Solo 401(k)

What is a solo 401(k)? 

A solo 401(k) provides a way for business owners to save for their future, similar to how a traditional 401(k) operates for employees at larger companies. Also known as a one-participant or self-employed 401(k), these plans cover self-employed individuals—including consultants, freelancers, or independent contractors—with no employees. Though they do allow the account owner's spouse to contribute to the same plan if they receive compensation from the business.

Why choose a solo 401(k)?

• High contribution limits and flexibility: Because you wear two hats as a business owner, you can make contributions as both an employee and an employer. 

  • In 2026, the standard employee deferral limit is $24,500, plus an $8,000 catch-up for those aged 50 and older, while those aged 60-63 can contribute an additional “super catch-up contribution” up to a total of $11,250. 

  • You can also contribute up to 25% of your compensation as the employer, with total combined contributions capped at $72,000 for 2026 (for a total of $83,250 including the super catch-up contribution).

• Tax advantages: You can make pre-tax contributions to keep your savings tax-deferred, reducing your current taxable income. Alternatively, many solo 401(k) plans allow Roth deferrals on an after-tax basis, and unlike a Roth IRA, a 401(k) with a Roth feature does not have an income limit.

• Consolidation and simplicity: If you have had several jobs in the past, you might have multiple old 401(k) accounts scattered around. You can perform a direct rollover to move your hard-earned retirement money from previous employers into your new solo 401(k). Consolidating these into one new account may help simplify your financial life, making it easier to track and manage your retirement savings.

Considerations of a solo 401(k) 

While the benefits are significant, solo 401(k) plans also come with limitations. You cannot have any common-law employees participating in the plan. Calculating your exact maximum contribution can also introduce complexity, as it requires understanding both the employee and employer contribution rules. Additionally, once your solo 401(k) assets exceed $250,000, you are required to file an annual report (Form 5500-EZ) with the IRS.

How do you set up and manage a solo 401(k)? 

To set up a solo 401(k), you must first obtain an employer identification number (EIN) from the IRS and choose a plan administrator. During this stage, it’s worth considering a 401(k) provider that offers low fees and a broad range of product innovations and investment options. Click here to learn more about the benefits of a solo 401(k) plan for your business.

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This content has been prepared for informational purposes only, and should not be construed as tax, legal, or individualized investment advice. Human Interest Inc. does not provide tax, legal, or individualized investment advice. Consult an appropriate professional regarding your situation. The views expressed are subject to change. In the event third-party data and/or statistics are used, they have been obtained from sources believed to be reliable; however, we cannot guarantee their accuracy or completeness.