Solo 401(k), Explained Simply

A Solo 401(k) is a retirement plan for a business owner with no employees, letting you contribute as both the worker and the boss for very high yearly limits.

Also called an individual 401(k), this plan is made for one-person shops. The catch in the name is real. It works only if you have no full-time employees other than yourself and a spouse. If that is you, it may be the most powerful retirement tool you can open.

The magic is that you get to contribute in two roles. As the employee, you can defer up to 24,500 dollars in 2026, or 32,500 dollars if you are 50 or older. Then, as the employer, you can add up to 25 percent of your compensation on top of that. Together the total can reach 72,000 dollars, or 80,000 dollars with the catch-up.

Here is a real-dollar example. Say you are a self-employed consultant netting 120,000 dollars. You put in the full 24,500 dollars as the employee, then roughly 22,300 dollars as the employer side. That is more than 45,000 dollars shielded from taxes this year, in one account, for one person. Many Solo 401(k) plans also offer a Roth option, so you can choose to pay tax now and pull it out tax-free later.

Bottom line: If you run a business by yourself and want to save aggressively for retirement, a Solo 401(k) lets you wear two hats and stash away far more than a plain IRA ever could.

This is general education, not personal financial advice. Your own numbers and tax situation may point you somewhere different.

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