As a solopreneur, you\u2019re used to being self-sufficient. Whether you\u2019re running a coffee stand or managing a portfolio of freelance clients, you\u2019re taking your income into your own hands. But what about your retirement savings?<\/p>\n
Solo 401(k) plans, or individual 401(k) plans, are a popular option for sole proprietors and self-employed individuals (including freelancers who file their taxes as a business owner). This type of retirement plan may be your key to a more successful financial future.<\/p>\n
A Solo 401(k) is a retirement plan for people who are self-employed. It\u2019s also sometimes referred to as an Individual 401(k), Uni-401(k), one-participant 401(k), or self-employed 401(k) plan. If you\u2019re a self-employed individual enrolled in a Solo 401(k), your spouse can also participate if they work with you.<\/p>\n
To be eligible, you must earn your income as a sole proprietor or own a small business without employees. Self-employed individuals who also work full time for another employer may open this type of retirement plan using self-employed income from their business. However, individuals in this situation should keep limits on elective deferrals in mind, as these limits are specific to the person rather than the plan.<\/p>\n
As with a standard 401(k) plan, there are two types of contribution options in a Solo 401(k): traditional and Roth.<\/p>\n
Choosing the best 401(k) plan for you depends on your personal financial situation. Consider speaking with a financial advisor prior to opening a plan.<\/p>\n
Each type of retirement plan will have a different contribution limit. Self-employed individuals contributing to a Solo 401(k) can contribute as both the employer and employee. According to the IRS, those contributing as an \u201cemployee\u201d can contribute up to $20,500<\/a> per year (2022). Those age 50 and older can contribute up to $27,000. When contributing as an \u201cemployer,\u201d you can contribute up to 25% of your net earnings<\/a>.<\/p>\n You might be comparing a Solo 401(k) to other retirement savings options for the self-employed, such as an SEP IRA. Each type of retirement savings option will have its perks and drawbacks, so do plenty of research before choosing the right option for you. Here are a few key benefits of a Solo 401(k).<\/p>\nWhat Are The Benefits of a Solo 401(k)?<\/h2>\n
Favorable Contribution Limits<\/h3>\n