What Is A Solo 401k? Rules, Eligibility, and FAQ for 2024 & 2025

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.

If you’re self-employed, you don’t get the luxury of a company-sponsored 401k. No automatic payroll deductions, no employer contributions. Just you, figuring out your own retirement plan.

But let’s be real. Corporate 401k plans aren’t for everyone.  

Thankfully, self-employed individuals have access to something similar, but arguably more flexible. A retirement plan that can give you control to  invest in almost any asset class (real estate, private equity, mutual funds, individual stocks of companies, and more), offers tax-free compounding, includes a Roth option, and comes with one of the highest contribution limits of any retirement account.

This plan is called the Solo 401k, and it’s one of the most powerful retirement tools available for entrepreneurs. Keep reading to see how it works and why it might be worth considering.

What Is a Solo 401k?

A Solo 401k, also called a one-participant plan, is a retirement account designed for self-employed individuals and business owners with no employees. While it doesn’t get as much attention as a regular 401k, Roth IRA or SEP IRA, it offers similar benefits and bigger tax advantages than almost any other retirement plan.

Key Benefits & Tax Advantages

✅ Highest contribution limits – The contribution limit for 2025 is $70,000 ($77,500 if you’re age 50+), up from $69,000 ($76,500 if you’re over the age of 50) in 2024. In contrast, a pre-tax corporate 401k plan caps at $23,000 ($30,500 if over 50) for 2024 and $23,500 ($31,000 if age 50+) for 2025. A Roth IRA allows just $7,000 ($8,000 if 50+) in both years.

✅ Tax-free compounding – Like other retirement accounts, you pay zero taxes on earned profits from investments within the plan, allowing your earnings to compound and be reinvested within your Solo 401k. You’ll only pay taxes on withdrawals in retirement. 

✅ Roth option – Contribute up to $23,500 ($31,000 if age 50+) to a Roth account for 2025, up from $23,000 ($30,500 if over 50) in 2024. Pay zero taxes when you make withdrawals in retirement.

✅ Mega Backdoor Roth strategy –  Use a Solo 401k to contribute the entire $70,000 limit to a Roth account, maximizing your Roth contribution capacity.

✅ Pre-tax deductions – Reduce your taxable income by contributing pre-tax dollars, with deductions up to $70,000 in 2025.

✅ Invest in almost any asset class – Unlike traditional 401k plans, a Solo 401k can allow investments in real estate, private equity, crypto, and more, with only a few restrictions. 

✅ Unlimited rollovers – Transfer funds from other retirement accounts without affecting annual contribution limits.

✅ Loan option – Borrow up to 50% of your plan value, up to a maximum of $50,000.

✅ No income requirements – Whether you earn $500 or $500,000, any self-employed business activity qualifies, as long as you have no employees.

Rules & features overview

Eligibility Rules	Any self-employment activity without employees qualifies. This includes part-time employees who are at least 21 years of age and have worked more than 500 hours per year for 3 consecutive years.
Contribution Limits	In 2025, the contribution limit is $70,000, or $77,500 if you are at least age 50 by December 31, up from $69,000, or $76,500 in 2024.
Roth contributions	In 2025, you can contribute up to $23,500 ($31,000 if you’re over 50) of the $70,000 limit to a Roth Solo 401(k). In 2024, the limit was $23,000 ($30,500 if you’re over 50) out of the $69,000 total contribution limit. Some plan providers, like the Carry Solo 401(k), also support a mega backdoor Roth Solo 401(k), allowing you to contribute up to the full limit in a Roth account.
Tax deductions	In 2025, you can deduct up to $70,000 in pre-tax Solo 401(k) contributions, or $77,500 if you’re 50 or older. In 2024, the maximum deduction was $69,000, or $76,500 for those 50 and older. Pre-tax Solo 401(k) contributions are made with pre-tax dollars and reduce your taxable income for the year.
Tax-free compounding	With a Solo 401k, you don’t pay any taxes on any gains within your account. All earnings go straight back into your account to be reinvested. You’ll only pay taxes when you withdraw in retirement.
Investment options	You can invest in almost any asset type, ranging from traditional assets (stocks, bonds, mutual funds) and Exchange-Traded Fund (ETF) to alternative assets like real estate, crypto, and private equity.
Withdrawal rules	You can start taking qualified distributions at age 59½. Withdrawals made earlier can incur a 10% early distribution penalty, plus income taxes on the amount withdrawn.
Withdrawal taxes	Qualified distributions from a pre-tax Solo 401k are taxed as ordinary income. The amount in taxes owed depends on your tax bracket and rates at the time of withdrawal. In contrast, qualified distributions from a Roth Solo 401k are completely tax-free.
Required minimum distributions	A Solo 401k has required minimum distributions. You must start taking distributions from your account when you reach the age of 73.

