The Ultimate Guide to Solo 401(k)s

Everyone can—and should—save for retirement. But how do you do so if you’re self employed or have a company with no employees other than owners and their spouses? Let’s look beyond the obvious solutions, like a SEP IRA or stuffing cash under your mattress, and explore an option that allows you to offset income taxes and save more money every year: the solo 401(k).

Although it isn’t new, the solo 401(k) is emerging as a desirable option with the help of modern and affordable providers. We'll dive into an overview of solo 401(k)s and explore what can make them far more beneficial than other retirement options.

This ultimate guide will walk you through the essentials of solo 401(k)s, including eligibility, contribution limits, other applicable rules, and setup steps. By the time you’re done reading this, you’ll understand why a modern solo 401(k) may be the most advantageous savings vehicle for solopreneurs.

What is a solo 401(k)?

First, let’s start with the basics: What is a solo 401(k)?

A solo 401(k) — also known as an “individual 401(k)” or an “owner only 401(k)” — is a retirement plan tailored for self-employed people or small companies where all employees are also owners or spouses of owners. It has all of the same features and functionality of a standard 401(k), but the fact that only owners are participating means that much of the complexity will not apply.

Why is a solo 401(k) a great option for solopreneurs to consider?

For one, it has a high contribution limit ($70,000), which increases depending on your age. Compare that to the max contribution limit for an IRA ($7,000 for people under 50). ¹

Another reason is that a solo 401(k) offers all of the same benefits of a traditional 401(k) plan, like tax-deductible contributions and the potential for tax-deferred growth on investments. That means self-employed people can access retirement benefits usually reserved for people employed by a traditional company, democratizing access to essential retirement benefits.

Solo 401(k) vs. SEP IRA

Although solo 401(k)s are a great option if you want to sock away more money than an IRA every year and defer income taxes, there is one more option to consider as a self-employed person: the SEP IRA.

A SEP IRA — or Simplified Employee Pension Individual Retirement Account — is a traditional or Roth IRA that allows employers to contribute directly to their employees' retirement accounts. In this instance, you’re considered both the “employer” and the “employee” if you’re self-employed.

While a SEP IRA also has a high contribution limit, they only allow employer contributions of up to 25% of your earnings. To reach the total contribution limit for a SEP IRA ($70,000 in 2025), you would need to earn at least $280,000. If you receive W2 compensation, you will be able to make employee level contributions regardless if you have earnings for the year. If you receive self-employment income, you will need earnings in order to make solo 401(k) contributions.

SEP IRAs have historically been attractive for solopreneurs because of their simplicity — no filing requirements and few rules. Solo 401(k)s come with annual filing requirements, additional fees, and other rules. However, many SEP IRAs are not actually "free." Users are often charged asset-under-management (or AUM fees) that are a percentage of your investments. Depending on the size of the fee and your portfolio, a solo 401(k)’s monthly fees can be lower than the actual fees you may be charged for a SEP-IRA (depending on your provider). Luckily, modern providers like Guideline can make solo 401(k)s easier to manage by handling the compliance complexity for you. This allows you to take advantage of the greater contribution and tax advantages of the solo 401(k) without having to deal with the extra rules.

Here’s a quick snapshot of differences between SEP IRAs and solo 401(k)s for self-employed folks:

Who is eligible for a solo 401(k)?

If a solo 401(k) seems like a good option for you, you need to make sure you’re eligible. To qualify, you must be self-employed or an owner and cannot have any employees other than your spouse. You can have any business structure.²

Here are a few more details that can help you decide whether or not a solo 401(k) is right for you:

2025 solo 401(k) contribution limits

One of the great benefits of a solo 401(k) is the high contribution limit that comes from acting as both employee and employer. In 2025, the overall contribution limit to a solo 401(k) is [Current year Solo 401(k) annual limit] for those under age 50. It is up to $7,500 if you are 50 to 59 or 64+. If you are 60-63, it is up to $11,250.

Not all contributions are considered the same — solo 401(k)s have three different types of possible contributions. Here’s a breakdown of each one:

Are all these details making your head spin? Let’s go over two examples of how this could play out:

Example one: Lydia is under 50. Her W2 compensation for the year was $20,000. The maximum employee contribution she can make is $20,000. The maximum employer contribution is $5,000. So the most she is able to contribute is $25,000. Since Lydia makes less than the maximum contribution limit, as an employee, she can only contribute up to 100% of her compensation.

