A solo 401(k) — also called an individual 401(k) or one-participant 401(k) — is a full 401(k) plan for self-employed individuals with no employees. It allows both employee and employer contributions, giving you a combined limit of up to $69,000 for 2024.
A solo 401(k) — formally called a one-participant 401(k) by the IRS — is a standard 401(k) plan that covers a business owner with no employees, or a business owner and their spouse. It carries the same contribution limits as a regular workplace 401(k) but adds an *employer* contribution on top, making it one of the highest-ceiling retirement vehicles available to self-employed people.
You wear two hats: employee and employer. As the employee, you can defer up to $23,000 in 2024 ($30,500 if you're 50 or older — catch-up contributions apply). As the employer, you can contribute up to 25% of compensation on top of that. Combined, the total limit is $69,000 for 2024 ($76,500 with catch-up). Self-employed income calculations follow the same IRS formula used for SEP-IRAs. Full details are in the IRS one-participant 401(k) guidance.
Both have the same $69,000 ceiling, but the solo 401(k) wins at lower income levels because the employee-side contribution is a flat dollar amount, not a percentage. For example, a freelancer earning $50,000 can max out the $23,000 employee deferral in a solo 401(k) far more easily than contributing 25% of $50,000 ($12,500) to a SEP-IRA. The solo 401(k) also allows a Roth option (after-tax contributions) if your plan document allows it — the SEP-IRA does not.
Solo 401(k)s are only available when you have no common-law employees (other than a spouse). Once your plan assets exceed $250,000, you must file IRS Form 5500-EZ annually. Contributions must be made by your tax-filing deadline, including extensions, but the plan itself must be established by December 31 of the year for which you want to contribute.