Can you open a 401(k) on your own?

[UNITED STATES] If you're self-employed, a freelancer, or a small business owner without full-time employees, you might wonder if you can still benefit from a 401(k) plan. The answer is yes—through a Solo 401(k), also known as a one-participant 401(k). This retirement savings option allows you to contribute both as an employee and as an employer, potentially enabling higher contribution limits than other retirement plans.

What Is a Solo 401(k)?

A Solo 401(k) is a retirement plan designed for self-employed individuals and small business owners with no employees other than a spouse. It operates similarly to a traditional 401(k) offered by employers but is tailored for solo entrepreneurs. The plan allows you to contribute in two capacities:

Employee Contributions: As the employee, you can contribute up to 100% of your earned income, up to the annual limit.

Employer Contributions: As the employer, you can contribute up to 25% of your net earnings from self-employment.

In 2025, the total contribution limit for a Solo 401(k) is $70,000, with an additional catch-up contribution of $7,500 available for individuals aged 50 and over. For those aged 60 to 63, the catch-up contribution increases to $11,250 due to provisions in the Secure 2.0 Act.

Eligibility Requirements

To qualify for a Solo 401(k), you must meet the following criteria:

Self-Employment: You must have income from self-employment, which can include freelance work, consulting, or operating a small business.

No Full-Time Employees: The plan is intended for business owners with no employees other than a spouse. If you hire full-time employees, you would need to consider other retirement plan options.

Employer Identification Number (EIN): You are required to obtain an EIN from the IRS, which is necessary to open the plan .

Types of Solo 401(k) Plans

Solo 401(k) plans can be structured in different ways to suit your financial goals:

Traditional Solo 401(k): Contributions are made with pre-tax dollars, reducing your taxable income for the year. Taxes are paid upon withdrawal in retirement.

Roth Solo 401(k): Contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free.

Traditional and Roth Combination: You can split your contributions between traditional and Roth accounts, allowing for tax diversification.

Advantages of a Solo 401(k)

A Solo 401(k) offers several benefits for self-employed individuals:

Higher Contribution Limits: The combined employee and employer contributions allow for larger annual contributions compared to other retirement plans like IRAs.

Tax Flexibility: The option to choose between traditional and Roth contributions provides tax planning flexibility.

Loan Option: Some Solo 401(k) plans allow you to borrow from your account, providing access to funds if needed.

Spousal Contributions: If your spouse works for your business, they can also contribute to the plan, effectively doubling the contribution limit for the household.

How to Open a Solo 401(k)

Opening a Solo 401(k) involves several steps:

Obtain an Employer Identification Number (EIN): Apply for an EIN through the IRS website.

Choose a Plan Provider: Select a financial institution or brokerage that offers Solo 401(k) plans. Many providers offer online applications and support.

Complete the Plan Documents: Fill out the necessary paperwork to establish the plan. This may include selecting investment options and designating beneficiaries.

Fund the Account: Make your contributions by the tax filing deadline, including extensions, for the year you are contributing for.

It's important to note that if your Solo 401(k) plan's assets exceed $250,000, you are required to file Form 5500-SF annually with the IRS.

Alternatives to a Solo 401(k)

If a Solo 401(k) isn't the right fit for you, consider these alternatives:

SEP IRA: A Simplified Employee Pension (SEP) IRA allows for contributions up to 25% of your net earnings from self-employment, with a maximum of $70,000 in 2025. However, it does not permit catch-up contributions or Roth options.

Traditional or Roth IRA: Individual Retirement Accounts (IRAs) are simpler to set up but have lower contribution limits. In 2025, the contribution limit is $6,500, or $7,500 if you're 50 or older.

Taxable Investment Accounts: While not tax-advantaged, taxable accounts offer flexibility and can be used to supplement retirement savings.

Even without an employer-sponsored 401(k), self-employed individuals have robust options to save for retirement. A Solo 401(k) provides higher contribution limits and tax advantages, making it a powerful tool for retirement planning. By understanding your eligibility and the steps to establish the plan, you can take proactive steps toward securing your financial future.