Many Americans lack access to employer-sponsored retirement plans like 401(k)s, but self-employed individuals have a strong alternative – the solo 401(k). Designed for individuals running one-person businesses with no employees other than a spouse who earns income from the business, the solo 401(k) – also known as the individual 401(k) or one-participant 401(k) – provides a way for freelancers, gig workers, and small business owners to save for retirement with high contribution limits and significant tax benefits.
Solo 401(k) contribution limits for 2025
In 2025, solo 401(k) participants can make substantial contributions:
- Under age 50: Up to $70,000 in total contributions.
- Ages 50-59 and 64+: Up to $77,500 with catch-up contributions.
- Ages 60-63: Up to $81,250 due to higher catch-up contributions.
Contributions are split into two parts:
1. Employee contributions
- Up to $23,500 pre-tax dollars, or 100% of compensation, whichever is less.
- Catch-up contributions: $7,500 for ages 50-59 or 64+, or $11,250 for ages 60-63.
- Total employee contributions for ages 60-63 can reach $34,750.
2. Employer contributions
- Up to 25% of compensation after Social Security and Medicare taxes.
- The maximum compensation for calculation purposes is $350,000 in 2025.
For example, a consultant under 50 earned $100,000 in W2 wages from her S-Corporation, therefore she could contribute $23,500 as an employee and up to $25,000 (100,000 x 25%) as an employer, for a total of $48,500.
For business owners who are either a sole proprietor or a general partner there is a special computation to figure the maximum amount of contributions due to compensation being defined as earned income, i.e. your net earnings from self-employment after subtracting the deductible portion of SE tax and contributions for yourself.
Key deadlines
- Employee contributions: Due by Dec. 31 (or the personal tax filing deadline for sole proprietors and single-member LLCs).
- Employer contributions: Must be made by the business’s tax filing deadline, including extensions.
Roth solo 401(k) contributions
If your plan permits, you can make Roth contributions with the same limits as pre-tax contributions. Roth contributions are made with after-tax dollars and offer tax-free withdrawals in retirement, provided you meet the age and 5-year requirements.
After-tax solo 401(k) contributions
Some plans allow after-tax contributions beyond the standard limits. These funds are held in a traditional solo 401(k) account and are subject to income taxes on earnings during withdrawal. To manage future taxes, consider an in-plan Roth conversion or rolling the funds into a Roth IRA.
Note if you over-contribute, you must remove the excess by the tax filing deadline (usually April 15) to avoid penalties. After that, withdrawals may be subject to double taxation and a 10% early withdrawal penalty.
Opening a solo 401(k)
A variety of financial institutions offer solo 401(k) plans, each with different features such as Roth and after-tax contribution options, loan provisions, investment choices, and administrative support. Compare providers to find a plan that suits your needs, and remember, you’re responsible for making contributions and ensuring compliance with plan rules. It’s also important to note that if your account balance exceeds $250,000, you must file IRS Form 5500-EZ annually and solo 401(k)s may not provide full creditor protection under the Employee Retirement Income Security Act (ERISA).
A solo 401(k) is a strong retirement tool for self-employed individuals, offering contribution flexibility and tax advantages. However, navigating the complexities of contributions and compliance requires careful planning. For more information, speak to your wealth advisor. If you’re not a client, let’s talk.
