The $70K shelter
plus catch-up. Plus Roth. Plus loans.
The Solo 401(k) — also called Individual 401(k) or one-participant 401(k) — is the most flexible retirement plan a one-person business can run. It hits the same dollar ceiling as a SEP-IRA, but adds catch-up contributions, Roth treatment, plan loans, and the Mega Backdoor Roth strategy.
The 60-second pitch
A Solo 401(k) is a regular 401(k) limited to one participant — usually a self-employed owner and (optionally) their spouse. You wear two hats: employee and employer.
As employee, you defer up to $23,000 in 2024 / $23,500 in 2025. Add $7,500 catch-up if 50+ (or $11,250 super catch-up if age 60-63 in 2025, thanks to SECURE 2.0). As employer, you contribute up to 25% of compensation as profit-sharing. Total combined: $69,000 (2024) / $70,000 (2025) + catch-up.
Three power moves SEP-IRAs can't match: Roth contributions on the employee side (tax-free forever), plan loans up to 50% of vested balance ($50K max), and the Mega Backdoor Roth — if your plan allows after-tax contributions + in-plan Roth conversion, you can shove tens of thousands of post-tax dollars into Roth treatment every year.
The $24,600 federal-tax cut
Lina is 52. She runs a one-person consulting LLC taxed as an S-corp, paying herself a $140K W-2 wage plus a $40K distribution. She wants to maximize retirement savings while still being able to access funds if needed.
| Employee deferral (2024) | $23,000 |
| Age 50+ catch-up | $7,500 |
| Employer 25% × $140K W-2 | $35,000 |
| Total Solo 401(k) contribution | $65,500 |
| Federal tax saved (32% + 3.8% effective) | $20,960 |
| PA state tax saved (3.07%) | $2,011 |
| FICA savings on employer portion (already wages, no extra savings) | — |
| QBI preservation | $1,648 |
The step-by-step checklist
- Confirm eligibility. You need self-employment income and no W-2 employees other than yourself + spouse. One part-time non-spouse employee working 1,000+ hours/year disqualifies the Solo 401(k) (you'd need a Safe Harbor 401(k) instead).
- Open the plan at a custodian. Fidelity, Schwab, Vanguard, ETrade, and Solo401k.com all offer free or low-cost Solo 401(k) plans. Avoid prototype plans that don't allow Roth or after-tax contributions if you want the Mega Backdoor Roth — you'll need a custom plan document (Solo401k.com, MySolo401k, RocketDollar).
- Open by Dec 31. The plan must exist by year-end to take any contribution for that year (SECURE Act softened this — for SEPs only — but Solo 401(k)s still need Dec 31 establishment for employee deferrals).
- Compute your contribution. Employee: up to $23,500 (2025) + $7,500 catch-up at 50+. Employer: 25% of W-2 wages (S-corp) or 20% of net SE income (sole prop). Combined cap: $70,000 in 2025 ($77,500 with catch-up; $81,250 with super catch-up at 60-63).
- Choose Traditional vs. Roth on the employee side. Traditional = deduction now, taxable later. Roth = no deduction, tax-free forever. SECURE 2.0 also lets you take employer contributions as Roth if your plan allows.
- Fund employee deferrals by year-end (W-2 sole props: deferral elections must be made by Dec 31, even if cash funded later for S-corp owners). Fund employer profit-sharing by tax return + extensions.
- File Form 5500-EZ once plan assets exceed $250K. Below $250K, no annual filing required. Above, file annually by July 31. Failing to file: $250/day penalty.
- For Mega Backdoor Roth: verify plan allows after-tax non-Roth contributions + in-plan Roth conversion (or in-service distribution to a Roth IRA). Most prototype plans don't — confirm before counting on it.
The law — cite this in your file
- IRC §401(k) Cash or deferred arrangements. The statutory basis for all 401(k) plans — including the Solo variant.
- IRC §415(c) Annual additions limit. Combined employee + employer cap of $69,000 for 2024; $70,000 for 2025.
- IRC §402(g) Elective deferral limit. $23,000 for 2024; $23,500 for 2025.
- IRC §414(v) Age-50 catch-up. Additional $7,500 in 2024/2025. SECURE 2.0 §109 created the age 60–63 "super catch-up" of $11,250 in 2025.
- IRC §402A Designated Roth contributions. Allows Roth treatment for 401(k) employee deferrals. SECURE 2.0 §604 extends Roth treatment to employer contributions.
- IRC §72(p) Plan loans. Up to 50% of vested balance or $50,000, whichever is less. 5-year repayment standard; 15-year for primary residence.
- Notice 2024-80 2025 retirement plan limits. Confirms 2025 $23,500 deferral, $70,000 §415(c) cap, $11,250 super catch-up.
- SECURE 2.0 Act of 2022 Major upgrades. Sec 109 super catch-up, Sec 604 Roth employer contributions, Sec 314 emergency savings withdrawal.
Audit risk flags
- Hiring a non-spouse employee. Once a non-spouse employee works 1,000+ hours (or under SECURE 2.0, even part-time 500+ hours for 2+ years), your Solo 401(k) is no longer "solo." You must either include them in a real 401(k) (with discrimination testing) or terminate the plan.
- Missing the Dec 31 plan-establishment deadline. You can fund late, but the plan document must be signed by Dec 31 of the year you want a contribution.
- Missing Form 5500-EZ filing. $250/day penalty up to $150K — and the IRS has a generous voluntary correction program (DFVCP) but only if you self-report before they ask.
- Over-deferring across multiple plans. The $23,500 (2025) employee deferral is a per-person cap across all 401(k)s you participate in. If you also have a W-2 job with a 401(k), coordinate.
- Wrong employer-contribution percentage. S-corp: 25% of W-2. Sole prop: 20% of net SE income (after deductible-half-SE adjustment). Mixing these up over-contributes.
- Plan loan default. Miss a payment and the entire loan becomes a "deemed distribution" — taxable + 10% penalty if under 59½.
- Prohibited transactions. Self-dealing (e.g., investing plan assets in your own business, your home, or your kid's wedding venue) is a §4975 prohibited transaction — plan disqualification + tax on the entire balance.
When not to choose Solo 401(k)
- You have or plan to hire non-spouse employees. Once that happens, you need a real 401(k) with ADP/ACP testing or a Safe Harbor plan — extra cost and complexity.
- You only need a small contribution. If you're funding $5K/year, a simple IRA or Traditional IRA is enough — Solo 401(k) admin overhead isn't worth it.
- You want maximum flexibility to change funding year-to-year. SEP-IRA wins on flexibility (decide at tax-extension deadline). Solo 401(k) employee deferrals must be elected by Dec 31.
- You're already covered by an employer 401(k) maxing the deferral. The $23,500 employee cap is per-person across all 401(k)s. Solo 401(k) only adds value on the employer side.
- You're over 70½ and not actively working. Some custodians require active SE income; if you're truly retired, the plan loses value.
- Your business is brand new with uncertain income. If income could be near zero, the admin cost (Form 5500-EZ once over $250K) starts to bite. SEP is simpler.
PilePilot calculates your Solo 401(k) max automatically.
The Books agent reads your W-2 + 1099 income, applies the 2024 or 2025 limits with catch-up + super catch-up, and surfaces the right contribution number — plus reminds you of the Dec 31 plan-establishment deadline.
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