Can a Freelancer Have a 401(k)?

As a freelancer, you’re operating as a solo business. Running your own operation shouldn’t mean sacrificing your retirement savings. Exploring your retirement options as sole proprietor can help you plan for your future security.

If you’ve been questioning which retirement option is right for your one-person business, you have options. While you should speak with a financial advisor and do your own research, a solo 401(k) plan, also known as an individual 401(k) plan, may be an appealing retirement account.

Who is eligible for a solo 401(k)?

Qualifying for a solo 401(k) is simple. The only requirement is that you are a sole proprietor with no employees. You may also qualify if you and your spouse run a business together.

What should I consider when establishing a 401(k)?

If you decide to scale up by hiring additional employees later, a solo 401(k) plan may no longer be suitable for your business because you will no longer meet the eligibility requirements. However, if you’re a small business owner with no employees, there are many benefits to adopting a solo 401(k) plan, including but not limited to:

• Tax Breaks: Allows you to select from a Roth or traditional plan type.
  • Traditional: Allows solo business owners to defer tax payments on contributions until the time of withdrawal.
  • Roth: Taxes from contributions are deducted immediately, so you won’t have to pay any taxes at the time of withdrawal as long as certain conditions are met.
• Loan Options: The solo 401(k) option lets small business owners with no employees take loans from their 401(k) before retirement. This is a perk that isn’t offered by some other plan types.
• Simple Paperwork: For a sole proprietor, the solo 401(k) plan setup is simple because it is designed for only the business owner, not a larger corporation.

How do you establish a solo 401(k)?

To establish a solo 401(k), you’ll need a plan provider. Once you contact your chosen provider, make sure to have your necessary business information on hand.

ePlan Services makes establishing our Solo(k) plan a simple process, providing clients with smooth setup and access to a dashboard where you can view all your documents at a glance.

What are the solo 401(k) contribution limits?

In 2023, business owners may contribute up to $66,000 to their solo 401(k) plans. The catch-up contribution for those aged 50 or older is $7,500 per year. With a solo 401(k), you can make separate contributions based on the roles of employee and employer. In this instance, the contribution limits apply differently to employee and employer contributions.

• Employee: If you are contributing as an employee, your contribution limit is $22,500 or 100% of your compensation depending on which is less as of the year 2023.
• Employer: As an employer, you can contribute up to 25% of your total compensation or net self-employment income. The maximum compensation that is used to factor your contribution is $330,000 in 2023.

It’s important to note that if you have another job and you participate in a separate employer-sponsored 401(k) plan, these limits pertain to all your retirement accounts, not just your solo 401(k) plan.

As a freelancer, you have options. Plan for your future by establishing an ePlan Solo(k) plan today. We’ll make the process quick and easy, so you can focus on what’s really important: your business.

For help getting started, contact an ePlan retirement sales consultant today at sales@eplanservices.com. Our knowledgeable professionals are glad to help.

This content is for educational purposes only, is not intended to provide specific legal or financial advice, and should not be used as a substitute for the legal advice of a qualified attorney or financial professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.