A guide to solo 401(k)s for self-employed individuals
If you're self-employed, here are five reasons why a solo 401(k) might just be one of the best ways to supercharge your retirement savings.
If you work as a freelancer, solo-consultant, or individual small business owner, you’ve likely wondered: How should I save for retirement?
Wonder no more, here’s your answer…
Meet the solo 401(k):
- Solo 401(k)s are often overlooked in the world of retirement accounts, but they can be an effective way for self-employed individuals to save.
- Solo 401(k)s offer flexibility, high contribution limits, and tax benefits.
What is a solo 401(k)?
A solo 401(k) is essentially a 401(k) plan for self-employed individuals or business owners who don’t have full-time employees beyond themselves (and possibly their spouse).
It works similarly to a regular 401(k)—with employee and employer contribution options—but is designed specifically for those without other full-time employees. It offers more flexibility than options like SEP IRAs (which only allow employer contributions) or SIMPLE IRAs (with lower contribution limits).
Many people mistakenly think solo 401(k)s are complicated or only for high earners, but the truth is that they’re pretty straightforward, and they’re great for self-employed individuals of all income levels.
Help lower your taxes and grow your savings with a solo 401(k).
Top 5 benefits of solo 401(k)s for self-employed individuals
Benefit 1: Solo 401(k)s are tailored for entrepreneurs like you
If you're a sole proprietor, freelancer, or gig worker, you know how challenging it can be to balance inconsistent income with long-term financial goals. A solo 401(k) lets you ramp up your contributions in profitable years and scale back if your income takes a dip. You can also contribute as both the employee and the employer, giving you more ways to save.
Another big perk is the ability to make contributions for your spouse. If they’re also working with you, they can contribute to the solo 401(k) with earnings from your business, potentially doubling your retirement savings. This may also help reduce your household’s taxable income if you’re making pre-tax contributions.
Benefit 2: High contribution limits
One of the standout features of a solo 401(k) is the ability to make both employee and employer contributions:
- Employee contribution: In 2025, you can contribute up to $23,500 as an employee. And if you're over 50, there’s an additional benefit: You can make "catch-up" contributions of up to $7,500 for ages 50-59 and over age 64, and “super-catch-up” contributions of up to $11,250 for ages 60-63.
- Employer contribution: As the business owner, you can contribute up to 25% of your net self-employment income (20% for sole proprietors and partnerships).
In total, you can contribute $70,000 (not including catch-up contributions) to your solo 401(k) in 2025. This means more room for tax-deferred growth and larger savings overall.
Benefit 3: Tax advantages
Solo 401(k)s offer some excellent tax benefits that can help reduce your tax burden today while saving for retirement.
- Pre-tax contributions: If you want to lower your taxable income now, you can contribute pre-tax dollars to your traditional solo 401(k). This helps to reduce your current tax bill, which is especially helpful in high-income years.
- Roth contributions: Many solo 401(k) plans also allow you to make Roth contributions. This means you pay taxes on the money now, but qualified withdrawals in retirement are tax-free. Offering both pre-tax and Roth options gives you flexibility in managing both your current and future tax situations.
- SECURE 2.0 tax credit: Betterment includes an Automatic Contribution Arrangement of three percent per pay period, allowing new plans to claim a $500 tax credit per year for three years.
Benefit 4: No income limits for Roth contributions
Unlike Roth IRAs, solo 401(k)s don’t have income limits for making Roth contributions. If your income is too high to qualify for a Roth IRA, you can still contribute to a Roth solo 401(k) and enjoy tax-free growth.
Benefit 5: Prior year contributions for new plans
Thanks to the SECURE Act 2.0, solo 401(k) plans now come with a neat little trick: You can set up a solo 401(k) after the new year and still contribute for the previous year. For example, if you set up a solo 401(k) in March 2025, you can still make 2024 contributions until your tax filing deadline (April 15, or October 15 with an extension). This gives you a chance to catch up on retirement savings that may have slipped through the cracks.
Getting started: Choosing a solo 401(k) provider
When it comes to setting up your solo 401(k), you’ll want to choose a provider that makes things simple. Look for one that offers transparent fees, easy-to-use digital tools, and a solid track record of compliance and recordkeeping.
Additionally, you may want to consider solo 401(k) providers that offer a range of financial services like cash accounts or investing services, that way you can consolidate your financial life onto one platform.
Meet the Betterment solo 401(k)
Betterment’s solo 401(k) is a low-cost investment option designed for the self-employed.
Here’s what you get with Betterment’s solo 401(k):
- 100% digital setup. No paperwork or mailing checks. Open and manage your account entirely online.
- Unique flexibility. You have the option to open a traditional or Roth solo 401(k), and your spouse can contribute, too.
- Expert-built portfolios. Choose from our selection of low-cost exchange-traded funds (ETFs) to help you build wealth over the long term.
- $1,500 tax credit. Plans include automatic contribution arrangements and potentially qualify for a tax credit of up to $500 per year for three years.
- Higher contribution limits. You can contribute $70,000 (plus up to $11,250 more in catch-up contributions depending on your age) with a solo 401(k).