The wealth builder
The Solo 401(k)
(also known as a Individual 401(k), Solo 401(k), or One-Participant 401(k)
Becoming an ‘401(k) millionaire’ is easier than you think— just steady investing over time.
What is the Solo 401(k)?
The get-rich, slow investment vehicle that will work in the background over your entire career.
The Solo 401(k), also known as the Solo 401(k), is a tax-protected retirement account like the staffers’ 401(k), but it’s for freelancers and single-person businesses (and your spouse). The ‘i’ is for individual; you can’t have any employees unless it’s your spouse. The Knowledge post here discusses other accounts you can use if you have employees.
If you have an Solo 401(k) and later start employing W-2 workers, you will need to switch to another plan, such as a SEP-IRA or a Safe Harbor 401(k). Talk to your accountant.
Think of it as a wrapper that contains a few simple investments inside.
It’s like the 401(k) staffers get, except YOU are the employer and the employee. Yes, it’s yours, you are the boss. That’s why you’re freelance, right?
iWhat? Why do I care?
It’s a huge tax deduction. A total tax-man-crushing, monster deduction.
ME: In 2025, I dumped $60,000 in mine; that’s a $60k tax deduction. If my taxable income were $200,000, it would now be $140,000.It’s not hard to become an Solo 401(k) millionaire by age 55. It’s simple investing over a long period.
So how does it make money and fund my future?
We will put one mutual fund or three ETFs inside the Solo 401(k). This is a simple, proven investment strategy that requires very little attention. We will use the classic Three-Fund Portfolio. That’s in Part 3.
Private investment companies run the Solo 401(k) The ones I use and will discuss are Schwab and E*Trade. There are virtually no fees.
What types of Solo 401(k) are there?
Pre-tax (deferred) Solo 401(k): The money is not taxed as it goes in, so it’s a tax deduction like a business expense. Example: earn $100,000 of gross income, put $20,000 into the Solo 401(k) that year, and your taxable income is now $80,000. It’s a big, beautiful tax deduction every year.
From 59½, you can use the money if you retire. It will be taxed as you pull it out, so it’s called a deferred account. Your tax rate will most likely be lower in retirement than in your prime earning years, more later.
Roth Solo 401(k): You contribute the money after paying tax, so there is no tax deduction as mentioned above. However, when you retire sometime after 59½ and start spending it, the money is not taxed.
In general, a pre-tax deferred Solo 401(k) is the way to go if you are earning a decent amount of income. More on this later.
My Union has a 401(k) set up for me; what about that?
If you’re freelance and have a Union pension/401k to which employers contribute money, this does not count towards your contribution limit as long as you don’t put money into it. More on this later.
I mostly make W-2 wages as a freelancer. What do I do?
An Solo 401(k) needs 1099 income to work. You can’t use W-2 money. If you primarily make W-2 wages as a freelancer, see this article here on the Roth IRA.
Benjamin Graham, author of The Intelligent Investor:
“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.”
How much can I put in every year?
This is the fantastic part for freelancers, single-person businesses, and our spouses. The yearly contribution limits are huge compared to what staffers can put away.
In 2025, we can contribute up to:
Up to age 49:
$70,000/year
Age 50+ :
$77,500/year
Age 60-63 :
$81,250/year
*The IRS raises these limits most years. The amount you can contribute is also based on your earnings; more later.
The soundtrack for this section is courtesy of Tiesto. Press play and read on!
Compound Interest — Your New Best Friend
Compounding interest, watch that sucker grow.
Albert Einstein, Senior Smartypants:
"Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."
Starting as soon as possible is really important because of compounding interest. As you add money to your Solo 401(k), it grows in our stock market funds at an average of 7% per year—more on how later. The i401(k) starts getting bigger and bigger because the 7% compounds every year on the money you add, as well as the previous 7% gains from the years before.
Time is what matters. Investing needs time to work. It’s the rolling snowball effect: Your money gets bigger and bigger as it rolls downhill over time. The early money is the most important as it will give the most time to grow and get that yearly 7% bump.
In reality, you’ll start investing smaller amounts early in your career and contribute more yearly as you earn more. But for the example below, I’m assuming you put in $20,000 yearly, with the Solo 401(k) growing at a very conservative 7% yearly.
Are you reading this and you’re already a bit older? No drama; just start now and pound as much money in as you can.
Take a look at the compounding magic in the graph above. The graph shows someone starting with $10,000, then adding $20,000 per year, growing at 7%. See what happens when you start at 30, 35, or 40 years old to the final amount when you’re 60. Start early, and the final amount will be much larger.
Starting a little later in your career? No drama. Put in as much as you can every year and watch it grow.
Imagine a snowball rolling downhill, getting bigger and bigger — this is your Solo 401(k) gathering speed and size over time.
The charts below show someone investing from 25 years old. On average, the long-growth will be around 7% a year for a Three-Fund Portfolio. Watch the amount in the right column start to shoot up in later years. Once the snowball gets big, it really accelerates.
Kids, expenses, emergencies, and how much you make in a year will all affect the amount you can contribute from year to year, too. Just put in as much as you can.
Watch the money grow as you invest.
Here’s an Solo 401(k) investor example
This is an example of someone who earns an income of around $120,000 by the time they are in their prime earning years (that’s in their 40s—50s).
Over time, their contributions per year go up as they earn more. With an average 7% growth rate from stock market investments, they will end up with over a million dollars in their Solo 401(k) at 55 years old.
At age 55, they will have approx. $1,572,918
At 60, around $2,378,621
An example of supersizing the contributions
This is an example of someone who makes larger contributions as they earn more.
At age 55, they will have around $1,930,126
At 60, around $3,017,642
“One. Million. Dollars!”
What if you start your Solo 401(k) later in life?
I started mine when I was 43 years old when I went freelance. Put as much into the Solo 401(k) as possible for the tax deduction and get the long-term average of 7% a year growth. It’s totally worth it.
In Feb 2025, after just nine years, my Solo 401(k) is worth over $926,000 with an annualized growth rate of 9.2%. Yes, the growth rate can be higher than 7% with an aggressive allocation. More later.
If you make less in your job than in the above examples, don’t worry; just put away as much as you can, and the 7% growth will remain the same
Why didn’t you know about this?
It's annoying, right? It’s not magic, it’s not complicated, and there is no hustle here. This is basic investing.
No one teaches us basic financial and investment literacy as a must-have knowledge—not schools, universities, or unions. It’s not your fault. Try to get going as soon as possible. Send this site to your fellow freelancers and single-person business owners so we can all take control of our future.
There is no money in simplicity for certain parts of the investment industry; they’re not about to tell you how simple it is. Some companies want you to pay them to ‘make you money,’ not figure out how easy it is yourself.
Have a play with the compound interest calculator at the bottom of the page to see the effect of changing the years you invest and the amount invested.
Retirement vehicles: the Solo 401(k), SEP and IRA
AI images of freelancers pondering tax protected retirement vehicles. So much fun.
Read The Knowledge post here about the differences between them. Even among accountants, there is some confusion about which one is the best to use. Hint: if it’s just you or you and your spouse, it’s the Solo 401(k) plus the Backdoor Roth IRA.
Play around with the numbers
with this calculator to see the magic of compound interest.
See what effect changing the amounts and time will have.
Starting Balace - assuming you start with zero dollars in your Solo 401k.
Annual Gain - that’s the rate the Solo 401(k) will grow at. 7% is a conservative number.
Time Period - how long the snowball has been rolling.
