The Best Pre-Tax Saving Option for Most Solo Entrepreneurs: The Solo 401(k)

When you’re self-employed, saving for retirement can feel like one more thing to manage on top of running your business. But if you’re a solo entrepreneur—especially one with no employees—there’s a powerful retirement savings tool that checks nearly every box: the Solo 401(k).

Whether you’re a freelancer, consultant, realtor, or run your own LLC, the Solo 401(k) is often the most efficient, customizable, and tax-savvy option on the table. Here’s why it’s gaining popularity, how it stacks up against other plans, and how to get one started.

What Is a Solo 401(k)?

A Solo 401(k), also known as an Individual 401(k), is a retirement savings plan specifically designed for business owners with no employees (other than a spouse). It offers all the benefits of a traditional employer-sponsored 401(k)—and then some—without the complex administrative burdens or high costs.

It allows you to contribute to the plan in two roles: as the employee and as the employer. That structure gives you a huge leg up when it comes to maximizing tax-deferred savings.

Why It Stands Out: Key Benefits

High Contribution Limits:
In 2025, you can contribute up to $23,000 as an employee (or $30,500 if you’re 50+), plus up to 25% of your net self-employment income as the employer—up to a total cap of $69,000 ($76,500 with catch-up). That’s far more than a Traditional or Roth IRA, and typically more than a SEP or SIMPLE IRA can accommodate.

Simple to Set Up and Maintain:
There are no filing requirements until the plan reaches $250,000 in assets. Providers like Fidelity, Schwab, and others offer free Solo 401(k)s with no annual maintenance fees.

Low Cost, High Control:
You choose the investments. Unlike most employer plans, you’re not locked into high-fee mutual funds. You can invest in index funds, ETFs, or even alternative assets, depending on your provider.

Customizable Features:
Many Solo 401(k)s now offer a Roth option, letting you mix and match pre-tax and after-tax savings strategies. You can also include loan provisions or after-tax contributions if your provider allows it.

Solo 401(k) vs. SEP, SIMPLE, and Traditional IRAs

Many self-employed individuals default to SEP IRAs or SIMPLE IRAs because they’ve heard of them, or their tax preparer suggested it. But for most solo entrepreneurs, the Solo 401(k) is the better tool.

• SEP IRAs only allow employer contributions. That means lower contribution potential at modest income levels and no catch-up option if you’re 50+.
  
• SIMPLE IRAs come with lower contribution limits and mandatory employer matching rules.
  
• Traditional IRAs are limited to $7,000 ($8,000 with catch-up), which doesn’t move the needle for serious savers.
  

Bottom line? The Solo 401(k) offers higher limits, more flexibility, and greater tax planning potential—especially when paired with advanced strategies like the Backdoor Roth.

Can I Have Both a SEP and a Solo 401(k)?

Short answer: not really, unless they’re tied to completely different businesses with no overlapping ownership. If you’re a sole proprietor or single-member LLC, you’ll need to choose one. In most cases, the Solo 401(k) is the clear winner.

Watch for These Pitfalls

• Employee count matters. The Solo 401(k) is only for businesses with no employees (again, spouses are okay). If you hire staff, you’ll need to convert the plan or transition to a traditional 401(k).
  
• Late setup? No go. To make employee contributions, you must establish the plan by December 31st of the tax year—so don’t wait until April to open it.
  
• Administrative burdens grow over time. Once your plan exceeds $250,000 in assets, you’ll need to file Form 5500-EZ annually.
  

How to Start a Solo 401(k)

Getting started is easier than most people think:

1. Choose a provider (Altruist, Fidelity, Schwab, Vanguard, and many others offer no-fee plans). Altruist is the quickest and least expensive in our experience.
   
2. Apply online or submit the provider’s paperwork.
   
3. Set up a trust account to hold plan assets.
   
4. Begin contributing via your business checking account, keeping employee and employer contributions distinct.
   

A Tool for Real Retirement Planning

The Solo 401(k) isn’t just a tax shelter—it’s a key component of long-term wealth building. It helps reduce taxable income now, grow investments tax-deferred (or tax-free in a Roth), and gives you total flexibility in how your money is managed.

And if you’re strategic about it, the Solo 401(k) can open the door to advanced tactics like the Backdoor Roth, mega backdoor contributions, or converting into a full 401(k) as your business scales.

Final Thoughts

If you’re a solo entrepreneur looking to maximize your tax savings and build serious retirement wealth, the Solo 401(k) is hard to beat. It’s powerful, flexible, and built for people like you.

Just remember: your business might be small, but your savings strategy doesn’t have to be.