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Individual 401k plans offer generous saving limits & reduce taxes


The individual 401(k) plan, also known as solo 401(k), is a regular 401(k) plan with a profit sharing component that can allow you to shelter up to $49,000 a year. These plans enable any business without employees to establish and receive the full advantages of a 401(k). This includes self-employed, sole proprietors, S-Corps, and even 1099 contractors. You can include spouses and any other business owners in the plan.

As long as you plan to save more than the traditional IRA limit of $5K a year, it can make a lot of sense as the tax advantages can really add up.

401(k) Traditional IRA
Annual Limit per Individual $49,000 $5,000
Age 50+ Catch-up Amount $5,500 $1,000
Roth Income Limit None $120K*
Penalty-free access Yes, loan to self No

* amount you can contribute starts phasing out at $105K

The amount you can save in a 401(k) not only makes it easy to sock away a lot fast, but it can also significantly reduce taxes each year you contribute and potentially even drop you a tax bracket. One important thing to note, as long as you set up an individual 401(k) plan before year-end, you have until your tax deadline (April 15 for most company types) to profit share up to the maximum.

Read our previous posts to learn how much you can put into a plan this year or about the Roth 401(k) feature.

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