Individual 401k

An Individual 401(k) — also known as a Solo 401(k) — is a retirement savings plan designed specifically for self-employed individuals or small business owners with no full-time employees other than themselves and their spouse.

🧾 What Is an Individual (Solo) 401(k)?
An Individual 401(k) is a tax-advantaged retirement plan that allows business owners to contribute to their retirement as both an employer and an employee. This dual role allows for higher total contributions compared to traditional or Roth IRAs.

🛠️ How It Works
You can contribute to a Solo 401(k) in two ways:

Employee Contributions (Elective Deferrals): You can contribute up to 100% of your compensation, up to $23,000 for 2025 ($30,500 if age 50+ with catch-up).
Employer Contributions: Your business can contribute up to 25% of your compensation (or net self-employment income), up to the combined limit of $69,000 for 2025 ($76,500 if age 50+).

📌 Total maximum contribution (employee + employer) = $69,000 (or $76,500 with catch-up) for 2025.

📈 Tax Benefits

Pre-tax (Traditional) Solo 401(k): Contributions reduce your taxable income now, but withdrawals in retirement are taxed.
Roth Solo 401(k): Contributions are made with after-tax dollars, but qualified withdrawals are tax-free.
Some providers allow both options within one plan.

👤 Who Should Use an Individual 401(k)?
This plan is ideal for:

Freelancers
Independent contractors (e.g., consultants, real estate agents)
Sole proprietors
Single-member LLCs
Business owners with no employees, other than possibly a spouse

You should consider it if you:

Want to maximize retirement contributions
Are self-employed and earn a high income
Have no full-time employees
Want the option to take a loan from your retirement plan

Prefer having control over your investment choices

📝 Other Key Features

Loans: You can borrow up to $50,000 or 50% of the account balance.
RMDs: Required minimum distributions start at age 73 (unless using Roth contributions and still working).
Flexibility: Can be set up as either Traditional, Roth, or both.
Deadlines: Must be established by December 31 of the year you want to make contributions, though contributions can be made up until the tax filing deadline (including extensions).

✅ Pros
High contribution limits
Tax-deferred or tax-free growth
Easy to set up and maintain
Loan option available
No annual filing requirement until plan assets exceed $250,000

⚠️ Cons

Cannot use if you have employees (except a spouse)
Paperwork increases once assets exceed $250,000
May require some accounting/tax expertise