Running your own Etsy shop means managing everything—from creating products to handling orders and shipping. But as a self-employed seller, planning for retirement might not be top of mind. Unlike traditional employees, Etsy entrepreneurs typically don’t have access to workplace retirement benefits.
That’s where a Solo 401k comes in. This retirement plan is designed for individuals who work for themselves and want a tax-efficient way to save for the future. In this article, we’ll break down how it works and what Etsy sellers need to know to get started.
📌 Also Read: What Is A Solo 401k? Rules, Eligibility, and FAQ for 2024 & 2025
Looking to Open a Solo 401k Plan?
Get started today with just a few clicks – The Carry Solo 401k Plan is a featured-packed self-directed account that lets you invest in both traditional and alternative assets, take out a loan, or do a Mega Backdoor Roth conversion with a few clicks.
GET STARTEDSolo 401(k) eligibility and contribution limits depend on IRS rules. Carry does not provide tax advice, consult a tax advisor. Carry Advisors LLC, an SEC-registered investment adviser, provides investment advisory services for discretionary and non-discretionary accounts (e.g., Solo 401(k), IRA, taxable brokerage accounts). Bank and trust accounts are not advised by Carry Advisors. Brokerage accounts are introduced by Global Carry LLC and carried by DriveWealth LLC, both members FINRA/SIPC. Advisory fees may apply and additional disclosures are described in our Form ADV and CRS.
Can Etsy Sellers Qualify for a Solo 401k?
Yes. If you’re an Etsy seller with self-employment income and no full-time employees, you may be eligible to open a Solo 401k.
Also called a “one-participant 401k,” this type of plan is meant for self-employed individuals and business owners without full-time staff. It works similarly to a traditional 401k plan but is designed specifically for individuals running a solo operation.
📝 Note: If you later hire a full-time employee (someone working 1,000 hours or more in a year), your plan may no longer qualify as a Solo 401k. You’d need to amend the plan or switch to a different retirement structure that covers employees.
Solo 401k Requirements for Etsy Sellers
Here are the main requirements Etsy sellers must meet to qualify:
✅ Self-Employment Income
You must earn business income through your Etsy store, whether from handmade goods, digital downloads, or other products. If you’re a sole proprietor, this is usually reported on Schedule C. If you run your business as an S corporation, it would typically come from W-2 wages you pay yourself.
✅ No Full-Time Employees
Your business cannot employ any full-time workers, unless it’s your spouse. If you hire employees who meet the full-time threshold, the Solo 401k must be converted into a different plan type.
✅ Eligible Business Structure
Solo 401k plans are available to a variety of business types, including sole proprietorships, LLCs, partnerships, and corporations as long as you meet the “no full-time employee” rule.
✅ Spouse Participation Allowed
If your spouse earns income from your Etsy business, they can also participate in the Solo 401k. This can effectively double your household’s total retirement contributions.
📌 Also Read: Important Forms for Solo 401k Owners
Why a Solo 401k Could Work for Etsy Sellers
A Solo 401k offers several features that appeal to small business owners, especially those managing their finances independently:
1. Higher Contribution Potential
As both the business owner and the employee, you can contribute more than you could with some other retirement accounts. For 2025, the total combined limit is $70,000, not including catch-up contributions.
📝 Note: Your actual contribution limit depends on your income after subtracting self-employment taxes and any other contributions you’ve made.
2. Tax Flexibility
Solo 401k plans support both traditional and Roth contributions:
- Traditional contributions are made pre-tax, potentially lowering your taxable income today.
- Roth contributions are made with after-tax dollars, allowing for tax-free withdrawals later (if qualified).
📝 Note: Your choice may depend on your current income and expected future tax brackets.
3. Broad Investment Access
Most Solo 401k providers offer a wide range of investment options—stocks, mutual funds, ETFs, and more. Some may also allow alternative assets, like real estate or private equity, depending on the provider.
📝 Note: Always follow IRS rules for retirement accounts to avoid prohibited transactions.
4. Spousal Contributions
If your spouse helps run your shop and earns income from it, they may also contribute. This can increase your household’s annual retirement savings.
📝 Note: If your plan’s total assets exceed $250,000, you’ll need to file Form 5500-EZ annually with the IRS. Always keep your records up to date.
📌 Also Read: How to Add Your Spouse to Your Solo 401k Plan
2025 Solo 401k Contribution Limits
The IRS sets contribution limits each year. For 2025, here’s what Etsy sellers should know:
Employee Contributions
You can contribute up to $23,500 as an employee. If you’re age 50 or older, you’re allowed an additional $7,500 in catch-up contributions, for a total of $31,000.
Employer Contributions
As the business owner, you can contribute up to 25 percent of your compensation:
- For sole proprietors, this is based on net business income
- For S Corp owners, it’s based on your W-2 wages
Total Limit (Employee + Employer)
You may contribute up to $70,000 in total for 2025. If you’re 50 or older, the combined limit rises to $77,500 with catch-up contributions.
📝 Note: Contribution limits are subject to income calculations and vary by business structure. Refer to IRS guidelines or consult a tax professional to determine your specific maximum.
📌 Also Read: What Are the Different Types of Business Entities?
Final Thoughts
If you’re running an Etsy shop without full-time employees, a Solo 401k could offer a flexible and tax-smart way to save for retirement. It typically allows for higher contributions than IRAs, supports both Roth and traditional tax options, and gives you control over your investments.
Before setting one up, review your income, business setup, and long-term savings goals. If you’re unsure, a financial or tax advisor can help you evaluate whether a Solo 401k is a good fit.
📌 If you want to explore further, check out these articles:
Disclaimer:
The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.
The accounts, strategies and/or investments discussed in this material may not be suitable for all investors. All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. All statements and opinions included on the Carry Learning Center are intended to be current as of the date of publication but are subject to change without notice.
To access investment advisory services through Carry Advisors, you must be a client of Vibes on an eligible membership plan. For more information about Carry Advisors’ investment advisory services, please see our Form ADV Part 2A brochure and Form CRS or through the SEC’s website at www.adviserinfo.sec.gov.