Solo 401(k)
What Is a Solo 401(k)?
A Solo 401(k), also called an individual 401(k), is a retirement savings plan designed for self-employed individuals and small business owners with no employees other than a spouse. It provides the same tax advantages as a traditional 401(k) but is structured specifically for independent workers.
Solo 401(k) plans allow participants to contribute both as an employee and as an employer.
Why It Matters
Self-employed individuals often lack access to employer-sponsored retirement plans. A Solo 401(k) allows them to save significant amounts for retirement while benefiting from tax advantages and flexible contribution options.
These plans also allow high contribution limits compared to many other retirement accounts.
How a Solo 401(k) Works
Participants contribute to the plan in two ways:
- employee salary deferrals
- employer profit-sharing contributions
This dual contribution structure allows self-employed individuals to potentially contribute more toward retirement each year.
Funds are invested in available investment options offered by the plan provider.
Solo 401(k) vs SEP IRA
- A Solo 401(k) allows both employee and employer contributions.
- A SEP IRA allows only employer contributions.
FAQs About Solo 401(k)
Who qualifies for a Solo 401(k)?
Self-employed individuals with no full-time employees.
Can spouses participate?
Yes, a spouse working in the business may also contribute.
What investments are allowed?
Plan providers typically offer mutual funds, ETFs, and other assets.
Related Terms
