Solo 401(k) Plans - Save Up to $56,000 Tax-Deferred Each Year

Solo 401(k) plans offer self-employed and owner-only businesses high saving limits and tax advantages that could even drop you a tax bracket. Solo 401(k)s allow you to contribute to the plan as both the employer and employee, providing you the ability to maximize your personal retirement contributions and business deductions, while lowering your personal taxes.

You can also choose to contribute as an employee to the Roth 401(k) feature no matter how much you earn and also have access to your money via loan without penalty in case of an emergency.

As you can see, Solo 401(k)s offer some significant advantages over Traditional IRAs:

Solo 401(k) Traditional IRA
Annual Limit per Individual
Solo 401(k)
$56,000
Traditional IRA
$6,000
Age 50+ Catch-up amount
Solo 401(k)
$6,000
Traditional IRA
$1,000
Roth Income Limit
Solo 401(k)
None
Traditional IRA
$122K*
Penalty-free Access
Solo 401(k)
Yes, loan to self
Traditional IRA
No

*The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, and for married couples filing jointly, the income phase-out range is $193,000 to $203,000.

How the Self-Employed Can Save $10,000+ in Taxes This Year with a Solo 401(k)

The amount you can tax-defer will vary by your earnings and your tax rate. In general, for those earning $155,000 or more, protecting $10K or more in taxes is often doable. For those earning less, the tax savings can still be quite substantial. Here’s a hypothetical example of how an owner under 50 years of age can make contributions to a Solo 401(k) and lower taxable income:

Sole Proprietor Under 50 Years of Age 401(k)
Earnings
401(k)
$155,000
Contributions made as an employee
401(k)
$19,000
20% of net self-employment contribution
401(k)
$31,000
Total Tax-Deferred Savings
401(k)
$50,000
Taxable Income
401(k)
$105,000

While the owner earned $155,000, only $105,000 is taxable by the federal government. Assuming an adjusted gross income (AGI) tax rate of 20 percent, that’s $10,000, she can now keep for herself versus paying the taxman this year (155,000 x 0.2 = $31,000; 105,000 * 0.2 = $21,000; $31,000 - $21,000 = $10,000 in tax savings). In actuality, the tax savings could be even greater as she may also drop a tax bracket/AGI by contributing. This is not meant as tax advice. Please consult a tax advisor to discuss your specific situation.

Note, owners earning more could tax-defer up to $62,000 in earnings this calendar year. If your company is established as a corporation, you may be able to deduct 25% of W-2 earnings.

Solo 401(k) Features and Insights

ShareBuilder 401k’s are fully administered plans. For Solo 401(k) plans this means you automatically receive:

  • The ability to support multi-owners and spouses with your plan

  • Government tax reporting including 1099R and signature-ready Form 5500 if needed

  • Roth 401(k) feature, Loan option, and allows for account consolidation / rollovers

  • The capability for one-time, web-based contribution(s) and/or regular automated ACH deposits

  • Toll-free access to your ShareBuilder 401k advisor and customer care team

  • Automatic pricing discounts as your assets grow

  • Set roster of retirement appropriate, index-based investments (ETFs) and a money market

There is an ongoing price per month to support your plan for those with <$250,000. This amount lowers as your assets hit specific milestones and can be more than offset by the tax benefits for those regularly contributing to their account.

Solo 401(k) Fun Facts