15 Solo 401k Facts to Know in 2025 (Contributions, Rules, and Strategies)

Planning for retirement when you’re self-employed comes with unique challenges — but also unique advantages. The Solo 401k remains one of the most flexible and tax-advantaged savings options available. 

Whether you’re just starting your plan or optimizing it for 2025, here are the latest updates and facts to know that could help you stay compliant, maximize your contributions, and avoid common mistakes.

#1 – Employee Contribution Limit Increases to $23,500

For 2025, the IRS increased the maximum employee contribution limit for Solo 401k plans to $23,500, up from $23,000 in 2024. This limit applies to salary deferrals, which can be made as pre-tax or Roth contributions, if your plan allows. This contribution is separate from the employer portion, which is calculated differently.

#2 – Total Contribution Limit Rises to $70,000

The combined limit for employee and employer contributions for a Solo 401k plan in 2025 has increased to $70,000 for individuals under the age of 50. This includes both employee and employer contributions.

✅ Employee deferral: You can contribute up to $23,500 as an employee or $31,000 if you are age 50 or older. Employees aged 60 to 63 can even make a higher catch-up contribution of $11,250 in 2025, up from the standard $7,500.

✅ Employer contribution: Your business can contribute up to 25% of your compensation, which is based on net income.

📝 Note: Contribution limits are reviewed annually and may change based on inflation adjustments.

#3 – Standard Catch-Up Contribution Remains at $7,500

For those nearing retirement, the IRS offers a way to contribute a little more each year through catch-up contributions. 

✅ Catch-up contribution for age 50 and above: $7,500

✅ Higher catch-up contribution for ages 60–63: $11,250

✅ Eligibility: Must be allowed by your Solo 401k plan document

#4 – Extended Deadline to Establish and Fund a Solo 401k

✅ Plan Establishment Deadline: For tax year 2025, you can establish a Solo 401k plan as late as your tax filing deadline, including extensions.

✅ Contribution Deadline: Contributions must be made by the due date of your tax return, including extensions, to be deductible for that tax year.

✅ Employer Contributions: These can be made up to the extended due date of your tax return.
✅ Employee Deferrals: Must be elected by December 31 of the tax year, even if the actual contribution is made later.

#5 – Dual Contribution Roles: Employee and Employer

As a self-employed individual, you act as both the employee and employer.  A Solo 401k recognizes both roles, giving you the ability to contribute in each capacity. This structure may allow for greater retirement savings than what’s typically available through workplace plans.

✅ Employee Contributions – You may contribute up to 100% of your earned income, up to the annual limit of $23,500 for 2025. If you’re aged 50 or older, you can make additional catch-up contributions.

✅ Employer Contributions – Your business can contribute up to 25% of your compensation, as defined by the plan. For self-employed individuals, this requires a special computation to determine the allowable contribution.

✅ Total Contributions – The combined total of employee and employer contributions cannot exceed the annual limit of $70,000 for 2025.

📝 Note: Allowable contributions are based on net earnings, which are calculated after deducting half of self-employment taxes and Solo 401k contributions.

#6 – Roth Contributions Now Include Employer Portion

Starting in 2025, employer contributions may now be made as Roth, if your Solo 401k plan allows it. This means you could choose to pay taxes on those contributions today in exchange for potential tax-free withdrawals later if held to retirement.

Disclaimer: Roth employer contributions are only available in plans that explicitly permit them, and qualified distributions (e.g. after age 59 ½ and at least five years after your first Roth contribution) are required for tax-free treatment. Tax rules and plan provisions vary. Make sure to consult your plan administrator and a tax professional before making any elections.

Here are some things to be aware of:

✅ Not all Solo 401k plans support Roth employer contributions. Check if your plan has been updated to include this option.
✅ Unlike pre-tax contributions, Roth employer amounts are added to your taxable income in the year they’re made.
✅ To qualify, the Roth portion of the employer contribution has to be 100 percent vested immediately.

📝 Note: This change came from SECURE 2.0. If you’re interested in using it, check with your provider to make sure your plan supports it and handles the required tax reporting.

