10 Biggest Solo 401k Benefits & Tax Advantages for 2024

Looking to open a Solo 401k plan? Get started today! – 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.

Considering a Solo 401k? Here’s a quick breakdown of every benefit and tax advantage a Solo 401k account can give you.

1. High Contribution Limits

Solo 401k plans offer some of the highest contribution limits among retirement accounts. For 2025, you can contribute up to $70,000 if you’re under 50—or up to $77,500 if you’re 50 or older by year-end. That’s significantly higher than a Traditional or Roth IRA (capped at $7,000, or $8,000 if age 50+) and even exceeds the employee-only limit of a Traditional 401k ($23,500, or $31,500 with catch-up).

What makes this possible is that you can contribute in two roles—as both the employee and the employer. This dual contribution structure allows you to reach the full limit based on your business income.

📝 Tip: If your plan allows after-tax contributions (via the Mega Backdoor Roth strategy), you could potentially allocate the full $70,000 or $77,500 into Roth, depending on how your provider structures the plan.

2. Tax Deductions on Contributions

A Solo 401k comes with a pre-tax account and a Roth account. You have full flexibility in what type of contribution you want to make. If you’re looking for the largest tax deduction possible, you can make all your contributions as pre-tax and get a tax deduction of up to $70,000 for 2025. If you’re 50 years of age or older, with catch-up contributions counted in, you can deduct up to $77,500 for 2025.

3. Roth Option (For Tax-Free Retirement Withdrawals)

Most premium Solo 401k plans now offer a Roth option. Instead of contributing with pre-tax income, you can choose to contribute with post-tax income into a Roth Solo 401k account. You won’t get a tax deduction today. However, your future withdrawals, including gains, are typically tax-free in retirement, provided IRS conditions are met.

With a Solo 401k, you contribute in two roles: as the employee and the employer. The total contribution limit is split between these two components:

This combined structure is what allows Solo 401k participants to reach the total contribution cap of $70,000, or $77,500 with catch-up contributions.

When it comes to Roth contributions:

The Roth Solo 401k works similarly to a Roth IRA, but with much higher contribution limits and no income cap, making it a useful tool for high earners aiming for tax-free retirement income.

📝 Note: Not all Solo 401k plans include a Roth option. It’s important to compare providers to ensure the plan fits your contribution preferences.

4. Tax-Free Compounding

One of the biggest long-term advantages of a Solo 401k is tax-free compounding. Whether your contributions are pre-tax or Roth, any gains—dividends, interest, or capital appreciation—are not taxed as long as they stay in the account.

This means you can buy and sell investments without triggering capital gains tax, allowing your retirement savings to grow more efficiently over time. Starting early and letting your investments compound without tax drag can make a significant difference over decades.

If you’re using a Roth Solo 401k, qualified withdrawals in retirement are also tax-free, regardless of how much your account has grown, even if your portfolio grows exponentially.

📝 Reminder: You can begin withdrawing from your Solo 401k at age 59½. Withdrawals made earlier are generally subject to a 10 percent penalty and ordinary income tax, unless an exception applies.

📌 Also Read: Solo 401k Withdrawal Rules & Penalties Explained

5. Freedom to Invest in Any Asset Class

Unlike many workplace 401k plans, which often limit you to a narrow selection of mutual funds or ETFs, a Solo 401k is typically self-directed. This means you have the flexibility to invest in:

✅ Public stocks, ETFs, and bonds

✅ Real estate

✅ Private companies or startups

✅ Private equity, venture funds, and startups

✅ Other alternative assets (subject to IRS rules)

This feature is especially appealing to business owners and self-employed individuals looking to diversify beyond traditional markets. If you’re an accredited investor, you could even use your Solo 401k to invest in a friend’s startup or participate in private funds.

📝 Note: If you invest through a Roth Solo 401k, any qualified withdrawals—no matter how large the gains—can be tax-free in retirement.

6. Loan Option

Some Solo 401k plans allow you to take a loan from your account. While it’s generally not recommended unless necessary, the loan feature offers flexibility in times of need.

Repayment terms usually follow IRS guidelines (typically five years), with an interest rate set at prime + 1–2 percent. That interest is paid back into your own account.

Things to Consider:

📝 Note: Taking a loan may reduce your account’s long-term growth potential — only borrow if necessary.

7. Ability to Add a Spouse

To be eligible for a Solo 401k, you’re not allowed to have any full-time employees. The only exception to this rule is your spouse. If your spouse works in your business, they can be added to your Solo 401k and they would get their own contribution limits. 

For 2025:

8. No Annual Tax Filings for Small Accounts

One of the administrative advantages of a Solo 401k is that annual tax filings are not required, unless your plan reaches a certain size.

📝 Note: Filing is straightforward and can typically be done electronically via EFAST2. For plans over the threshold, it’s important to stay compliant to avoid penalties.

9. Available to All Business Entities

Solo 401k plans are available to any business owner with no employees, regardless of business structure. You can open a plan if you operate as a:

As long as you’re self-employed with no full-time employees, you’re eligible to open and maintain a Solo 401k. This flexibility makes the Solo 401k a widely accessible option for freelancers, consultants, and small business owners across industries.

10. Rollover Flexibility From Other Retirement Accounts

When you open a Solo 401k, you can roll over funds or assets from most existing retirement accounts. Roth IRAs are a special case: while the IRS does not explicitly prohibit Roth IRA rollovers into a Roth Solo 401k, most plan providers and custodians do not support this feature. The plan must include specific language allowing such rollovers, which many do not.

These rollovers are not counted toward your annual contribution limit, which means:

Eligible accounts for rollover include:

Rollovers allow you to consolidate your retirement savings and potentially gain greater control over investments and tax treatment, all within your Solo 401k.

Not All Solo 401k Plans Offer Every Benefit

While the Solo 401k offers robust benefits, not every plan comes with the same features. Providers may differ in how they structure their plans, and those differences can affect how much value you get from the account.

Common plan limitations to watch for:

📝 What to Do:

If you’re considering a Solo 401k, review each provider’s features carefully. Make sure the plan includes the capabilities that matter most to you—such as Roth contributions, rollover flexibility, and full investment control.

Final Thoughts on Solo 401k Benefits

The Solo 401k is one of the most flexible and tax-efficient retirement plans available to self-employed individuals. With high contribution limits, Roth options, broad investment flexibility, and spouse eligibility, it offers a powerful mix of benefits for long-term retirement planning.

That said, plan features can vary by provider, so it’s important to review the fine print before opening an account. Look for a plan that aligns with your goals, whether that’s maximizing tax savings, investing in alternative assets, or consolidating your retirement funds under one roof.

📌 For more insights on Solo 401k rules, comparisons, and provider options, explore our other articles:

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.

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