Solo 401(k) Plans - Save Up to $69,000 Tax-Deferred Each Year

Solo 401(k) plans allow self-employed business owners to increase their retirement savings contributions versus an IRA. Additionally, Solo 401(k) plans offer tax advantages that may result in a lower tax bracket.

What is a Solo 401(k)?


A solo 401(k) (also known as an individual 401k) is a retirement plan for self-employed business owners and their spouses. This type of retirement plan allows you to contribute to the plan as both the employer and employee, providing you with the ability to maximize 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)
$69,000
Traditional IRA
$7,000
Age 50+ Catch-up amount
Solo 401(k)
$7,500
Traditional IRA
$1,000
Roth Income Limit
Solo 401(k)
None
Traditional IRA
$146K*
Penalty-free Access
Solo 401(k)
Yes, via 401(k) loan
Traditional IRA
No

*In 2024, the contribution amount allowed begins to decrease at $146K for single individuals, hitting $0 at $161K. For those filing jointly, the contribution limit begins to decrease at $230K, hitting $0 at $240K.

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 effective 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 x 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 that are 50 years of age or more could tax-defer up to $76,500 in earnings this calendar year depending on your earnings. If your company is established as a corporation, you may be able to deduct 25% of W-2 earnings.

Learn More About the Benefits of a Solo 401(k) Plan for Your Business Here:

Solo 401(k) Features and Insights

Whether you need a simple and powerful retirement saving plan for one person or the full suite of features a 401(k) offers for one or more owners, we’ve got you covered. ShareBuilder 401k presents the Solo 401(k) Saver and the Solo 401(k) Plus for owner-only businesses. Pricing and features vary, but the same low-expense approach to investing, exceptional service, and big 401(k) benefits come with every plan.

Highlights Solo 401(k) Saver Solo 401(k) Plus
Number of Owners Supported
Solo 401(k) Saver
1
Solo 401(k) Plus
1 to 19 owners, and spouses can be included
Toll-Free Access to ShareBuilder 401k Advisors and Service Teams
Solo 401(k) Saver
Yes
Solo 401(k) Plus
Yes
Roth 401(k) Feature
Solo 401(k) Saver
No
Solo 401(k) Plus
Yes
401(k) Loan Option
Solo 401(k) Saver
No
Solo 401(k) Plus
Yes
One-time Setup
Solo 401(k) Saver
Starts at $75 / Refunded with a $6K contribution
Solo 401(k) Plus
Start at $150
Account Service
Solo 401(k) Saver
Starts at $8/mo.
Solo 401(k) Plus
Starts at $25/mo.
Transaction / Trading Fees / Commissions
Solo 401(k) Saver
None
Solo 401(k) Plus
None
Account Minimum
Solo 401(k) Saver
$100
Solo 401(k) Plus
$0
Automatic Price Discounts as Your Assets Grow
Solo 401(k) Saver
Yes
Solo 401(k) Plus
Yes
Set roster of retirement appropriate, index-based investments (ETFs) and a money market.
Solo 401(k) Saver
Yes
Solo 401(k) Plus
Yes
Statements & 1099R
Solo 401(k) Saver
Yes
Solo 401(k) Plus
Yes
Signature-Ready Form 5500
Solo 401(k) Saver
No
Solo 401(k) Plus
Yes (required at $250K in your plan balance)
Administration & Recordkeeping
Solo 401(k) Saver
Self-Managed
Solo 401(k) Plus
Fully Administered

There is an ongoing price per month to support the Solo 401(k) Saver plan until your balance reaches $25,000. For those with a Solo 401(k) Plus, the monthly support cost will lower at $25,000 and decreases at other milestones and will be fully waived when your plan exceeds $250,000. Setup and account service costs can be more than offset by the tax benefits for those regularly contributing to their account and are typically tax deductible for your business too.*

The ShareBuilder Advisors Investment Committee screens from the thousands of investments out there to determine the investment line-up from which you will select. Solo 401(k) Plus clients may choose freely from the 23 funds and 6 model portfolios to build savings for retirement. Solo 401(k) Saver clients may select from the 6 model portfolios that range from Stable to Aggressive and meet most any risk and/or time horizon needs. ShareBuilder 401k charges an investment management expense for servicing your plan and works to keep all-in fund and investment management expenses well under 1%.

Solo 401(k) Fun Facts

  • Self-employed, multiple-owner firms without employees, and/or spouses that will contribute more than {{iraContributionLimit}} per year.

  • Any business with employees that have either:

    • Reached the age 21 and/or

    • Worked 1,000 or more hours in the year.


    Solo 401(k) plans can be amended and upgraded to an employee-based plan in the event you add employees.

    Tip: If you, other owner, or a spouse in this plan owns another business(es), you may have to cover all these employees in a plan and would need to open a different plan type.

  • A new Solo 401(k) plan must be established by the end of your business tax year (generally December 31st) to qualify for the current year saving and tax benefits.

    • Contributions as an employee (Roth, catch-up, regular), must be made within the business tax year.

    • Employer contributions (profit share) you make, can be made by your tax deadline for the previous year (April 15th for most)

    • You can contribute as both employer and employee. This enables you to receive tax-deductions on employer contributions and pretax elective deferral contributions as the employee.

    • You receive the potential for tax-deferred growth on employer and employee contributions. Note that with Solo 401(k) Plus, employee elective deferrals may also be made as Roth contributions, with any earnings tax-free in retirement.

  • Because a Solo 401(k) is a type of 401(k) plan, it follows traditional 401(k) rollover and transfer rules. When consolidating your old 401(k) or qualified IRA account to your ShareBuilder 401k, the assets need to be moved via transfer and not as a distribution/rollover. This can take several weeks or more.

    • If you withdraw money from your 401(k) account other than via a 401(k) loan, your withdrawal will typically be subject to a 10% tax penalty if you are under 59 ½ years of age.

    • The Solo 401(k) Plus allows for 401(k) loans. If you take a loan and you then terminate your plan before you pay it back, the outstanding balance will be treated as an early withdrawal and subject to a 10% tax penalty if you are under 59 ½ years of age. Know that 401(k) loan limits in a 401(k) are 50% of your vested balance up to $50,000.

* ShareBuilder 401k does not offer tax or legal advice. Consult with your tax or legal advisor before engaging in specific strategies.