Example two: Marcus is 62 years old. His self-employed compensation for the year was $400,000. The maximum employee contribution he can make is [Current year Solo 401(k) annual limit], plus a catch-up contribution of [Current year Solo 401(k) extended catchup-amount]. The maximum employer contribution he is allowed is [Current year Solo 401(k) annual employer contribution limit], taking him right to the annual limit of $77,500.

These are hypothetical examples for illustrative purposes only and do not represent any current or past client accounts.

Pro-tip: Contribution limits apply to contributions made to ALL of your 401(k) accounts. So if you have more than one account (say, you have a day job and are self-employed on the side), you need to make sure you do not over-contribute.

Solo 401(k) contribution deadlines

Employer contributions to a solo 401(k) can be made up until the tax filing deadline, April 15 the following year. For example, you can continue 2025 contributions until April 15, 2026. This flexibility is helpful for business owners who want to assess their business performance before deciding how much to contribute.

Employee contributions to a solo 401(k)’s deadline will depend on your type of compensation. If you receive W2 compensation, your employee contributions will need to be submitted each time you get paid. If you receive self-employment compensation, your employee deferral election must be in place by the last day of the year, but the actual contributions don’t need to be funded until your tax return due date.

Key considerations for solo 401(k)s

Ok, before we go over how to actually set up a solo 401(k), there are two more considerations you should be aware of.

Stay compliant

If you want to have a successful solo 401(k) plan, there are some important compliance considerations to keep in mind. Some key compliance tips include:

In the past the compliance requirements have been a deterrent for choosing a 401(k). But, if you work with a modern 401(k) provider like Guideline, all these compliance requirements can be managed for you.

Maximize savings

There are also some ways to potentially maximize your savings with a solo 401(k). These include:

Pro-tip: A “mega backdoor Roth” is a process that involves contributing to a solo 401(k) after-tax employee contributions, which are different from your normal employee deferrals, then rolling them over to a Roth IRA. It can be a complicated process, and a lot depends on your plan details, so we definitely recommend talking to a tax expert if you have any questions.

If you want to keep your solo 401(k) running smoothly, it is a smart idea to engage with a trusted provider like Guideline. If you have any questions, consult qualified tax professionals to get expert advice. You don’t have to go it alone when it comes to managing your solo 401(k).

How to set up a solo 401(k)

Ok, now to the brass tacks. Ready to set up your solo 401(k)? Doing so involves a few key steps:

Solo 401(k) FAQs

Q: What are the income limits for a solo 401(k)?

A: There are no income limits for a solo 401(k).

Q: Can I open a solo 401(k) on my own?

A: You can open a solo 401(k) with an online broker or other financial services company that offers one. You also can open a solo 401(k) with Guideline.

Q: Do I need an EIN to open a solo 401(k)?

A: Yes, you need an EIN to open a solo 401(k). You can get an EIN from the IRS.

Q: Can I have both pre-tax and Roth assets in a single solo 401(k)?

A: Yes, you can have pre-tax and Roth contributions in a single solo 401(k) since they will be kept in separate sub-accounts. But your contributions across both accounts cannot exceed the annual contribution limit in a given year.

Q: Are solo 401(k)s tax deductible?

A: Whether or not a solo 401(k) is tax deductible varies based on the type of contributions and the type of income you receive.

Q: Can a sole proprietor have a solo 401(k)?

A: Yes, a sole proprietor can have a solo 401(k), as long as you meet all other eligibility requirements.

Q: Can you have a solo 401(k) and a SEP IRA? What about a solo 401(k) and a regular 401(k)?

A: Yes, you can have both a solo 401(k) and a SEP IRA as a self-employed individual provided the SEP IRA plan document allows for both. You can also have both a solo 401(k) and a regular 401(k), but you would have to be a self-employed individual with your own business and a W-2 employee at another business for this to be possible.

Conclusion

You did it! Now you know all about how solo 401(k)s can be a great way for self-employed people to save for retirement. They offer tax advantages, plus a high contribution limit that can really boost your savings over time. It’s never too early (or too late!) to start saving more for retirement. If you are a business owner with no employees who is looking to start saving with a solo 401(k), check out Guideline and get started today.