Benefits of Solo 401(k) Plans
If you are self-employed or a small business owner, most financial advisors will suggest contributing to a SEP IRA. Though they are well understood and easy to open like other brokerage accounts, that doesn't mean it’s the best option available. That would be the not-as-well-known Solo 401(k). While both accounts can help you save for retirement, the Solo 401(k) offers more advantages.
So why don't more people know about Solo 401(k)s? Most financial advisors do not offer them because of the administrative requirements, increased paperwork, and complex implementation. That’s one of many ways Lifetime Financial is different. We began offering these in 2025 and clients are loving the flexibility.
What Is a Solo 401(k)?
A Solo 401(k) is a traditional 401(k) plan designed for businesses with no employees, except possibly a spouse. Anyone with an Employer Identification Number (EIN) can open one. The business owner acts as both employee and employer, allowing for higher contribution limits and greater flexibility than many other plans.
Key Features:
High Contribution Limits: For 2024, the contribution was up to $23,000 as an employee ($30,000 if you’re over 50), plus up to 25% of compensation as the employer, with a total cap of $70,000 in 2025.
SEP IRAs only allow employer contributions up to about 20% of earnings.
Catch-Up Contributions: If you’re 50 or older, you can make additional catch-up contributions.
SEP IRAs do not allow extra contributions for those over 50.
Loan Option: You can borrow up to $50,000 at a low rate from your Solo 401(k).
SEP IRAs do not allow loans.
Tax Flexibility: Choose between pre-tax, after-tax and Roth contributions, including Mega Backdoor Roth options.
SEP IRAs now offer a Roth option, but not after-tax.
Easy Rollovers and Rebalancing: Move money between your Solo 401(k) and IRAs and rebalance investments without tax consequences.
SEP IRAs do not have this capability.
If you are managing your own investments, SEP IRAs are probably your best bet. If you’d like to learn more about our services, do not hesitate to reach out.