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Solo 401(K)

Updated on August 11, 2014

What is a Solo 401K

The Solo 401(k) plan is a retirement specifically for self-employed inviduals with no employees. The IRA (individual retirement account), is a commonly used retirement vehicle however it does provide several limitations.

2014 Traditional & Roth IRA Contribution Limits

Traditional IRA contributions are limited to $5,500 annually. I you’re over 50 years of age you’re allowed to contribute $6,500 per year. Your income limits if you file your single is $114,000 and $181,000 if your married and file your taxes jointly.

Contribution limits in a Solo 401(k) plan

So far as the plan is concerned, the business owner is both the employee
and employer. Contributions can be made to the plan in both capacities. The
owner can contribute 100% of earned income up to $17,500. If your over the age
of 50, you can contribute up to $23,000. As the employer you may choose to give
yourself an employer contribution. Which by the was, as the only employee you
will receive. These employer non-elective contributions are allowed to be up to
25% of compensation

Rev up your retirement savings.
Rev up your retirement savings.


In addition to the higher contribution levels, 401(K) plans offer a flexibility that yields additional advantages. Unlike IRAs, SEP-IRAs, and DB Plans, your Solo 401(K) can be designed to allow for loans. Now, while taking out a loan against your 401(K) may not be the most ideal situation, it’s always good to have the options. A 401(K) loan may prove necessary, so long as it is for a short term need, in an environment where commercial loans are not easy to come by.

Elective Deferral Limits

There are limits on elective deferrals. Your contributions to your own 401K plan are generally deductible by you for the year they are contributed to the plan. Non-elective contributions made to the plan are also deductible by you in the year of contribution. Employees’ elective deferrals other than those designated as Roth contributions are tax free until distributed from the plan. Elective deferrals are included in wages for social security, Medicare, and federal unemployment tax.

Testing in a one-participant 401(k) plan

A business owner with no employees does not need to perform ADP testing for the plan..

Alternatives to a one-participant 401(k) plan

Possible plans for a business owner include:

  • SEP
  • IRA or Roth IRA
  • Other types of plans

If you are self-employed or you work for a large organization as an independent contractor getting paid 1099 wages you should consider a Solo 401K as retirement plan option.

Are you building your retirement nest egg?
Are you building your retirement nest egg?


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