A Solo 401(k), also known as an individual 401(k) or a self-employed 401(k), is a retirement savings plan designed specifically for self-employed individuals or small business owners with no employees other than the owner and their spouse. This type of plan allows the business owner to wear two hats in the plan: employee and employer, contributing to the plan in both capacities.
As an employee, you can make elective deferrals up to the annual contribution limit set by the IRS ($20,500 in 2022, plus an additional $6,500 if you're age 50 or older, subject to adjustments for inflation). As an employer, you can also make non-elective contributions up to 25% of your compensation. The total contributions to a Solo 401(k) (employee plus employer contributions) cannot exceed $61,000 in 2022 (or $67,500 for those 50 and older), subject to inflation adjustments.
One of the key benefits of a Solo 401(k) is the high contribution limit, which allows for accelerated retirement savings. Additionally, Solo 401(k) plans can be set up to allow for Roth (after-tax) contributions and may offer loan provisions, giving the owner flexibility in accessing funds if needed. This plan is an excellent choice for maximizing retirement savings and tax advantages for entrepreneurs and self-employed individuals without employees.
What is a Solo 401k?
LP
Len Perroots
Updated 5 months ago
Did this answer your question?
😞
😐
😃