Solo 401(k) (Individual 401(k))
First Seen: August 2013 · Established: 2001 EGTRRA Act · Status: Self-employed retirement powerhouse
Overview
Solo 401(k) (aka Individual 401(k)) is retirement plan for self-employed individuals with no employees (except spouse). Allows contributions as both employee and employer.
2023 limits: $66,000 total ($73,500 if 50+)
Contribution Structure
Employee deferral: Up to $22,500 ($30,000 if 50+)
Employer profit-sharing: Up to 25% of compensation
Combined max: $66,000 ($73,500 if 50+)
Example: $100K self-employment income
- Employee deferral: $22,500
- Employer profit-sharing: ~$18,500
- Total: $41,000
Advantages Over SEP IRA
Higher contributions: Employee + employer vs employer-only
Roth option: Many providers offer Roth Solo 401(k)
Mega backdoor Roth: If plan allows after-tax contributions + in-plan conversions (rare but powerful)
Loan provision: Borrow up to $50K from own 401(k)
Disadvantages
Annual filing: If balance >$250K, must file Form 5500-EZ
More complex: Harder setup than SEP IRA
Spouse-only: Hiring W-2 employees disqualifies Solo 401(k) (must switch to regular 401(k))
Mega Backdoor Roth Solo 401(k)
Advanced strategy: Contribute $22,500 (employee) + $18,500 (employer) + $25,000 (after-tax) = $66,000. Convert after-tax portion to Roth in-plan. Requires:
- Solo 401(k) allowing after-tax contributions
- In-plan Roth conversions
Providers: Fidelity, E-Trade, Vanguard (most don’t offer after-tax, but some do)
Cultural Impact
FIRE community (2011+) loves Solo 401(k) for maximizing tax-advantaged space. Side hustlers use Solo 401(k) for freelance income even if employed full-time (must be separate business).
Sources
- IRS Solo 401(k) guidelines
- r/financialindependence Solo 401(k) threads
- Fidelity Solo 401(k) resource center