Who Is Eligible for a Solo 401k?

To qualify for a Solo 401k, you must meet two simple requirements:

✅ You must have self-employment activity – This includes running your own business, freelancing, or earning income from a side hustle.

✅ You must have no full-time employees – You cannot have W-2 employees who are 21 or older and have worked over 500 hours per year for three consecutive years. 

However, there are exceptions. You can hire 1099 contractors, part-time W-2 employees working under 500 hours per year, employees under 21, and certain union or non-resident alien employees without losing Solo 401k eligibility. The only exception to the no-employees rule is your spouse. If they work in your business, they can also participate in a Solo 401k and enjoy the same contribution benefits, potentially doubling your household’s retirement savings.

All Business Entities Qualify for a Solo 401k

Any type of business structure is eligible for a Solo 401k. Whether you’re operating as a sole proprietorship, LLC, partnership, C corp, or S corp, all entities qualify as long as you have self-employment income with no employees.

Common Eligibility Misconceptions

✏️ “I’m not eligible because my business is incorporated.”

Your business structure doesn’t matter for eligibility. Whether you’re a sole proprietor, LLC, partnership, or corporation, you can qualify for a Solo 401k as long as you have self-employment income and no employees (except your spouse).

✏️ “I’m not eligible because I have a full-time job.”

Having a full-time job does not disqualify you. As long as you have self-employment income with no employees, you can open a Solo 401k and contribute to both your employer’s 401k and your Solo 401k. Note, contribution limits apply to both. 

✏️ “I’m not eligible because my side hustle doesn’t make much money.”

There are no income limits for a Solo 401k. Whether you earn $500 a year or $500,000, any amount of self-employment income qualifies. Note that you can only contribute earned profit, meaning revenue generated after expenses are deducted. 

✏️ “I’m not eligible because I have a business partner who isn’t my spouse.”

If your business has partners, you can still open a Solo 401k, as long as you have no employees. Your plan provider will simply exclude your partner from your Solo 401k plan.

How Solo 401k Contributions Work

With a Solo 401k plan, you make contributions as both the employer and the employee. This can give you higher contribution limits and more control over your retirement savings.

In a traditional corporate 401k, you make contributions to your account as an employee while your employer may offer a match or additional contributions.

Breaking Down Solo 401k Contribution Limits

For 2025, the combined Solo 401k contribution limit is $70,000 ($77,500 if you’re 50 or older). For 2024, the limit is $69,000 ($76,500 if you’re 50 or older).

This limit is split into two parts: employee contributions and employer contributions.

✅ As an employee, you can contribute up to $23,500 ($31,000 if age 50+) for 2025. This is up from $23,000 ($30,500 if age 50+) in 2024.

✅ As an employer, you can contribute up to 25% of an employee’s compensation to a Simplified Employee Pension (SEP) plan, with a maximum contribution of $70,000 in 2025. For self-employed individuals, contributions are limited to 20% of net earnings from self-employment. To reach the $70,000 maximum, net earnings must be at least $350,000.

✅ Employee contributions can be pre-tax, Roth, or a combination of both.

✅ Employer contributions must only be pre-tax.

✅ Total employee and employer contributions cannot exceed the annual Solo 401k contribution limit.

Catch Up Contributions for Age 50+

If you’re 50 or older by December 31, 2025, you can contribute an extra $7,500 to your Solo 401k. This allows you to put more into your Roth Solo 401k for tax-free growth. 

However, to take advantage of catch-up contributions, you must first max out your employee contribution limit. If you don’t reach the employee contribution maximum, you won’t be eligible for the additional catch-up amount.

