Solo 401(k)

A Solo 401(k) is a tax-advantaged retirement plan designed for self-employed individuals — freelancers, independent contractors, consultants, small business owners, and gig workers. Unlike a workplace 401(k) offered by an employer, you set it up yourself through a brokerage (Fidelity, Schwab, Vanguard, or E*Trade) and make contributions as both the employee and the employer.

The IRS officially calls it a 'one-participant 401(k)' because it covers only the business owner (and optionally their spouse). It is not a simplified plan — it follows all the same rules as a corporate 401(k), which gives it the same powerful contribution limits.

A Solo 401(k) has two contribution buckets:

Employee deferral: You contribute as the 'employee' of your own business — up to $23,500 in 2026 ($31,000 if you're 50 or older with the $7,500 catch-up). This contribution comes from your gross self-employment income before taxes.

Employer contribution: You also contribute as the 'employer' — up to 25% of your net self-employment compensation (or 20% if you're a sole proprietor, after the SE tax deduction). This is in addition to the employee deferral.

Combined, total contributions cannot exceed $70,000 in 2026 ($77,500 with catch-up). This dual-bucket structure is why a Solo 401(k) allows larger contributions than a SEP-IRA at most income levels below $200,000.

To open a Solo 401(k), you must:

1. Have self-employment income — Schedule C income, 1099-NEC, or pass-through income from a single-member LLC or S-Corp
2. Have no full-time employees other than yourself (and optionally your spouse). A 'full-time employee' for this purpose is anyone who works 1,000+ hours per year and is not the owner or their spouse.

You can qualify even if you also have a W-2 job. The Solo 401(k) covers your self-employment income only. The $23,500 employee deferral limit is shared across all 401(k) plans you participate in, but the employer contribution from self-employment income is separate.

Most providers offer both traditional (pre-tax) and Roth (after-tax) versions:

Traditional: Contributions reduce your taxable income today. Withdrawals in retirement are taxed as ordinary income. Best when you're in a high tax bracket now and expect lower income in retirement.

Roth: Contributions are made after tax — no deduction today. But qualified withdrawals in retirement are completely tax-free, including decades of growth. Best in lower-income years or if you expect higher taxes in retirement.

You can split contributions between both in the same year. Many self-employed workers use traditional contributions in high-income years and Roth contributions in slower years.

1. Get an EIN (Employer Identification Number) from IRS.gov — free, takes 5 minutes online. You need this even if you're a sole proprietor.
2. Choose a provider: Fidelity, Schwab, and Vanguard offer free Solo 401(k) plans with no annual fees. Fidelity is widely considered the best option for most people — it supports traditional, Roth, and after-tax contributions (for Mega Backdoor Roth).
3. Open the account before December 31 of the tax year you want contributions to count. This is a hard deadline — you cannot retroactively open a Solo 401(k).
4. Fund contributions by your tax filing deadline — April 15, or October 15 if you file for an extension.

Both plans cover self-employed individuals, but a Solo 401(k) almost always wins at income below $200,000:

- A SEP-IRA only allows an employer contribution of up to 25% of net compensation. No employee deferral. - A Solo 401(k) adds a $23,500 employee deferral on top of the employer contribution.

At $60,000 in net self-employment income: SEP-IRA limit ≈ $11,130. Solo 401(k) limit ≈ $34,630. The difference is $23,500 — exactly the employee deferral amount. Above roughly $140,000 in net income, both plans approach the $70,000 cap and the difference narrows.