📌 Also Read: What Is A Roth Solo 401k? (2025 Update)

#7 – Spousal Participation Can Double Contributions

If your spouse earns income from your business, they may be eligible to participate in your Solo 401k plan. This can potentially double your household’s retirement contributions.

✅ Spouse Eligibility – Your spouse must be actively employed by your business, either as a W-2 employee or as a co-owner, and receive compensation.

✅ Separate Contribution Limits – Your spouse can contribute up to the annual employee deferral limit and receive employer contributions, just like you.

✅ Combined Household Contributions – Together, you and your spouse can contribute up to $140,000 in 2025, assuming both meet the income requirements.

📌 Also Read: How to Add Your Spouse to Your Solo 401k Plan

#8 – Form 5500-EZ Filing Required at $250,000

If your Solo 401k plan’s assets exceed $250,000 at the end of the plan year, the IRS requires you to file Form 5500-EZ. 

✅ Combined Asset Calculation – If you maintain more than one one-participant plan, the $250,000 threshold applies to the combined total assets of all such plans.

✅ Final Plan Year Requirement – You must file Form 5500-EZ for the final plan year, regardless of the plan’s asset value, to report that all assets have been distributed or transferred.

📝 Important Note: Failure to file Form 5500-EZ when required may result in penalties. The IRS can impose a penalty of $250 per day, up to a maximum of $150,000 per year, for late filings.

📌 Also Read: Form 5500-EZ: A Simple Guide to Filing, Deadlines & Avoiding Penalties

#9 – Loan Provision Available Up to $50,000

Some Solo 401k plans allow you to borrow from your account without it counting as a taxable withdrawal. 

✅ Loan Limits – You may borrow up to the lesser of $50,000 or 50 percent of your vested account balance.

✅ Repayment Terms – Repayments are required at least quarterly, and the loan must be paid back within five years. Plans may allow a longer term if the loan is used to buy your primary home.

✅ Written Agreement – The loan must include a formal agreement that shows the amount, repayment schedule, and interest rate—similar to a personal loan.

📝 Note: Not all Solo 401k plans allow loans. If yours does, ensure IRS loan rules are followed to avoid taxable treatment.

📌 Also Read: Fees, Interest Rates, And Taxes For A 401k Loan

#10 – Broad Investment Options, Including Real Estate

Depending on your provider, Solo 401k plans may give you access to a wide mix of  traditional and alternative investments, allowing you to diversify your retirement portfolio.

✅ Traditional Assets – Investments may include stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

✅ Alternative Assets – Some Solo 401k plans permit investments in real estate, private equity, precious metals, and private loans.

✅ Self-Directed Options – Self-directed Solo 401k plans typically allow for a broader range of investments, including real estate and private placements.

❌ Prohibited Investments – The IRS prohibits certain investments within retirement plans, such as collectibles (e.g., art, antiques, gems) and life insurance contracts. Engaging in prohibited transactions can lead to tax penalties.

📝 Note: Make sure to review your plan documents and consult with a financial advisor to understand permissible investments and avoid prohibited transactions.

📌 Also Read: What Can I Invest In Through A Solo 401k?

#11 – Required Minimum Distributions Begin at Age 73

Starting in 2025, Solo 401k participants must begin taking Required Minimum Distributions (RMDs) by April 1 following the year they reach age 73.

✅ First RMD Deadline – If you reach age 73 in 2025, your first RMD is due by April 1, 2026.

✅ Annual RMDs Thereafter – Subsequent RMDs must be taken by December 31 each year.

✅ Calculation Method – RMD amounts are calculated by dividing your Solo 401k account balance as of December 31 of the previous year by a life expectancy factor provided by the IRS.

📝 Note: Delaying your first RMD until April 1 means you’ll need to take two distributions in that year — the first by April 1 and the second by December 31 — which could increase your taxable income for that year.