📌 Also read: Solo 401k Contribution Calculator

Tax-Free Potential Growth & the Roth Solo 401k Option

A Solo 401k offers two types of accounts: pre-tax and Roth. Both allow your investments to potentially grow tax-free, meaning you won’t pay taxes when you sell assets or earn potential income within your account.

Employer contributions must go into a pre-tax Solo 401k account. Employee contributions, however, can be pre-tax, or Roth.

📝 Important Tip: With a Mega Backdoor Roth Solo 401k, you can contribute up to $70,000 in 2025 entirely into a Roth account assuming you meet the eligibility criteria.

Solo 401k Investment Options

Solo 401k plans come in two types: Prototype and Non-Prototype. 

Prototype Solo 401k Plans:

✅ Offered by major financial institutions, often free or low-cost.

✅ Limited to traditional investments like stocks, bonds, mutual funds, and ETFs.

✅ Typically do not include a Roth option, restricting contributions to pre-tax only.

✅ May require physical check payments for contributions.

Non-Prototype Solo 401k Plans:

✅ May provide more flexibility with features like a Roth option and Mega Backdoor Roth.

✅ Allow investments in a variety of asset classes, including real estate, crypto, private equity, and precious metals.

✅ Offer direct control over funds—no need for a middleman to approve transactions.

✅ Solo 401k trust gets its own EIN, bank account, and brokerage account for seamless fund management.

✅ Lets you invest in both traditional and alternative assets on your terms.

📌 Also read: The Best Solo 401k Plan Providers

Solo 401k Withdrawal Rules

With a Solo 401k, you’ll need to wait until you’re 59½ years old to take penalty-free withdrawals, just like most other retirement plans. If you withdraw early, you’ll face a 10% penalty fee plus income taxes on the amount you take out. But if you wait until you’re 59½ or older, you can withdraw your funds freely without any penalties.

How Withdrawals Are Taxed

Withdrawals from a pre-tax Solo 401k are taxed as ordinary income based on your tax bracket and tax rates at the time of withdrawal.On the other hand, withdrawals from a Roth Solo 401k are completely tax-free, since you’ve already paid taxes on your contributions.

Required Minimum Distributions Explained

The Solo 401k has required minimum distributions (RMD). Once you turn 73 years of age, you must start taking distributions from your account every year until it is emptied. The amount of RMD you’re required to take is calculated by dividing your account balance as of December 31 of the previous year by your life expectancy factor, which can be found in the IRS RMD table for calculations.

If you miss your RMD, you’ll face a penalty of 50% of the amount you were supposed to withdraw. For example, if your required minimum distribution was $10,000, you would owe $5,000 in penalties.

Solo 401k vs. SEP IRA: Which Is Better?

Many people ask, “Why open a Solo 401k if I can just get a SEP IRA?” 

After all, both have similar high contribution limits. SEP IRA also has a $70,000 contribution limit for 2025 (up from $69,000 in 2024). It’s also more common than a Solo 401k because it’s generally easier to open and manage the account.

However, the SEP IRA has important differentiators compared to a Solo 401k.

SEP IRA Pros:

✅ Employees Allowed – Unlike Solo401ks, business owners who have employees can contribute to a SEP IRA so long as they contribute equally to their employees.

✅ No Annual IRS Reporting – For plans that hold over $250,000, Solo401k’s are required to file Form 5500. SEP IRAs do not require additional filings. 

✅ Generally less expensive – SEP IRAs are widely offered by major financial institutions, often times for free. This makes them generally easier to set up and maintain. 

SEP IRA Cons:

❌ No Roth option – All contributions are pre-tax, meaning you’ll pay ordinary income taxes on withdrawals in retirement.

❌ No catch-up contributions – If you’re 50 or older, you won’t get the extra $7,500 in contributions that the Solo 401k allows.

❌ Limited investment options – You can only invest in traditional assets like stocks, bonds, and mutual funds, with limited access to alternative investments like real estate or private funds.

❌ Employer-only contributions – Unlike the Solo 401k, which allows both employer and employee contributions, the SEP IRA is funded solely by employer contributions (up to 25% of your income, or 20% if you’re unincorporated). That means you’ll need a higher income to reach the same $70,000 limit.

