Are you a general contractor managing your own business and looking for a smarter way to save for retirement? If you’re self-employed without full-time employees (other than a spouse, if applicable), a Solo 401k might be a valuable retirement savings option for you.
Solo 401ks offer higher contribution limits than many other retirement accounts and come with tax advantages that can benefit contractors with fluctuating income and seasonal workloads. Here’s what general contractors should know before opening a Solo 401k in 2025.
📌 Also Read: What Is A Solo 401k? Rules, Eligibility, and FAQ for 2024 & 2025
Who Qualifies for a Solo 401k?
The Solo 401k is designed for business owners who operate without full-time employees. If you work as a general contractor running your own company, this likely includes you — provided you don’t have full-time staff on payroll aside from your spouse.
You typically qualify if:
✅ You’re self-employed or incorporated (sole proprietor, LLC, or S corp)
✅ You have no full-time W-2 employees (defined as working 1,000+ hours per year for at least three years)
✅ You earn self-employment income from your contracting work
You may not qualify if:
❌ You have full-time employees who meet the IRS definition of eligible employees
❌ You work only as a W-2 employee with no self-employed income
📝 Note: Having part-time subcontractors or seasonal workers generally do not disqualify you, as long as they don’t meet the IRS’s full-time employee criteria.
Understanding Contribution Limits for 2025
One of the biggest advantages of a Solo 401k is the ability to contribute in two capacities: as an employee and as an employer. This dual structure allows general contractors to save significantly more for retirement than many other retirement vehicles.
Employee Contributions
- You can defer up to $23,500 in 2025 as the employee.
- If you are age 50 or older, you can contribute an extra $7,500 in catch-up contributions, which increases your employee contribution limit to $31,000.
Employer Contributions
Your business may contribute up to:
- 20% of your net self-employment income if you’re a sole proprietor or LLC owner
- 25% of W-2 wages if you pay yourself through an S corporation
These employer contributions are in addition to the employee deferrals and are usually tax-deductible business expenses.
Combined Total Contribution
For 2025, the maximum combined contribution (employee + employer) is:
- $70,000 if you’re under 50
- $77,500 if you’re 50 or older and eligible for catch-up contributions
📝 Important: Your net self-employment income is calculated after deducting business expenses and half of your self-employment tax, which will affect how much you can contribute as the employer.
📌 Also Read: Important Forms for Solo 401k Owners
Can You Contribute If You Also Have a Job?
Yes — but there’s a limitation.
If you work a separate job with a 401k plan, your employee contribution limit ($23,500 or $31,000 if 50+) applies across all plans combined. For example, contributions made through your employer’s 401k reduce what you can contribute as an employee to your Solo 401k.
However, your employer contributions through your contracting business are calculated independently and do not count against your other employer’s plan limits. This allows you to maximize your total retirement savings potential.
Investment Choices and Flexibility
Solo 401k plans often provide more investment options than many traditional retirement accounts, especially if you choose a self-directed plan. Depending on your plan provider, you may be able to invest in:
- Stocks, bonds, ETFs, and mutual funds
- Real estate and private equity (through self-directed Solo 401ks)
- Cryptocurrency (if allowed by your plan)
- Precious metals and other alternative assets
Make sure you understand IRS prohibited transaction rules — for example, using plan funds to purchase property you personally use.
Setting Up a Solo 401k as a General Contractor
Starting your Solo 401k is usually straightforward:
- Choose a Solo 401k provider that offers features matching your investment preferences and fee structure.
- Establish the plan by December 31, 2025, to make contributions for the tax year.
- Decide between traditional and Roth options based on your tax planning strategy.
- Fund your Solo 401k with income from your general contracting business before your tax filing deadline (including extensions).
Final Thoughts
For general contractors without full-time employees, a Solo 401k offers an excellent way to grow retirement savings with valuable tax benefits and investment flexibility. The plan adapts well to variable income patterns common in the construction industry and helps prepare for a financially secure retirement.
If you want to explore more options or need help determining if a Solo 401k fits your situation, consult a financial advisor familiar with contractor finances. And for more insights, browse our other articles tailored to self-employed professionals.
📌 Want to explore more topics like this? Check out our other articles for self-employed business owners:
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