📌 Also Read: Everything You Need To Know About Missed RMD’s

#12 – Early Withdrawals Subject to Taxes and Penalties

Taking money out of your Solo 401k before age 59½ generally triggers both income taxes and a 10% early withdrawal penalty. However, certain exceptions may apply:

✅ If the participant becomes totally and permanently disabled

✅ If the funds are paid to a beneficiary or estate after the participant’s death

✅ If the withdrawal is part of a series of substantially equal periodic payments

✅ If the distribution is used to cover deductible medical expenses that exceed 7.5 percent of adjusted gross income

✅ If the IRS places a levy on the Solo 401k plan

✅ If the distribution qualifies as a birth or adoption withdrawal (up to $5,000)

✅ If the funds are transferred to an alternate payee under a qualified domestic relations order (QDRO)

You may refer to IRS Topic No. 558 for a comprehensive list of exceptions.

#13 – Solo 401k Suitable for Side Income

Earning freelance or side income doesn’t disqualify you from opening a Solo 401k. Even if you already have a 401k through your primary job, you may still be eligible to set up a Solo 401k for your self-employment income as long as you meet these requirements:

✅ You Must Have Self-Employment Income – The Solo 401k is designed for individuals who earn income through self-employment and don’t have full-time employees.

✅ Your Job’s 401k Doesn’t Disqualify You – You may participate in both a workplace 401k and a Solo 401k. However, your employee deferral limit applies across both plans.

✅ You Can Still Make Employer Contributions – If you qualify, your side business may also make its own employer contributions, calculated separately from your main job.

📌 Also Read: How to Open a 401k Without An Employer

#14 – Multiple Solo 401k Plans Allowed, But Limits Apply

If you run more than one business, you might wonder if opening multiple Solo 401k plans could help you increase your retirement contributions. While it’s technically allowed, IRS rules limit the benefit of having more than one plan.

✅ You Can Open More Than One Plan – Separate Solo 401k plans can be established for different businesses, especially if they operate under distinct tax IDs.

✅ Contribution Limits Still Apply – Your employee deferral limit ($23,500 in 2025) is shared across all Solo 401k plans, regardless of how many you have.

✅ Controlled Group Rules May Combine Businesses – If your businesses are related under the IRS’s controlled group rules (e.g., same owner or shared control), they may be treated as one entity. This means you’re effectively subject to one plan’s limits across all businesses.

📌 Also Read: Solo 401k Controlled Group Rules for Multiple Business Interests

#15 – Mega Backdoor Roth Strategy Possible

Some Solo 401k plans include advanced features that may allow you to make after-tax contributions and convert them to Roth—commonly known as the Mega Backdoor Roth strategy. This can be a powerful way to increase your tax-advantaged retirement savings beyond standard limits.

✅ What It Is – This strategy involves making additional after-tax contributions to your Solo 401k, then converting those funds to Roth. This could either be within the plan or by rolling them into a Roth IRA.

✅ Why It Matters – Unlike standard Roth contributions, the Mega Backdoor Roth lets you move more money into a Roth account, even after reaching your employee deferral limit. This could lead to more tax-free growth over time.

✅ What It Requires – Your Solo 401k must allow both after-tax contributions and either in-plan Roth conversions or rollovers to a Roth IRA. Not all plans include these features, so check your plan document or ask your provider.

📝 Note: Contributions must still stay within the IRS total contribution limit of $70,000 in 2025 (or $77,500 with catch-up). Earnings on after-tax contributions are taxable upon conversion.

📌 Also Read: The Mega Backdoor Roth Solo 401k Explained

Key Takeaways

A Solo 401k may offer a flexible and tax-efficient strategy for building retirement savings, especially for self-employed individuals who contribute as both employee and employer. Understanding the 2025 rules may help you stay compliant and make informed, long-term decisions.

✅ Review your plan document to confirm which features—such as Roth contributions, after-tax contributions, or loan provisions—are supported by your provider
✅ Recalculate your contributions if your business structure or income has changed, since eligibility and limits depend on how compensation is defined
✅ Consult with a tax or retirement professional to ensure your Solo 401k strategy is aligned with your current financial goals and compliance requirements

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