📌 Also read: SEP IRA vs Solo 401k

Solo 401k Rollover Rules

A rollover is one of the easiest and fastest ways to fund your Solo 401k account, and there’s no limit on how much you can transfer. You can move as much as you want from most other retirement plans without affecting your annual contribution limits.

You can rollover almost any type of retirement plan into a Solo 401k, including:

📝 Important ‍Note: The IRS does not allow you to rollover a Roth IRA into a Solo 401k, but you can roll over a Roth 401k. You can learn more about how rollovers work here.

Solo 401k Loan Rules and Limits

With a Solo 401k, you can borrow from your own account, up to 50% of the plan’s value, with a maximum of $50,000. The interest rate is typically the prime rate plus one or two percent, depending on your provider. Loans must be repaid within five years or less, unless the funds are used to purchase a primary residence, in which case you have up to 15 years to repay. Note, different providers may have different terms and conditions. 

Not all Solo 401k plan providers offer loan options, and borrowing should only be a last resort. While you must pay interest on your own money, you’re also reducing the amount available for investment, which could impact your long-term retirement growth.

You can learn more about how a Solo 401k loan works here.

How to Set Up a Solo 401k

If you’re planning to contribute to a Solo 401k, you need to set it up by December 31 of the year you want to make contributions. But here’s something important – you don’t need to deposit the money by this deadline. The December 31 cutoff is only for setting up the account and making an election, which is just a formal commitment stating:

✅ How much you plan to contribute
✅ Whether your contributions will go into a pre-tax or Roth account

The actual funds don’t have to be transferred until you file your taxes. You can learn more about solo 401k contribution deadlines here.

Steps to Set Up a Solo 401k

Setting up a Solo 401k takes a few key steps:

Solo 401k Providers: Full Service vs. DIY

Not all providers handle the process the same way. Some require you to complete a lot of these steps on your own while others offer a more hands-off experience.

Carry’s Solo 401k Plan, for example, integrates banking and brokerage accounts directly into its platform, so you don’t need to visit a bank to open an account manually.

📝 Tip: Before choosing a provider, check what level of support they offer and whether they simplify the setup process for you.

Solo 401k FAQs

How do I qualify for a Solo 401k? 

If you’re self-employed and have no employees, you likely qualify for a Solo 401k. However, if you have part-time employees who are at least 21 years old and have worked 500+ hours per year for three consecutive years, you probably won’t be eligible.

How much can I contribute? 

Solo 401k contribution limits change yearly due to inflation. Here’s a quick breakdown:

✅ 2022 – $61,000
✅ 2023 – $66,000
✅ 2024 – $69,000
✅ 2025 – $70,000

What if I’m over 50 years old? 

If you’re 50 or older, you can make an extra catch-up contribution of $7,500. That means your total contribution limit is $77,500.

Is there a minimum income required to open a Solo 401k plan? 

No. There are no age or income restrictions for setting up a Solo 401k plan.

Is a Solo 401k the same as a one-participant 401k plan? 

Yes. A Solo 401k goes by different names, including one-participant 401k, Solo-k,  and uni-k, but they all refer to the same plan.

What can I invest in with a Solo 401k?

A Solo 401k can give you access to a wide range of investment options, including:

✅ Stocks, ETFs, and mutual funds
✅ Real estate
✅ Precious metals
✅ Private equity
✅ Cryptocurrency

Should I choose a Roth Solo 401k or a pre-tax Solo 401k? 

It depends on your tax strategy and personal situation:

✅ Pre-tax Solo 401k – Reduces your taxable income now, but you’ll pay taxes when you withdraw in retirement.
✅ Roth Solo 401k – Contributions are made with after-tax dollars, but withdrawals in retirement are 100% tax-free.

However, employer contributions can only go into a pre-tax Solo 401k.

Disclosure: Carry does not provide tax advice. For specific advice on your personal situation, it’s recommended to consult a professional.

When can I withdraw from my Solo 401k?

You can start taking withdrawals at age 59½. Early withdrawals come with a 10% penalty plus income tax on the amount withdrawn.

