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Solo 401(k) Contribution Limits


A solo 401(k) is a tax-advantaged retirement account designed for self-employed individuals and small business owners with no other employees. If you’re wondering how much you can contribute to a solo 401(k), the answer is up to $66,000 in 2023 (plus a catch-up $7,500 contribution if you’re 50 or older). However, there are some important details and rules you’ll need to understand to make the most of your solo 401(k). A financial advisor can help you navigate the many layers of retirement planning, including how much to contribute to your 401(k).

What Is a Solo 401(k)?

A solo 401(k), also known as a one-participant 401(k) or individual 401(k), can be a suitable retirement savings option for freelancers, independent contractors and sole proprietors, offering higher contribution limits and tax benefits.

Contributions to a solo 401(k) can be made either on a pre-tax or Roth basis depending on your financial goals and tax strategy. Keep in mind that solo 401(k)s are reserved specifically for self-employed workers and business owners with no other employees – although there is one exception that we’ll discuss further down.

Solo 401(k) Contribution Limits

With a solo 401(k), you can contribute both as the employer and the employee, allowing you to potentially save more for retirement compared to other plans like a traditional IRA or standard 401(k).

In 2023, the IRS caps total solo 401(k) contributions at $66,000, not including catch-up contributions for people who are 50 and older. However, it’s important to understand the rules that surround the three primary ways you can contribute to a solo 401(k): elective deferrals, nonelective deferrals and after-tax contributions.

Elective Deferrals

Elective deferrals are the “employee” portion of your solo 401(k) contribution. The IRS allows you to funnel up to 100% of earned income into your solo 401(k) on a pre-tax or Roth basis – up to the annual contribution limits for 401(k)s and similar accounts. In 2023, the IRS permits you to save up to $22,500 in a 401(k) and $30,000 if you’re age 50 or older.

For example, a 35-year-old chef who owns and operates a food truck could contribute up to $22,500 of her income to a solo 401(k) in 2023. This money would count as her elective deferral.

Nonelective Deferrals

Nonelective deferrals, or the “employer” portion of contributions, can give you the opportunity to contribute an extra 25% of your compensation (or net self-employment income) to your solo 401(k). This would allow the 35-year-old chef from the example above to save an extra $20,000 in her solo 401(k), assuming her total earned income was $80,000.

It’s important to note that when added together, elective and nonelective deferrals cannot exceed the IRS limit of $66,000 in 2023, although this total does not account for catch-up contributions.

After-tax Contributions

In contrast to elective and nonelective deferrals, after-tax contributions aren’t tax-deductible for the year in which you make them. However, you could also owe income taxes on a portion of your money when it’s withdrawn in retirement despite having already paid taxes on your contribution. 

If you set up a traditional Solo 401(k), you can lessen your potential tax liability by converting after-tax contributions to Roth assets or roll the money into a Roth IRA. 

To make things simpler, you should note that when setting up a Solo 401(k), you have the option to select a traditional or Roth account. With a traditional plan, you will make pre-tax contributions. But a Roth 401(k) will allow you to contribute after-tax money.

Can Spouses Contribute to a Solo 401(k)?

While business owners with employees are not eligible for solo 401(k)s, there is a notable exception. The IRS stipulates that a spouse can work for the business, receive compensation and thereby become eligible to participate in a solo 401(k). If both you and your spouse are eligible to participate, this essentially doubles your potential contribution.

How to Open a Solo 401(k)

A small business owner opens her store in the morning.

Opening a solo 401(k) begins with choosing a plan provider, which could be a bank or brokerage. Compare fees, investment options and customer service to find the best fit for your needs. These providers will ask for your business’s employer identification number (EIN), among other documents while setting up your account.

Next, decide on your contribution amount but be mindful of the annual contribution limits set by the IRS. You’ll also need to select your investments, which may include mutual funds, exchange-traded funds (ETFs), individual stocks and bonds, among others.

Lastly, keep up with annual reporting requirements, which generally kick in when the plan holds at least $250,000 in assets. While solo 401(k)s have fewer reporting obligations when compared with other retirement plans, it’s essential to stay compliant.

Alternatives to a Solo 401(k)

A solo 401(k) is not the only retirement savings vehicle available. There are numerous options, each with potentially different contribution limits, varying tax advantages and unique eligibility requirements. Therefore, it may be prudent to explore and compare all of them, preferably with a financial advisor, before making a decision.

  • SEP IRA: A Simplified Employee Pension IRA (SEP IRA) allows you to contribute up to 25% of your net earnings from self-employment, making it a flexible choice for small business owners with employees.
  • SIMPLE IRA: Geared towards businesses with fewer than 100 employees, a Savings Incentive Match Plan for Employees IRA (SIMPLE IRA) offers easy setup and matching contributions.
  • Traditional IRA: Anyone with earned income can contribute to a traditional IRA, which offers tax-deferred growth potential. However, contribution limits are lower compared to a Solo 401(k).
  • Roth IRA: While contributions aren’t tax-deductible, qualified withdrawals from a Roth IRA are tax-free. It’s a great choice if you expect to be in a higher tax bracket in retirement.
  • Health savings account: If you have a high-deductible health plan, consider using an HSA for added retirement savings. It offers tax advantages for medical expenses and can serve as a retirement fund.
  • Taxable investment accounts: Don’t overlook traditional brokerage accounts. While they lack tax advantages, they offer flexibility and liquidity.

Bottom Line

A florist looks over her retirement savings in her solo 401(k).

A solo 401(k) is a retirement savings account that can help self-employed individuals and small business owners with no employees (other than their spouse) save for their golden years. In 2023, you can save up to $66,000 in a solo 401(k), plus additional catch-up contributions if you’re 50 or older. However, the exact amount you’re eligible to contribute will depend on your earned income.

Retirement Planning Tips

  • Social Security plays an important role in the retirement plans of most Americans. Delaying Social Security will increase your eventual benefits, but it may not be feasible for everyone’s financial situation. SmartAsset’s Social Security calculator can help you estimate how much your benefits will be based on when you plan to claim them.
  • A financial advisor can help you save and plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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