What You Didn’t Know About Solo 401k

As time goes by, more and more people are leaving their comfort zone in which they work for someone else and deciding, instead, to work for themselves. The number of self-employed individuals has increased dramatically over the past few years and, by all accounts, it seems like this trend is likely to continue.

It’s understandable why this would be the case. Being self-employed enables you to set your own hours, decide who you want to work with, and all of the money you generate goes in your pocket instead of in your boss’s.

However, the self-employed lifestyle does have its fair share of difficulties as well. For example, there is no one else to blame if something goes wrong. Additionally, you are solely responsible for bearing the tax burden each year.

Luckily, there is an easy way to overcome most of the risks and potential issues associated with self-employment: a Solo 401k retirement plan.

What is a Solo 401k?

A Solo 401k is a retirement plan that can only be used by individuals who are self-employed and have no other employees. This includes most freelancers, independent contractors, and many others. 

What are the Benefits of a Solo 401k?

A Solo 401k affords self-employed individuals tons of benefits. But the main three are as follows:

    • Great Tax Options. A Solo 401k allows for either Roth or Traditional contributions. This means that, depending on your beliefs about taxes, you can make contributions pre-tax (Traditional) or after-tax (Roth). The future of taxes is never certain. If you’re in your thirties right now, and plan to retire in your sixties, it can be almost impossible to say whether or not you should elect to make a certain type of contributions. Therefore, you’ll want to do plenty of research and planning before deciding on your investment structure. But either way, the choice is yours with a Solo 401k.
  • Loan Availability. Single member businesses can be put in a tough spot during crises. Hopefully this never happens to you, but a tragic accident or another global pandemic may throw your business into a tailspin at some point. In these cases, you don’t have the resources of a massive company to lean on in order to stay afloat: you only have yourself. Therefore, a Solo 401k enables contributors to take out loans of as much as $50,000 when needed.
  • Enormous Contribution Maximums. Within your single member company, you are both employee and boss. As a result, you can contribute to your retirement fund as if you are two, distinct people. In your role as employer, you can contribute as much as $40,500. Additionally, as an employee, you can invest as much as $20,500 each year. In total, you can save up to $61,000 each year for your single member company.


A Solo 401k has many perks and is a great option for self-employed workers. If you serve as both your own boss and your only employee, you should strongly consider this retirement plan option!

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