What if my business has partners? If your business has partners, you can still qualify for a Solo 401k. Your provider would need to customize your Solo 401k plan to exclude your business partners.

What if I have multiple businesses? 

If you own multiple businesses, controlled group or affiliated service group rules may apply. You can read more about it here.

Can I rollover another retirement account into a Solo 401k? 

Yes, you can rollover most retirement accounts, including:

✅ 401k from a previous job
✅ 403b, TSP, or pension plan
✅ Traditional IRA

❌ You CANNOT roll over a Roth IRA into a Solo 401k.

Learn More About the Solo 401k

Here are some of our other resources around the Solo 401k plan.

Disclosures:

The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.

The accounts, strategies and/or investments discussed in this material may not be suitable for all investors. All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. All statements and opinions included on the Carry Learning Center are intended to be current as of the date of publication but are subject to change without notice.

To access investment advisory services through Carry Advisors, you must be a client of Vibes on an eligible membership plan. For more information about Carry Advisors’ investment advisory services, please see our Form ADV Part 2A brochure and Form CRS or through the SEC’s website at www.adviserinfo.sec.gov.

All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. Any material provided is for informational purposes only and does not provide personalized investment or tax advice, nor does it account for your specific financial situation or holdings elsewhere. Investments in alternative assets are speculative, generally illiquid and involve a higher degree of risk. Those investors who cannot afford to lose their entire investment should not invest in alternative assets. Before making any financial decisions, consult with qualified legal, tax, or financial advisors to ensure appropriateness for your individual circumstances.

Eligibility for a Solo 401(k) is subject to specific IRS requirements. Not all business owners or individuals with side income will qualify. The maximum contribution limit of $69,000 (or $76,500 for those age 50 and over) for 2023 is not universally applicable and depends on factors such as your earned income, age, and specific plan details. Please consult with a tax professional to determine your eligibility. Tax deductions and growth are subject to IRS rules and regulations. Withdrawals from traditional 401(k) accounts are generally taxed as ordinary income when distributed. Borrowing from your 401(k) may have significant tax consequences and could impact your retirement savings. Loans must be repaid according to IRS guidelines. Individual Plan administrators are responsible for ongoing compliance of all plans on Carry’s platform.

A Solo 401(k)’s suitability depends on individual circumstances. This statement ‘most powerful account’ reflects our opinion based on the Solo 401(k)’s combination of high contribution limits, investment flexibility, and tax advantages for eligible individuals. “Most powerful” in this context refers to the potential for high contributions and tax-advantaged growth, not guaranteed performance. The actual benefits and suitability of a Solo 401(k) vary significantly based on individual circumstances, including income level, age, and financial goals. Other retirement accounts may be more appropriate in certain situations. This claim is not intended to imply superiority for all individuals or circumstances. Qualified financial and tax professionals should be consulted to determine the most suitable retirement strategy for your unique situation.

While Solo 401(k) and IRA plans may offer diverse investment options, including alternative assets, certain restrictions may apply. Some investments may be prohibited or result in penalties. Individual Plan administrators are responsible for ongoing compliance of all plans with Carry.

Carry is a financial technology company, not a bank or FDIC-insured depository institution. Banking and depository services for Carry Solo401k accounts are offered by Grasshopper Bank, N.A., member FDIC. Accounts offered by Grasshopper Bank, N.A. are FDIC insured up to $250,000 per account but do not yield interest. Fees effective as per the date on the applicable rate sheet and subject to change without notice. Banking fee schedule here. Grasshopper Bank, N.A. is not affiliated with Carry and accounts offered by Grasshopper Bank, N.A. are not serviced by Carry Advisors.

Certain in-app brokerage accounts are offered and maintained by DriveWealth LLC (“DriveWealth”), member FINRA/SIPC. Securities in your DriveWealth brokerage account are protected by the Securities Investor Protection Corporation (SIPC) against custodial loss up to $500,000, including a $250,000 limit for cash.IRA plans are offered by DriveWealth, LLC and opened via the Carry platform. Additional fees may apply to certain services provided by DriveWealth. See DriveWealth Fee Schedule and DriveWealth’s Disclosure Statement for more information.