How to Set Up a Solo 401(k): A Smart Retirement Move for 1099 or Self-Employed
If you’re self-employed or run your own business with no employees (other than a spouse), the Solo 401(k) might just be one of the most powerful retirement tools you’ve never heard of—or haven’t set up yet. With high contribution limits and serious tax advantages, it's tailor-made for freelancers, consultants, side hustlers, and small business owners.
Here’s a step-by-step guide to get your Solo 401(k) up and running.
🚀 What’s a Solo 401(k), Anyway?
Also known as an Individual 401(k), a Solo 401(k) is a retirement savings plan designed for self-employed individuals and business owners with no full-time employees. It offers the same benefits as a traditional 401(k), but with more flexibility and often fewer fees.
The Key Perks:
High contribution limits (more on that below)
Tax-deferred growth or Roth option for tax-free withdrawals
Loan provision (you can borrow from your plan)
Potential to reduce taxable income
💼 Who’s Eligible?
To qualify, you must:
Be self-employed or own a business (LLC, sole proprietorship, S-corp, etc.)
Have no full-time employees, other than a spouse
If you hire full-time employees down the road, you may need to switch plans.
📋 Step-by-Step: How to Set Up a Solo 401(k)
1. Choose a Provider
You’ll need a financial institution to serve as the plan custodian. Some of the most popular options include:
Charles Schwab (low fees, good customer service)
Fidelity (great for DIY investors)
Betterment (great tech platform but some higher fees potential)
Vanguard (solid index fund choices but expect poor customer service)
Compare based on:
Fees
Investment options
Roth availability
Ease of setup
2. Get an EIN (Employer Identification Number)
Even if you’re a sole proprietor, the IRS requires an EIN to open a Solo 401(k).
Apply online for free at irs.gov
3. Fill Out the Plan Documents
Most providers handle this part for you. You'll need to:
Name your plan (e.g., “[Your Name] Solo 401(k)”)
Choose between Traditional, Roth, or both
Decide if you want loan provisions
If you're setting up your plan yourself or through a third-party administrator (TPA), the documents might be more involved.
4. Open the Account and Fund It
Once approved, you can:
Transfer funds from an existing IRA or 401(k)
Make contributions from business income
🗓️ Important: The plan must be established by December 31 to make contributions for that tax year, even though you can fund it later (up to your tax filing deadline, including extensions).
💰 How Much Can You Contribute?
Solo 401(k)s allow two types of contributions:
1. Employee Contribution (You, wearing your worker hat)
Up to $23,000 for 2025 (or $30,500 if age 50+)
Can do this as a Traditional or Roth Contribution, depending on which custodian you use.
2. Employer Contribution (You, as the boss)
Up to 25% of your net self-employment income (after expenses)
Total Limit:
$69,000 for 2025 (or $76,500 if 50+)
Way more than a traditional IRA!
🧾 Reporting & Maintenance
Annual Form 5500-EZ is required if your Solo 401(k) balance exceeds $250,000
Keep good records of contributions, especially if you do both Traditional and Roth
🛠 Pro Tips
Consider a Roth Solo 401(k) if you expect to be in a higher tax bracket in retirement
Open the plan early—even if you don’t contribute much right away
Use it with a SEP IRA or Backdoor Roth strategy for extra flexibility
You can hire your own spouse and each of you can open and contribute to a Solo 401(k).
Assuming your spouse is working in the business and being paid at less what is contributed to the solo 401(k).
Final Thoughts
If you're serious about saving for retirement and want to slash your tax bill, a Solo 401(k) is hard to beat. It takes a little legwork up front, but the long-term rewards are well worth it. For self employed individuals it is a great option.
Need help picking a provider or figuring out contribution math? I’m happy to help—drop your questions in the comments!
Author:
James Hargrave, MBA, CFPⓇ, CLUⓇ