Being self-employed, you're used to wearing every hat in the business—finance, operations, marketing, customer service, and HR—all at once. That’s why retirement savings can often fall to the bottom of the to-do list for independent entrepreneurs juggling it all.

However, everyone hopes to retire comfortably, and the most common way to do so is by saving through the workplace. With a solo 401(k), building your financial future doesn’t have to take a back seat—these plans are designed specifically for self-employed individuals and simplify the path to retirement savings.

In this guide, we’ll break down everything you need to know about solo 401(k)s—how they work, how much you can contribute, and how to get started.

What Is a Solo 401(k)?

A solo 401(k)—also known as an employee-only or a one-participant 401(k) plan—is a retirement plan tailored for people who run a business by themselves. This type of 401(k) plan allows you, as a self-employed individual, to save for retirement in a tax-advantaged way.

Since these plans are meant specifically for self-employed individuals, there are specific rules and regulations that must be met to open an account:

• Be self-employed and have no full-time employees other than yourself or your spouse
• Operate a sole proprietorship, LLC, corporation (C or S), or partnership

How Is a Solo 401(k) Different From Other Retirement Accounts?

Here’s how a solo 401(k) compares to other popular retirement plans for self-employed individuals and business owners:

Why Should I Choose a Solo 401(k)?

There are plenty of perks that make a solo 401(k) worth considering, especially if you’re looking for a retirement plan that offers flexibility and savings potential as a self-employed entrepreneur:

Reduce Your Business’s Taxes

Solo 401(k) employer contributions are tax-deductible, which means they can reduce your business’s taxable income. As the “employer,” you can contribute up to 25% of your net self-employment earnings, and those contributions are treated as a business expense on your tax return.

For example, if your net self-employment income is $100,000, you could contribute up to $25,000 as the employer portion of your solo 401(k). That contribution is tax-deductible, lowering your business’s taxable income while helping you grow your retirement savings.

Flexible Contribution Type

A solo 401(k) offers more flexibility than other retirement plans in both how and how much you can contribute. Unlike a SEP IRA, which only allows employer contributions up to 25% of your net earnings, a solo 401(k) lets you contribute as both the employee and employer, maximizing your savings potential. It also offers the option for Roth contributions, allowing you to save after-tax dollars for tax-free withdrawals in retirement, a feature not available with SEP or SIMPLE IRAs.

Built to Grow With Your Business

If you’re planning to grow your business and eventually hire employees, a solo 401(k) is often the more flexible long-term option. While SEP and SIMPLE IRAs will likely require you to switch plans once you hire eligible employees, a solo 401(k) can be amended into a traditional 401(k) that your employees can participate in.

For example, let’s say you opened a SEP IRA last year and contributed the maximum—25% of your income. But with your business growing faster than expected, you hired three employees this year. If you want to continue using your SEP IRA and contribute 25% to your account again this year, you’d be required to contribute that same percentage for the new employees, too. And because SEP IRAs don’t allow vesting schedules, those contributions belong to the employees immediately. That can quickly become a costly obligation. With a solo 401(k), you have more flexibility and control—plus the ability to transition into a full 401(k) plan without starting over if your team grows.

How Do I Set Up a Solo 401(k)?

Interested in setting up a solo 401(k) plan for yourself? Here's a step-by-step guide to get you going.

1. Choose a Provider That Meets Your Needs

Start by researching providers that offer solo 401(k) plans. Be sure your provider has the features available that match your goals. For example, you may want both traditional and Roth contribution options, or a plan that includes a loan feature. Make sure to also consider fees and how easy the platform is to use.

Vestwell offers solo 401(k) plans designed for self-employed individuals who want a streamlined way to save for the future. Our platform combines intuitive design, integrated payroll and contribution tracking, and built-in 3(16) administrative support to simplify plan management—so you can focus on running your business.

2. Open a Solo 401(k) Account

Once you find the right provider, you will open a dedicated solo 401(k) account to house your contributions. Your provider will typically walk you through the necessary steps to finish your plan setup, including completing the paperwork, setting up a bank account, and logging into the platform.

3. Make Contributions by IRS Deadlines

Once your plan has been set up, you can begin making contributions. There are two deadlines to keep in mind when it comes to contributions:

• Employee contributions must typically be made by the end of the year, 12/31.
• Employer contributions must typically be made by the business’s tax-filing deadline, including extensions.

Secure Your Financial Future With a Solo 401(k)

Retirement planning is essential for everyone, including those who are self-employed. With flexible contributions and considerable tax advantages, it’s one of the most effective ways to build long-term financial security as a business of one. Don't overlook the opportunity to set yourself up for retirement security with a solo 401(k) plan.