What Are the Benefits of a Solo 401(k) Plan for The Self-Employed

The Solo 401(k) plan is a retirement savings plan designed specifically for self-employed individuals and their businesses. This contribution plan allows business owners to make both employer and employee contributions to the plan, which can maximize their annual retirement savings. Ultimately, you want to make sure you are taking advantage of all possible benefits when self-employed, and a Solo 401(k) can offer significant advantages. Here are some of the key benefits of a Solo 401(k) plan for the self-employed.

Higher contribution limits

One of the biggest advantages of this plan is that it has much higher contribution limits than an IRA. For 2020, the maximum contribution limit for a Solo 401(k) was $57,000 (or $63,500 if you’re 50 or older). This includes both your employee and employer contributions. In comparison, the maximum contribution limit for an IRA is just $6,000 (or $7,000 if you’re 50 or older).

The ability to invest in a wide variety of assets

Another great benefit of a Solo 401(k) is that it offers the ability to invest in just about anything you like. This includes traditional investments like stocks, bonds, and mutual funds, as well as alternative investments like real estate, private equity, and hedge funds. With an IRA, on the other hand, you’re limited to investing in stocks, bonds, mutual funds, and other similar securities.

Flexible contribution options

One of the main benefits is that it offers flexible contribution options. You can choose to make both traditional (tax-deductible) and Roth (after-tax) contributions, depending on your needs. And because you’re both an employer and an employee, this allows you to contribute up to $19,500 per year (or $26,000 if you’re over 50).

Tax-deferred growth and deductions

This means that you won’t have to pay taxes on the growth of your investment until you withdraw the money from the account. This remains a significant advantage, especially if you’re able to invest for a long period of time. Additionally, the Solo 401(k) offers the ability to deduct your contributions from your taxes. This helps in lowering your taxable income and saves money on your taxes.

No employees required

One of the great things about this retirement plan is that you don’t need to have any employees in order to qualify. This makes it an attractive option for start-up business owners who may not have the financial resources to hire employees.

Simplified administration

Solo 401k providers agree that this plan is much simpler to administer than other retirement plans. This is because there are no annual filing requirements and no need to file Form 5500 (provided the assets do not exceed $250,000). Additionally, there’s no need to set up a trust or appoint a trustee. This can save you both time and money.


Overall, a Solo 401(k) can offer significant advantages for the self-employed. If you’re looking to save for retirement, this may be the perfect retirement savings plan for you. This contribution plan offers some major benefits that make it superior to other retirement savings options like IRAs. With a Solo 401(k), you’ll be able to save more money each year thanks to higher contribution limits. Plus, you’ll have the ability to invest in a broader range of assets than you would with an IRA.