Self-employment is great for visionary, freedom-seeking entrepreneurs.

However, the dream has its drawbacks. Those who go it alone assume the entirety of the risk, the workload, and the tax obligation as both the employer and the employee. Plus, they don’t have the luxury of an employer-sponsored retirement plan to soften the blow at tax-time.

Opening a solo 401(k) effectively solves this problem for those who qualify. With the right provider, solo business owners can start reaping immediate tax benefits, saving for the future, and enjoying greater financial flexibility at an affordable cost.

What is a Solo 401(k)?

A solo 401(k), often known as a one-participant 401(k) or individual 401(k), is a specialized retirement savings account created for self-employed professionals and business owners without any full-time workers aside from possibly a spouse. This retirement plan parallels many features you’d associate with a company-sponsored 401(k), including allowing participants to finance their accounts with pre-tax dollars. Additionally, contributions can prosper tax-free until retirement, when the account holder begins withdrawals.

However, its distinctive advantages and slightly differing prerequisites set the solo 401(k) apart from its corporate counterpart. For instance, solo 401(k)s typically boast a higher contribution limit and don’t impose potential age or income constraints like some company-sponsored plans might. But it’s essential to understand that not everyone can opt into this plan. To be eligible for the best solo 401k, an individual:

  • Must be self-employed.
  • Can’t have any employees apart from their spouse.
  • Requires an employer identification number (EIN) sanctioned by the IRS.

To learn more about single-person retirement solutions, solo 401(k) providers can shed more light on your available avenues. Consulting with solo 401(k) providers can be a great starting point and offer insights on the best self-employed 401(k) options tailored to your personal needs.

Should You Enroll In A Solo 401(k) Plan?

If you are a sole proprietor, freelancer, independent contractor, side-job worker, or solo entrepreneur, a solo 401(k) is the ideal choice for retirement savings for the following reasons:

1. Huge Tax Deduction

Solo 401(k)s (and SEP IRAs) offer the highest maximum contribution limits compared to other self-employed retirement plans. If you have no plans to add employees to your business, then a solo 401(k) makes sense. (Just keep in mind: if you’re taking out a solo 401(k) for contract work done on the side of your regular job, the contribution limits apply per person, not per plan.)

What if you add employees? If you have a solo 401(k) and add a full-time worker to payroll, you will no longer be able to contribute to your plan; while your account is frozen, you can still manage it and allow it to mature. If you do expand and wish to cover your employees, you may consider an alternative such as a SEP IRA, which will enable you to contribute 10% of your earnings, as well as 10% of each eligible employees’ earnings as well. Other options may make more sense, depending on your expansion needs.

2. No Taxes Now

You can opt for a traditional solo 401(k) during setup, meaning that you defer the taxes you pay at withdrawal time. In other words, the traditional solo model allows you to deduct a percentage of your taxable income for the year to reduce your tax burden. Or you may opt for a Roth solo 401(k), which allows you to claim the lesser of your retirement contributions or 25% of your net self-employment earnings. If you’re worried about the tax rate climb in the future cutting into your retirement dollars, opt to pay your share of the taxes now.

3. Loan Flexibility

Generally speaking, it’s best to allow your retirement fund to grow over the years, but in a pinch, the money is available to you. Solo 401(k) account holders can borrow up to 50% of the plan value or $50,000 – whichever is less. This is a great perk for single business owners who may have limited resources available when financial times grow tough.

How does a solo 401(k) work?

With a solo 401(k), you contribute as both employee and employer. In 2023:

  • As Employee: You may save the lesser of up to $23,000, or 100% compensation, in employee contributions. If you’re over age 50, you can add an additional $7,500 in catch-up contributions.
  • As Employer: You can save up to 25% of your net self-employment income in profit-sharing contributions, up to $46,000.
  • This means you can contribute up to $69,000 in 2024

Contributions are generally made on a pre-tax basis. However, some solo 401(k) providers also offer a Roth 401(k) option that lets you invest some or all contributions on an after-tax basis, so that they are tax-free in retirement. The IRS considers “retirement age” to be 59.5. Any distributions taken out of the account beforehand may be subject to taxes and penalties.

If your spouse earns income from your business, you can effectively double your solo 401(k) contributions as a family. On the employee side, you can contribute up to $23,000 for your spouse (plus the $7,500 catch-up provision, if eligible). On the employer side, you can make the plan’s profit-sharing contribution up to 25% for your spouse as well.

