Are you a software engineer working for yourself? Whether you freelance, consult, or run your own business, planning for retirement is just as important as managing your workload. One potential option for self-employed individuals is the Solo 401k.
This article explains how the plan works, who qualifies, and how much you may be able to contribute in 2025. If you’re looking for a way to save meaningful dollars while potentially reducing your tax bill, a Solo 401k could be worth exploring.
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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 Software Engineers Get a Solo 401k?
Yes, self-employed software engineers can open a Solo 401k, as long as they meet specific IRS requirements.
A Solo 401k is designed for individuals who work for themselves and do not have any full-time employees. It’s often used by freelancers, independent contractors, and small business owners who want to save for retirement while taking advantage of tax-deferred or Roth contribution options.
📝 Note: If you hire a full-time employee in the future (other than a spouse), your Solo 401k may need to be converted into a traditional 401k plan, subject to additional IRS compliance rules.
Solo 401k Requirements for Software Engineers
To qualify for a Solo 401k, software engineers must meet meet the following criteria:
✅ Self-Employment Income: You must earn income through self-employment. This could include freelance coding projects, contract work, or running your own development business.
- Sole proprietors typically report income on Schedule C.
- S corporation owners generally use W-2 wages paid to themselves.
✅ No Full-Time Employees: Your business cannot employ full-time workers, unless the only full-time employee is your spouse. The IRS generally defines a full-time employee as someone who works 1,000 hours or more in a year. If you hire full-time help later on, you may need to move to a traditional 401k.
✅ Eligible Business Types: Solo 401k plans are available to software engineers who operate as sole proprietors, LLCs, S corps, or partnerships — as long as they meet the no full-time employee requirement.
✅ Spouse Participation Option: If your spouse earns income from your software business, they can also contribute to the plan. This may help increase your total household retirement contributions.
📌 Also Read: Important Forms for Solo 401k Owners
Benefits of a Solo 401k for Software Engineers
A Solo 401k may be a practical choice for self-employed software engineers looking to build long-term retirement savings. Here are a few of its potential advantages:
1. Higher Contribution Limits
Because you can contribute as both the employee and the employer, a Solo 401k may allow for higher annual contributions than other self-employed retirement options. For 2025, the total combined contribution limit is $70,000, not including catch-up contributions for those age 50 or older.
📝 Note: The amount you’re eligible to contribute depends on your net self-employment income. This is generally calculated after subtracting one-half of your self-employment tax and your own plan contributions.
2. Tax Advantages
Solo 401k plans typically offer both traditional and Roth options:
- Traditional Solo 401k: Contributions are made before taxes. This may reduce your taxable income for the year.
- Roth Solo 401k: Contributions are made after taxes. Qualified withdrawals in retirement could be tax-free.
📝 Note: The best choice depends on your current income level and your expectations for future tax rates. A tax advisor can help assess your situation.
3. More Investment Options
Many Solo 401k plans offer access to a variety of investment options including stocks, bonds, mutual funds, and ETFs. Some plan providers may also support alternative assets such as real estate or private funds.
📝 Note: Not all investments are permitted. Be sure to follow IRS rules to avoid prohibited transactions.
4. Option to Include Your Spouse
If your spouse earns income from your software business, they can also participate in the plan. This can potentially double the total annual contributions.
📝 Note: Once the Solo 401k plan exceeds $250,000 in total assets, you’ll likely need to file Form 5500-EZ with the IRS each year.
📌 Also Read: How to Add Your Spouse to Your Solo 401k Plan
Solo 401k Contribution Limits (2025)
In 2025, the IRS increased the Solo 401k contribution limits, which could help self-employed software engineers set aside meaningful dollars for retirement. Here’s a breakdown of how much you may be able to contribute:
✅ Employee Contributions
- You may contribute up to $23,500 in employee contributions.
- If you’re age 50 or older, you can make an additional $7,500 in catch-up contributions, bringing your total employee contribution to $31,000.
✅ Employer Contributions
If you’re earning self-employment income as a software engineer, you can also contribute as the employer. Employer contributions may be up to 25 percent of your compensation, based on your business type:
- For sole proprietors, this is based on net self-employment earnings
- For S Corp owners, it’s based on W-2 wages
✅ Total Combined Limit
The maximum combined contribution limit (employee + employer) is $70,000 in 2025. If you’re age 50 or older, it increases to $77,500 with catch-up contributions.
📝 Note: Your income and business structure determine how much you can contribute. Key terms to understand include net income, net adjusted income, and gross income after self-employment tax deductions. The IRS provides formulas for calculating limits based on these.
📌 Also Read: What Are The Different Types Of Business Entities?
Conclusion: Is a Solo 401k Worth It for Software Engineers?
If you’re a self-employed software engineer, a Solo 401k can be a practical way to save for retirement, especially if you want higher contribution limits and potential tax benefits. It’s a flexible option that many freelancers and independent contractors consider once their income becomes more consistent.
That said, every situation is different. The right retirement plan for you depends on your income, business structure, and financial goals. If you’re not sure where to start or how much you can contribute, it’s a good idea to consult with a tax or financial advisor familiar with self-employed retirement plans.
📌 If you want to explore further:
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