What an owner-only 401(k) is
An owner-only 401(k) — also called a solo 401(k) or individual 401(k) — is a full 401(k) plan designed for a business with no employees other than the owner and, if applicable, the owner's spouse. Because there are no rank-and-file employees, the plan is exempt from the nondiscrimination testing that makes traditional 401(k) plans complicated. The result is a plan with the contribution power of a large-company 401(k) and the administrative simplicity of a SEP IRA.
The plan accepts two types of contributions. The owner can defer a portion of compensation as an employee, up to the standard 401(k) limit. On top of that, the business can contribute an additional amount as employer profit sharing — up to twenty-five percent of W-2 compensation for a corporation, or roughly twenty percent of net self-employment income for a sole proprietor or partnership. The combined ceiling is high enough that most solo operators can shelter more income here than in any other plan.
A spouse who works in the business can also participate, effectively doubling the household contribution room. For a married couple running a practice or consulting firm, the math becomes significant fast.
For owners who want to shelter even more, a solo 401(k) can be layered on top of a defined benefit or cash balance plan. The 401(k) handles the deferral component, and the defined benefit plan allows an additional employer contribution based on an actuarially determined benefit formula. This combination is most common among high-earning sole proprietors or small partnerships — physicians, attorneys, consultants — where the owners want to compress decades of retirement savings into a shorter window. The total annual contributions under the right combination can exceed $300,000.
What working with us looks like
First meeting — the contribution analysis
We meet in person and model your contribution capacity across a solo 401(k), SEP IRA, and — if relevant — a defined benefit plan. We use your actual income and entity structure, not estimates. By the end of the meeting you can see what each plan shelters and what it costs.
Second meeting — the written plan
You leave with a written recommendation: the plan type, the custodian shortlist, the contribution breakdown between employee deferral and profit sharing, and a Roth vs pre-tax allocation based on your bracket projection. The recommendation is yours to keep whether or not you work with us.
A note on fit
When this might not be right for you
A solo 401(k) is not the right plan for every self-employed person. Some of the situations where it may not fit:
- Businesses with full-time non-owner employees. The plan does not work once you have eligible staff beyond your spouse.
- Self-employed individuals who do not want the administrative responsibility of a plan document and potential annual filing. A SEP IRA is simpler.
- Anyone looking for a firm that will sell them a plan and manage the investments inside it for a commission. We advise on the structure — we do not sell the product.
If you are self-employed and saving less than you could, the comparison takes one meeting to resolve.
Frequently asked questions
What is a solo 401(k) plan?
A solo 401(k) is a 401(k) plan designed for a business owner with no full-time employees other than the owner and a spouse. It allows both employee deferrals and employer profit-sharing contributions, producing higher total contribution capacity than most other plans available to self-employed individuals.
Can I contribute more to a solo 401(k) than a SEP IRA?
In most cases, yes. The solo 401(k) allows an employee deferral on top of the employer profit-sharing contribution. A SEP IRA allows only the employer piece. At income levels below roughly $300,000, the solo 401(k) typically shelters more. The exact crossover depends on your entity type and net income.
Can my spouse participate in my solo 401(k)?
Yes, if your spouse receives compensation from the business — either as a W-2 employee or through self-employment income. Each spouse can make their own employee deferral and receive their own employer contribution, effectively doubling the household's contribution capacity.
What happens if I hire an employee?
Once you have a full-time non-owner employee who meets the plan's eligibility requirements, the solo 401(k) must either include them in the plan — which triggers nondiscrimination testing — or be terminated. Planning for this transition before you hire is important. Employees who work more than 1,000 hours per year generally must be covered under the plan once they meet the minimum age and service requirements, and part-time employees who work at least 500 hours per year for two consecutive years must be included under rules that took effect in 2024. Hiring plans and retirement plan structure should be reviewed together.
Does a solo 401(k) have a Roth option?
Yes. Most solo 401(k) plans allow designated Roth contributions. The employee deferral portion can be directed to a Roth account, where it grows and comes out tax-free in retirement. The employer profit-sharing contribution is always pre-tax. Some plans also allow after-tax contributions with in-plan Roth conversions.
Can I use a solo 401(k) to invest in real estate or other alternative assets?
Some solo 401(k) plans — often called self-directed 401(k) plans — allow investments in real estate, private loans, and other non-traditional assets. The rules around prohibited transactions are strict: you cannot purchase property you already own, transact with disqualified persons, or use plan assets for your personal benefit. Violations trigger immediate taxation of the account and potential penalties. Self-directed plans require careful legal guidance before any non-standard investment is made.
Do you charge a commission to set up a solo 401(k)?
No. We are fee-only fiduciaries. We advise on plan design and custodian selection, but we sell no products, accept no commissions, and receive no referral fees from any provider. Our fee is disclosed in writing and paid directly by you.