The Solo 401(k): Maximize Retirement Savings While Reducing Taxes

If you’re self-employed or run a business with no employees other than your spouse, there’s a powerful retirement account you may be overlooking: the Solo 401(k).

Also known as an individual 401(k), this plan lets you contribute as both employer and employee, dramatically increasing your retirement savings and reducing your current tax liability. It’s one of the most tax-advantaged tools for high earners and entrepreneurs.

Why the Solo 401(k) Stands Out

Traditional IRAs and even SEP IRAs have contribution limits that often fall short for high-income business owners. But the Solo 401(k) allows you to:

• Contribute up to $69,000 in 2024 (or $76,500 if over age 50)

• Deduct those contributions, lowering your taxable income

• Choose pre-tax or Roth contributions

• Add your spouse as a participant and double the family limit

This makes it ideal for consultants, freelancers, and business owners who want to aggressively save for retirement while reducing their tax bill now.

Practical Example

Let’s say you’re a 40-year-old consultant earning $180,000 in net business income. With a Solo 401(k), you can:

• Contribute $22,500 as the employee (the elective deferral)

• Add up to 20% of your business profits as the employer contribution — about $35,500 in this case

• Total contributions: $58,000, all tax-deductible

You’ve just moved $58,000 out of your taxable income and into a tax-deferred retirement account.

If your spouse also earns income in the business, you could double that benefit.

Solo 401(k) vs SEP IRA

Feature	Solo 401(k)	SEP IRA
Employee Contributions	Yes	No
Roth Option	Yes	No
Catch-up Contributions (Age 50+)	Yes	No
Higher Contributions at Lower Income	Yes	No

While SEP IRAs are easier to set up, Solo 401(k)s offer more flexibility and higher savings potential, especially for those with moderate income levels.

Setup and Deadlines

To take advantage of Solo 401(k) tax benefits:

• You must establish the plan by December 31 of the tax year.

• Contributions can be made up until the tax-filing deadline, including extensions.

• You can set one up through providers like Fidelity, Vanguard, or Solo401k.com — or work with a financial advisor who handles plan administration.

Who It’s Best For

The Solo 401(k) is perfect for:

• Consultants, coaches, and contractors with no employees

• Small business owners and S Corp owners (who pay themselves a salary)

• High-income individuals seeking tax-deferred or Roth retirement options

• Couples running a business together

Final Thoughts

The Solo 401(k) is one of the most powerful retirement and tax-saving tools available for self-employed individuals. With massive contribution limits, flexible tax treatment, and spouse eligibility, it’s a cornerstone of any smart tax strategy.

If you’re not using one yet, you could be missing out on thousands in tax savings and retirement growth.

Want help getting one set up before the deadline?

Book a free strategy call — let’s get your money working smarter.