A Financial Advisor’s Guide to Solo 401(k)s
Your clients who work for themselves may not feel clear about their retirement savings options. They don’t work for a traditional employer, so an employer-sponsored 401(k) is not an option. However, they don’t need to be excluded from the high contribution limits and tax advantages that may come with opening a 401(k).
Solo 401(k)s are a popular option for freelancers, contractors, sole proprietors, and anyone else working for themselves. We’re here to help you understand this retirement option, so you can assess whether it’s the right fit for your clients.
This article is part of our ongoing series about retirement savings for self-employed individuals. Visit our Learn page to read more articles on this topic and follow us on LinkedIn to never miss a new post.
Understanding the details of solo 401(k)s
A solo 401(k), also called an individual 401(k), is a retirement savings plan designed for self-employed individuals or small business owners with no employees other than a spouse. It allows account holders to contribute as both the “employee” and the “employer,” increasing their potential annual contributions.
Account holders can make contributions on a pre-tax basis (reducing current taxable income) or as Roth (for tax-free withdrawals in retirement).
The plan is flexible, allowing a higher contribution than individual retirement accounts (IRAs), potential loan options, and tax-deferred growth of investments, making it a powerful tool for independent workers to build retirement savings.
Finding the right fit
So, how do you know if a solo 401(k) is the right option for your client? Eligibility is simple. To be eligible for a solo 401(k), an individual must earn their income as a business owner with no employees. However, if a client employs their spouse, the spouse can also be eligible to participate in the plan.
Business entity does not matter for eligibility, so the individual can run their business as a sole proprietorship, partnership, limited liability company (LLC), or corporation.
The perks of a solo 401(k)
When speaking with your clients about opening a solo 401(k), there are a few benefits you may want to highlight.
Higher contribution limits
Solo 401(k)s typically have a higher contribution limit than IRAs. In 2026, this contribution limit is $24,500. Individuals between ages 50 and 59, as well as those 64 and older, can make additional catch-up contributions of $8,000 annually. For those aged 60-63, the catch-up contribution limit is $11, 250.
Employer contributions
Solo 401(k) account holders can contribute to their accounts as both the employee and employer. The employer contribution can be up to 25% of the individual’s total compensation. This may be beneficial to your clients who want to increase their annual contributions, as well as their opportunities for long-term compounding.
Tax-deductible contributions
Contributions to a solo 401(k) can be tax deductible. This can be advantageous for your clients who want to decrease their annual personal and business taxable income.
Simple setup and maintenance
Since solo 401(k) plans are designed for self-employed individuals, they often require less paperwork than other plan types. These accounts are also often exempt from non-discrimination testing.
Helping your clients save for the future
As your self-employed clients seek advice on their retirement savings options, a solo 401(k) may be a positive fit. At ePlan Services, we’re here to help you support your self-employed clients. Become a partner to access our specialized advisor support, flexible platform, and open architecture investment options.
