Are you working as an independent contractor and looking for a way to save more for retirement while lowering your tax bill? If you don’t have any full-time employees and report self-employment income, a Solo 401k could offer a flexible and tax-efficient solution.
This type of retirement plan is designed specifically for individuals who run their own business without traditional employees. It’s often used by freelancers, consultants, gig workers, and independent contractors who want higher contribution limits than an IRA and more control over their investments.
Let’s break down what you need to know if you’re an independent contractor considering a Solo 401k.
📌 Also Read: What Is A Solo 401k? Rules, Eligibility, and FAQ for 2024 & 2025
Who Can Open a Solo 401k?
The Solo 401k (also known as an individual 401k) is meant for self-employed individuals with no full-time employees, aside from a spouse.
You’re eligible if:
- You earn self-employment income (through 1099 work, your own business, or side gigs)
- You don’t have full-time W-2 employees working for you
It doesn’t matter if you’re a sole proprietor, run a single-member LLC, or operate through an S corporation. As long as you’re the only person working in the business (or just you and your spouse), you typically qualify for a Solo 401k.
2025 Contribution Limits for Solo 401k Plans
One of the biggest advantages of a Solo 401k is that you can contribute as both the employee and the employer. This dual role allows independent contractors to contribute far more than they could with a traditional or Roth IRA.
Employee contribution:
- Up to $23,500 in 2025
- If you’re 50 or older, you can add a $7,500 catch-up contribution, raising the limit to $31,000
- This portion can be pre-tax (traditional) or after-tax (Roth), depending on your provider and tax strategy.
Employer contribution:
- Your business can contribute up to 20% of your net self-employment income, or 25% of W-2 wages if you pay yourself through an S corp
Combined total:
- The total contribution limit is $70,000 for 2025 (or $77,500 with catch-up contributions)
📝 Note: The exact amount you can contribute will depend on how your business is structured and how much you earn.
Can You Have a Solo 401k and a Job-Based 401k?
Yes, but with some limitations.
If you also work a traditional job and contribute to a workplace 401k, your employee contribution limit of $23,500 (or $31,000 with catch-up) applies across all plans combined. However, employer contributions are calculated separately.
✏️ Hypothetical Example: If you put $10,000 into your employer’s 401k, you could still contribute the remaining $13,500 (or $21,000 if you’re 50+) into your Solo 401k as an employee. On top of that, your business could still make its own employer contributions.
What Can You Invest In?
A Solo 401k generally allows for more diverse investments than a traditional retirement account, especially if you choose a provider that offers self-directed accounts.
Depending on the plan, you may be able to invest in:
- Stocks, mutual funds, ETFs
- Bonds and certificates of deposit (CDs)
- Real estate
- Private equity or startup investments
- Cryptocurrency (if supported and allowed under plan rules)
- Precious metals
That said, the IRS has clear rules about what you can’t invest in. For example, collectibles like art and wine are not allowed. Nor can you use your Solo 401k to benefit yourself directly (such as purchasing property you plan to use personally).
How to Set Up a Solo 401k as an Independent Contractor
Setting up a Solo 401k is straightforward, and many providers make it easy. Here’s how to get started:
- Pick a Solo 401k provider – Look for a provider that matches your needs. Compare features like fees, investment options, Roth availability, and support for alternative assets.
- Set up the plan by year-end – To make contributions for the 2025 tax year, your Solo 401k must be established by December 31, 2025.
- Choose between traditional or Roth – Traditional Solo 401k contributions are tax-deductible now. Roth contributions are made after tax, but qualified withdrawals in retirement are tax-free.
- Start contributing – Fund your Solo 401k using self-employment income. You can contribute anytime up to your personal or business tax filing deadline (including extensions).
📌 Also Read: Important Forms for Solo 401k Owners
Final Thoughts
For independent contractors with no full-time staff, a Solo 401k can be a powerful way to grow retirement savings while potentially lowering taxable income. The flexible structure and generous limits make it especially appealing to high earners or those with variable income.
As always, it’s important to consider your full financial picture when choosing a retirement plan. If you’re exploring options, a Solo 401k is worth adding to your list.
📌 Looking for more guidance on retirement plans for self-employed professionals? Explore our other articles to find more tailored resources:
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