human Interest offers modern, automated solutions that make setting up and managing a 401(k) for one approachable and straightforward.
Want to build a stronger financial future with a savings plan that fits your business? Get started today.
What is a solo 401(k)?
A solo 401(k)—also called a self-employed or one-participant 401(k)—is a retirement savings plan designed for business owners with no employees other than a spouse. It functions like a traditional 401(k), allowing pre-tax and Roth contributions, but is structured to fit individuals who act as both employer and employee.
Who qualifies for a solo 401(k)?
Not every individually-run company can open a solo 401(k); whether you qualify depends on your business structure and who you employ.
Eligible entities include:
Sole proprietors and independent contractors
Single-member LLCs or partnerships without employees
S corporations and C corporations with only owner participation
Married business owners employing their spouse
If you later add employees, you’ll need to convert your solo 401(k) into a traditional 401(k) plan.
How does a solo 401(k) work?
A solo 401(k) functions much like a traditional 401(k), but enables individuals to contribute as both employee and employer.
Participants can contribute in two ways:
Employee contributions: Up to $24,000 in 2026, plus a $8,000 catch-up contribution for those age 50 or older.
Employer contributions: Up to 25% of net self-employment income.
Combined, the total annual contribution limit is $72,000 for 2026 ($80,000 if age 50+). The dual role of employee and employer allows self-employed individuals to maximize savings potential. Once plan assets reach $250,000, an annual Form 5500-EZ filing is required.
How to set up a solo 401(k)
Establishing a solo 401(k) doesn’t have to be complicated. With the right retirement plan partner and a few essential steps, independent business owners can create a plan that fits their business goals while meeting IRS requirements.
Typical solo 401(k) set up involves:
Obtaining an Employer Identification Number (EIN) from the IRS to establish your business identity for the plan.
Evaluating and choosing a provider. Look for a savings option that offers transparent pricing, automated tools, and built-in compliance support. Comparing fees helps you understand total plan costs—including setup, administration, and investment expenses—and find a provider that aligns with your business needs.
Completing a plan adoption agreement that defines contribution types, loan provisions, and Roth options.
Establishing your contribution schedule based on income and cash flow.
Monitoring and maintaining your plan, with ongoing support from your administrator, to ensure it remains aligned with IRS regulations.
Human Interest offers a modern platform with built-in automation and integrated payroll that can help reduce administrative time while supporting ongoing compliance.
Build a plan that fits your business
Human Interest helps companies of all sizes—including one—unlock retirement savings.
Pros and cons of solo 401(k) plans
| Pros of solo 401(k) plans | Cons of solo 401(k) plans |
|---|---|
| High contribution limits: Allows for significant savings, especially if over 50. | Complexity: Requires understanding of both employee and employer contribution rules. |
| Flexibility: Business owners can contribute as both the employer and the employee. | No employees allowed: Only for businesses without any common-law employees. |
| Tax benefits: Contributions are typically tax-deductible, reducing taxable income and increasing tax advantages. | Annual reporting: If assets exceed $250,000, annual Form 5500-EZ filing is required. |
| Loan option: Some plans allow for loans against the account balance. | Potential for penalties: Early withdrawals can result in taxes and penalties. |
| More investment Options: Business owners can choose how funds are invested. | Limitations with multiple jobs: Employee deferral contributions are per individual, not per plan. |
| Catch-up contributions: Additional contribution allowed for those aged 50 and above. |
Roth contributions and tax advantages
Solo 401(k)s may include Roth deferrals, which allow participants to make after-tax contributions. While contributions are taxed upfront, qualified withdrawals, including earnings, are tax-free in retirement. This option can benefit those in lower-income brackets today who expect higher tax rates later.
Rules and regulations self-employed persons should know
Before opening a solo 401(k), it’s important to understand the key rules that govern how these plans are managed and maintained.
Withdrawals before age 59½ may be subject to a 10% early withdrawal penalty.
Required minimum distributions (RMDs) begin at age 75 for those reaching age 73 after 2032, per the SECURE Act 2.0 (Note: For most currently reaching retirement age in 2026, the RMD age remains 73 or 75 depending on birth year).
Rollovers from other eligible retirement accounts are permitted.
Once you hire common-law employees, you must either expand to a standard 401(k) or terminate the plan.
What are the differences between a Solo 401(k) vs. a SEP IRA
Many business owners compare solo 401(k)s and SEP IRAs when deciding which plan fits their needs. Understanding how these options differ can help you decide which best fits your business. Both plans enable saving more than traditional IRAs, but depending on your business structure and income, they differ in flexibility and eligibility.
| Feature | Solo 401(k) | SEP IRA |
|---|---|---|
| Eligible employers | Self-employed with no employees (except spouse) | Any business size |
| Catch-up contributions | Allowed at age 50+ | Not allowed |
| Roth option | Available | Not available |
| Contribution method | Employee + employer | Employer only |
| Annual filing | Required once assets exceed $250,000 | Not required |
It’s also possible to have both a solo 401(k) and a SEP IRA, as long as your total contributions across plans stay within IRS limits. This approach can offer added flexibility for business owners with multiple income streams or changing business structures.
Why a solo 401(k) can make sense for an independent business owner
A solo 401(k) offers a way to save aggressively while maintaining control over contributions and investment choices. It provides higher savings potential than most IRA options, supports both pre-tax and Roth contributions, and can adapt as your business evolves.
Learn how Human Interest can help you start a technology-driven 401(k) plan designed for self-employed professionals. Get started today.
Frequently asked questions about solo 401(k)s
Can my spouse participate in my solo 401(k)?
Yes. If your spouse earns income from your business, they can contribute as an employee—up to $24,000 (plus $8,000 if age 50+)—and receive employer contributions of up to 25% of compensation.
Do solo 401(k)s have reporting requirements?
Yes. Once total plan assets reach $250,000, you must file IRS Form 5500-EZ each year.
When are solo 401(k) contributions due?
Contributions for the tax year can generally be made until your business tax filing deadline, including extensions.
What happens to my solo 401(k) if I hire employees?
If you hire employees, your solo 401(k) must be converted into a standard 401(k) to remain compliant. Partnering with a retirement solution like Human Interest can make this process smoother through automation, clear pricing, and compliance support that evolves with your business.
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The Human Interest TeamWe believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.
