Solo 401(k): Self-Employed Retirement Contributions Up to $69,000/Year
What Is It?
A Solo 401(k) — also called a one-participant 401(k) or individual 401(k) — is a retirement plan designed for self-employed individuals and business owners with no full-time employees other than a spouse. It allows you to wear two hats simultaneously: as the “employee,” you can make elective salary deferrals; as the “employer,” you can also make profit-sharing contributions. The combined limit for 2024 is $69,000 ($76,500 if you’re 50 or older), which is dramatically higher than what most people realize they can save.
Do I Qualify?
You qualify for a Solo 401(k) if:
- You have self-employment income — from a sole proprietorship, single-member LLC, partnership share, or S-corp wages
- You have no full-time employees other than yourself and your spouse (part-time employees working fewer than 1,000 hours/year don’t count)
- You are not already covered by a workplace 401(k) where you’re an employee — though you can have both a Solo 401(k) and a W-2 job’s 401(k), subject to combined employee deferral limits
How Contributions Work
A Solo 401(k) lets you contribute in two buckets:
Bucket 1 — Employee elective deferral:
- Up to $23,000 in 2024 (or $30,500 if you’re 50+)
- Based on your compensation (net self-employment income or S-corp wages)
- Can be traditional (pre-tax) or Roth (after-tax), if your plan offers Roth
- Subject to the combined $23,000 limit across all 401(k) plans you participate in — so if you also contribute to a W-2 employer’s 401(k), those contributions count against this same cap
Bucket 2 — Employer profit-sharing contribution:
- Up to 25% of net self-employment income (after deducting half of self-employment tax and the contribution itself)
- Or up to 25% of W-2 wages if you operate as an S-corp
- Always pre-tax (no Roth option for the employer contribution)
Combined cap: The total of both buckets cannot exceed $69,000 for 2024 (or $76,500 with catch-up contributions for those 50+).
Sample Calculation (Sole Proprietor, Age 45)
| Net SE income (after deducting ½ SE tax): | $120,000 |
|---|---|
| Employee deferral (max): | $23,000 |
| Employer contribution (25% × ($120,000 − $23,000 − $8,478*)): | ~$22,130 |
| Total contribution | ~$45,130 |
*Approximate self-employment tax deduction. Actual calculation uses Schedule SE.
Solo 401(k) vs. SEP-IRA: The Key Difference
A SEP-IRA only allows the employer contribution — up to 25% of net SE income. On $120,000 of net SE income, the SEP-IRA contribution would be roughly $22,130. The Solo 401(k) lets you add the $23,000 employee deferral on top of that, for a total of $45,130 — more than double the SEP-IRA amount.
At lower income levels, the Solo 401(k) advantage is even more pronounced. On $50,000 of net SE income, a SEP-IRA might allow only ~$9,300, while a Solo 401(k) allows up to $32,300 (the full employee deferral alone).
The Roth Option
Many Solo 401(k) plan providers allow Roth contributions on the employee deferral portion. This means you can direct some or all of your $23,000 employee contribution to a Roth Solo 401(k) — paying taxes now in exchange for tax-free growth and withdrawals in retirement. This is particularly valuable if you expect to be in a higher tax bracket in retirement, or if you are in a low-income year and want to lock in a low tax rate.
Including a Spouse
If your spouse earns income from the same business (not just passive involvement — they must actually work in the business), they can contribute to the same plan under the same limits. A spousal Solo 401(k) can effectively double the household contribution ceiling.
The Form 5500-EZ Threshold
If your Solo 401(k) plan assets exceed $250,000 at the end of any plan year, you must file Form 5500-EZ with the IRS. This is an informational return — not a tax payment. Missing it carries a penalty of $250/day (up to $150,000). Most plan providers remind participants, but you should track this yourself.
Opening a Solo 401(k)
You must establish the plan by December 31 of the tax year for which you want to take the deduction (for new plans). Employee deferrals must be deposited by December 31. Employer profit-sharing contributions can be made up to your tax filing deadline (including extensions) — April 15 or October 15 for sole proprietors.
Major providers offering Solo 401(k) plans with low or no fees: Fidelity, Schwab, Vanguard, and E*Trade.
What Most People Don’t Know
- The SECURE 2.0 Act (2022) expanded catch-up contributions. Those 60–63 can make a “super catch-up” contribution beginning in 2025 — an additional $3,750 beyond the standard $7,500 catch-up, for a total of $11,250 above the base limit.
- You can carry over an existing SEP-IRA balance into a Solo 401(k). If you already have a SEP-IRA with a balance, you can roll it over into a Solo 401(k) — which matters if you want to execute a backdoor Roth IRA without triggering the pro-rata rule.
- Loans are allowed. Solo 401(k) plans can permit participant loans of up to 50% of the vested balance, capped at $50,000. SEP-IRAs do not allow loans.
- Self-directed options exist. Some custodians offer self-directed Solo 401(k) plans that allow alternative investments like real estate, precious metals, and private equity.
Frequently Asked Questions
I just started freelancing this year. Can I still open a Solo 401(k) for this tax year?
Yes, as long as you establish the plan by December 31 of the current year. You can then make both the employee and employer contributions up to your tax filing deadline (including extensions) for that year — but the plan document itself must exist by year-end.
I have a full-time job with a 401(k) and also do freelance work. Can I have both?
Yes. You can contribute to both your employer’s 401(k) and a Solo 401(k). However, the $23,000 employee deferral limit ($30,500 if 50+) is an aggregate limit across all plans you participate in. Your Solo 401(k) employer profit-sharing contribution is separate and is not limited by your W-2 deferral.
I hired a part-time assistant who works about 15 hours a week. Do I still qualify?
Possibly. Part-time employees working fewer than 1,000 hours per year generally don’t disqualify you. But if they work more than 500 hours per year for three consecutive years, SECURE 2.0 now requires that you offer them plan participation. At that point you may need to convert to a regular small business 401(k) plan.
How does this interact with my SEP-IRA contribution from earlier this year?
You cannot have both an active SEP-IRA and an active Solo 401(k) for the same tax year. If you already contributed to a SEP-IRA this year, you’ll need to recharacterize or undo that contribution before making Solo 401(k) contributions — or simply continue with the SEP-IRA for this year and switch plans next year.