Solo 401(k)
The one-pager
Updated Jan 19, 2025
The Solo 401(k) - The fast track
(also known as a One Participant or Solo 401k)
If you’re here, you’ve taken the Red Pill and want to open an Solo 401(k), but fast. This is the simple, one-page version.
Fab, you’re on the way to financial independence and working less later in life. If you can, read through the full Solo 401(k) guide. Also, read this knowledge post on The Stock Market and the post on why picking your own stocks rarely works.
Your contributions to the Solo 401(k) are a huge tax deduction.
Your Solo 401(k) balance will go down when the market drops sometimes. Be ok with that.
You can easily have over $1 million dollars in your Solo 401(k) by 55.
Your Solo 401(k). Watch that sucker grow.
The ‘don’t blame me’ blurb: I am not a financial advisor, portfolio manager, or accountant. This is not tax or investment advice; it’s information to get you going. Please consult your trusty professional and do your due diligence. Carry-on!
Here are the steps to open the account.
Get an EIN (Employer Identification Number) from the IRS if you don’t have one. It’s like a social security number for your business Apply Here.
Open a business bank account if you don’t have one. The money that goes into your Solo 401(k) should come from a business bank account. Your 1099 money goes into this account as it is untaxed. Any W-2 wages you get from employers should go into your personal bank account, as these wages have already been taxed and cannot be used to fund a Solo 401(k).
Open an Solo 401(k) with ETrade here. They do not charge a fee to buy Vanguard funds. Schwab charges $75. Call E*Trade customer support and have them walk you through filling out the application. You will need to print it and sign it in the real world. Old School, eh?
When opening the account, choose a Traditional (deferred) Solo 401(k). It’s a huge tax deduction.
Start a Vanguard Target Date Plan that matches your approximate retirement year OR Vanguard VASGX - LifeStrategy Growth Fund.
Put money into the Solo 401(k) every quarter and buy the fund. Jan 1 — April 1 — July 1 — Oct. 1
Five years out from retirement, see a financial advisor for a plan on how to start the next phase of your life. I prefer ‘advice-only’ financial advisors who charge you for their advice and a plan, not an annual fee.
How much can I put in every year?
This is the amazing part for freelancers, single-person businesses and our spouses. The yearly contribution limits are huge, up to $77,500 per year.
Contribution limit per year (in 2025)
Employee (that’s you) contribution:
$23,500 per year age 49 and under.
$31,000 if you’re 50+
$34,750 if you’re 60-63.
BUT: If you have a 401k with an outside employer, this limit is shared between the 401k and your Solo 401(k).
Employer Contribution (that’s you again, you are the employer): An additional 25% of what your company paid you W-2 through payroll if you are an S-Corp. The employer contribution limit is separate for each 401k or Solo 401(k) account.
If you are a Sole Trader or LLC and do not use a payroll, it’s around 20% of your business profit. Use financial advisor Mike Piper’s excellent calculator or use IRS Publication 560. The combined maximum contribution:
Up to age 49: $70,000
Age 50+: $77,500
Age 60-63: $81,250
Inform your accountant that you are opening an Solo 401(k). Some are not up on the rules and limits. If they are not, put them on the spot and make them learn!
An Solo 401(k) contribution example:
You are 35 years old and don’t have any other 401k accounts. You can contribute $23,500 as an employee.
Your biz pays you $100,000. Your biz then contributes an additional $25,000 to the Solo 401(k).
Result: $23,500+$25,000= $43,500. That’s $43,500k into your Solo 401(k), and it’s a tax deduction. Sweet. Don’t have that much cash? Put in whatever you can.
Imagine a snowball rolling down hill getting bigger and bigger — this is your Solo 401(k) gathering speed and size.
Start it ASAP.
What investments to go inside the Solo 401(k)?
The Solo 401(k) is the tax protected account that the investments sit inside.
There is a whole section of the guide on what to put inside the Solo 401(k), but if you want to get going, Vanguard VASGX - LifeStrategy Growth Fund is a great choice.
It’s a mix of U.S. stocks, international stocks, and bonds, and has extremely low fees of 0.14% of the amount invested.
80% stocks
20% bonds
$100,000 invested would be a $140/year fee.
OR
Vanguard Target Date Fund
Read about them here on the Vanguard website.
Choose the approximate year you retire. Pick that fund and it does the stocks/bond mix for you.
How often should you put money in your Solo 401(k)?
Every quarter is great, so just four times a year. Why?
This gives us four buying points during the year to get an average cost as the stock market goes up and down. This is known as ‘dollar cost averaging’.
It removes our emotions from the mix. If the market crashes and people panic, we will still buy and ignore the noise. We are getting cheaper prices, and the market will go back up.
Never sell. Always keep buying every quarter.
Dollar Cost Averaging — Image: Charles Schwab
Congratulations! You are on the way building your wealth and getting a huge tax deduction every year.
Go back later and read the full guide on the Solo 401(k) and The Knowledge Posts on various topics. Yes, being great at your chosen freelance profession or single person business is important, but so is being an informed investor.
Get rich slow.
Benjamin Graham, famous investor and author:
"To be successful, people don't need extraordinary insight or intelligence. What they need most is the character to adopt simple rules and stick to them."
Are you nearing retirement?
If you plan on retiring in the next five years, I suggest seeing a Certified Financial Planner (CFP) before making any decisions. I prefer ‘advice-only’ financial advisors who charge you for their time and a plan, not a percentage of your assets under management every year.
Why seek advice? The stock market sometimes has extended down periods; 2008-09 is a good example. If you’re nearing retirement, you need to be set up so you can use your retirement funds to pay your living costs.
If you’re younger, down periods in the market are great for us to keep buying and get the funds at cheaper prices.
This is AI-generated, you at 55 with well over a $1,000,000 in your Solo 401(k). Yes, you take at least 10 weeks off a year now because you are set. You have growing assets which mean you can pick your clients, work less and enjoy life.
WARNING:
Once your Solo 401(k) hits a balance of $250,000, you must file IRS Form 5500-EZ every year. Fines of up to $150,000 per year await if you don’t. Read about it here in The Knowledge.
Yes, that’s probably a few years away. That’s the problem. Don’t forget like I did.
More reading to help drive your wealth. Investment knowledge leads to less work later and more life.
Read the full guide the Solo 401(k). It takes twenty minutes and has more detail than the quick guide above.
The Knowledge post on the Stock Market. It’s more simple and less scary than you think.
Why picking individual stocks is fun, but does not work long term.
Send this website to your freelance and single-person business friends and colleagues. I’ve been amazed at the feedback of how many freelancer’s accountants have not suggested they open a Solo 401(k) and get the massive tax deduction.
I do not receive any payments or referral fees from Solo 401(k) providers. Email me if you open a Solo 401(k), I’d love to keep track of how many of you do.