The Power of the Solo 401(k): A Game-Changer for Business Owners
As a business owner, you already know the importance of taking control—of your time, your income, and your future. But one area where many entrepreneurs fall short is retirement planning. If you're self-employed or run a business with no full-time employees (other than a spouse), the Solo 401(k) might be one of the most powerful tools you're not using.
Here’s why it deserves your attention.
What Is a Solo 401(k)?
A Solo 401(k), also known as an Individual 401(k) or Self-Employed 401(k), is a retirement account designed specifically for self-employed individuals and small business owners. It functions much like a traditional 401(k), but with fewer administrative requirements and the ability to contribute both as an employer and an employee.
This unique setup gives you the ability to maximize contributions and potentially lower your taxable income.
How Much Can You Contribute?
This is where the Solo 401(k) really shines.
For 2025, the total contribution limit is $70,000, or $77,500 if you’re age 50 or older.
Here's how it breaks down:
Employee Contribution: Up to $23,500 (or $30,500 if 50+)
Employer Contribution: Up to 25% of your net self-employment income (or 20% for sole proprietors)
If your business income supports it, you can hit the full $69,000—far more than a traditional or Roth IRA allows.
Tax Advantages
One of the biggest benefits of a Solo 401(k) is tax flexibility. You can choose between:
Traditional Solo 401(k): Contributions are made pre-tax, reducing your taxable income today. Taxes are paid when you withdraw in retirement.
Roth Solo 401(k): Contributions are made with after-tax dollars, but growth and withdrawals in retirement are tax-free.
Many business owners choose to split contributions between pre-tax and Roth to get the best of both worlds: tax savings now and tax-free income later.
Solo 401(k) vs SEP IRA
The SEP IRA is another popular option for self-employed individuals, but it has a few limitations:
Only employer contributions allowed
No Roth option
Lower potential contribution limits for lower income levels
For most business owners with decent income, the Solo 401(k) offers higher contribution potential and more flexibility.
Other Key Benefits
Loan feature: You can borrow up to $50,000 or 50% of your account balance, whichever is less
Spouse inclusion: If your spouse earns income from the business, they can also contribute—effectively doubling your household contributions
Investment options: Like a regular 401(k), you can invest in stocks, bonds, mutual funds, and even alternative assets, depending on your provider
Control and customization: Unlike employer-sponsored plans, you choose the provider, investment lineup, and strategy
When Should You Set It Up?
If you want to make contributions for this tax year, the Solo 401(k) must be established by December 31, even though contributions can be made up until the tax filing deadline (plus extensions).
The sooner you set it up, the more flexibility you’ll have—especially if you're planning to reduce your tax bill.
Is a Solo 401(k) Right for You?
The Solo 401(k) is ideal for:
Sole proprietors
Freelancers and consultants
LLC owners or S Corp shareholders
Partnerships with no full-time employees
Side hustlers with self-employment income
If you're running a business and don’t have full-time employees (other than your spouse), this could be the most powerful retirement and tax-planning vehicle available to you.
Final Thoughts
As a business owner, you have the unique opportunity to build wealth on your terms—and that includes how you save for retirement. The Solo 401(k) offers unmatched contribution limits, tax benefits, and flexibility, giving you a major edge over traditional retirement accounts.
If you're not sure how to set one up or whether it fits your situation, it might be time to sit down with a financial advisor who understands both tax efficiency and small business planning.
Don’t leave money on the table. Take advantage of the tools built for entrepreneurs like you.