How to Open a Solo 401(k)

To get started, you’ll need to:

  • Choose a solo 401(k) provider: Any online broker can help you set up a solo 401(k).
  • Fill out the forms: Complete an application and plan adoption agreement in exchange for an Employer Identification Number and a new account. Choose between a Traditional or Roth plan.
  • Set up contributions: Begin investing in mutual funds, index funds, exchange-traded funds, individual stocks and bonds, or certificates of deposit, as you like.
  • Be mindful of deadlines: Employee investments must be made by December 31st, but you have until the April 15th tax-filing deadline to make your employer contributions.
  • Fill out forms (again): Once your plan tops $250,000 in assets, you will need to fill out paper Form 5500-EZ or electronic Form 5500-SF every year.
  • Seek additional services: If necessary, you may opt for more holistic guidance or direct financial management assistance through your provider to meet your unique retirement goals.

Factors When Choosing a Solo 401(k) Provider

Owner-only businesses need a 401(k) provider that can meet their needs. Consider the following:

Plan Cost

  • Ideally, you’ll find a solo 401(k) plan that has no assets under management (AUM) fees or trading costs.
  • Ubiquity is the only small business 401(k) provider with a low, transparent, flat-fee1 model since 1999.

Easy Setup and Management

  • A user-friendly online dashboard is helpful for setup and long-term management.
  • You can set up a solo 401(k) with Ubiquity online in about 15 minutes.
  • Once the plan is set up, investments can be made through Charles Schwab or another custodian.
  • You’re able to run online statements and reports at any time.
  • Online tools make it easy for you to select and manage investments.

Quality Support Service

  • Look for a plan backed by staff that supports you.
  • Some brokers offer online-only chat service. Ubiquity provides both online and phone support.
  • Just read some of the many reviews from other sole proprietors to get a feel for our level of service.


  • Can you make Roth contributions? (With Ubiquity – YES!)
  • Can you take loans from your plan? (YES!)
  • Do you have a range of investment choices? (YES!)
  • Can you choose from different families of funds? (YES!)
  • Are there sustainable investment options? (YES!)

Fit Small Business named Ubiquity one of the 10 “Best Solo 401(k) Providers,” particularly for individuals who like the freedom to choose their own brokerage firm. Since our founding in 1999, we have helped more than 100,000 people invest more than $3 billion in retirement savings accounts.

Ubiquity creates the plan, facilitates contributions, provides customer service, administers loans if necessary, and offers tax form assistance for an additional fee. The price for our simple, flexible Single(k)® plan is easily established online and is very affordable to manage.

How to Maximize 401(k) and IRA Retirement Accounts

Thinking about retirement as a business owner? The solo 401(k) is your go-to. Various providers offer unique perks to ramp up your retirement savings. Here’s how to make the most of this game-changing account:

Put Money in as an Employee:

  • Direct Contributions: In 2023, you can set aside up to $23,000 from your paycheck into a solo 401(k). Over 50? Make a catch-up contribution and bump that up to $30,500.
  • Flexible Contributions: These aren’t tied to your salary. For 2024, between your direct and flexible contributions, you’re looking at a max of $69,000, or $76,500 if you’re 50 or older.

Chip In as the Boss:

As the owner, you can also contribute up to 25% of your earnings. Just remember to adjust your income for any direct contributions and self-employment taxes.

Figuring Out How Much to Contribute:

  • Set Your Goals: What’s your dream retirement look like? Use retirement calculators to ballpark what you’ll need.
  • Balance Growth and Security: Make sure you’re investing in your business now while also setting up for retirement.
  • Mind the Tax Perks: Solo 401(k)s, especially Roth ones, have unique tax benefits. Time your contributions to either reduce your taxable income now or make tax-free withdrawals later.

Why Not Go Roth? Many experts suggest Roth solo 401(k)s for tax-free growth and withdrawals. You’re paying taxes upfront, but you can pull out your money tax-free during retirement. Plus, you can contribute way more than you can with a regular Roth IRA.

Got a Working Spouse? If your spouse earns income from your business, they can contribute too. You both share the same employee contribution limits, and as the boss, you can make additional contributions for them. For some couples, that could mean up to $138,000 in contributions a year.

More Tips:

  • Diversify: Spread your investments to manage risk.
  • Stay Informed: Tax laws and contribution limits change. Keep talking to experts to stay up-to-date.

The solo 401(k) lets you contribute as both employee and employer, meshing well with other retirement strategies. If you’re looking for top solo 401(k) providers, check out Ubiquity.