If you’re a freelancer who’s been putting $7,000 a year into a Roth IRA and feeling virtuous about it — you’re leaving a lot of money on the table.
The Solo 401(k) is the most powerful retirement account available to self-employed people, and most freelancers either don’t know it exists or assume it’s too complicated to set up. It’s not. Here’s the full picture.
What Is a Solo 401k?
A Solo 401(k) — also called an Individual 401(k) or Self-Employed 401(k) — is a retirement account designed for self-employed people with no full-time employees other than a spouse. It works exactly like an employer 401(k), except you’re both the employee and the employer.
That dual role is what makes the contribution limits so much higher.
How Much Can You Actually Contribute?
The 2024 Solo 401(k) limits:
Employee contribution: Up to $23,000 (or $30,500 if you’re 50+). This is the same limit as a regular employee 401(k).
Employer contribution: Up to 25% of your net self-employment income.
Combined limit: Up to $69,000 per year ($76,500 if 50+) — as long as your income supports it.
Example: $100,000 Net Self-Employment Income
| Contribution Type | Amount |
|---|---|
| Employee contribution (you as employee) | $23,000 |
| Employer contribution (you as employer, 25% of ~$92,350*) | $23,087 |
| Total contributed | $46,087 |
*Net self-employment income adjusted for SE tax deduction
Compare that to a Roth IRA’s $7,000 limit. The Solo 401(k) can shelter six times as much per year.
Who Qualifies
You qualify for a Solo 401(k) if:
- You have self-employment income from any source (freelancing, consulting, side work, 1099 income)
- You have no full-time employees other than yourself and/or a spouse
You don’t need to be full-time freelance. If you have a day job with a 401(k) AND freelance income on the side, you can still open a Solo 401(k) for your freelance income. The $69,000 total limit applies across all 401(k) plans combined, but you can still shelter a meaningful amount.
The income requirement: You need net self-employment income to make employer contributions. The employee deferral ($23,000) only requires that you have earned self-employment income at all.
Traditional vs. Roth Solo 401k
Like a regular 401(k), the Solo version comes in two flavors:
Traditional Solo 401(k): Contributions are pre-tax. You reduce your taxable income now and pay taxes when you withdraw in retirement. Best if you expect to be in a lower tax bracket in retirement.
Roth Solo 401(k): Contributions are after-tax. No tax deduction now, but all growth and withdrawals are tax-free in retirement. Best if you’re in a moderate tax bracket now and expect to be in a higher one later — or if you want tax-free income in retirement.
The strategy many high-income freelancers use: Make Roth employee contributions (up to $23,000) for tax-free growth, and make traditional employer contributions (25% of income) for an immediate tax deduction. This splits the tax benefit.
The Best Solo 401k Providers
Fidelity — Best for Most Freelancers
Fidelity’s Solo 401(k) has no account fees, no minimum balance, and access to excellent low-cost index funds. The setup is reasonably straightforward — you can open the account online, though you’ll need to mail in a signed adoption agreement.
What it lacks: No Roth option for employee contributions (traditional only), no loan provisions. But for most freelancers who want a simple, low-cost account, Fidelity is hard to beat.
Best for: Freelancers who want traditional (pre-tax) contributions and low-cost index investing.
Vanguard — Best for Long-Term Index Investors
Vanguard’s Solo 401(k) is free to maintain and gives you access to Vanguard’s legendary low-cost funds. The catch: no Roth option and the application process is entirely paper-based.
Best for: Freelancers who already use Vanguard for their other accounts and want everything in one place.
Schwab — Best for Roth + Traditional Split
Schwab’s Individual 401(k) offers both traditional and Roth options, which neither Fidelity nor Vanguard’s Solo plans currently support. If you want to make Roth employee contributions, Schwab is one of the few major providers that supports it.
Best for: Freelancers who want the Roth + traditional split strategy.
Etrade (Morgan Stanley) — Best Feature Set
E*TRADE’s Solo 401(k) has the most complete feature set: both traditional and Roth options, loan provisions (borrow up to 50% of your balance, max $50,000), and no setup or maintenance fees.
Best for: Freelancers who want maximum flexibility, including the ability to borrow from the plan if needed.
How to Open a Solo 401k
- Pick a provider from the list above based on your priorities (Roth vs. traditional, simplicity vs. features)
- Apply online or via paper form — most providers have an online application that takes 15–30 minutes
- Receive your plan documents and sign the adoption agreement
- Connect your bank account for funding
- Make your first contribution — you can contribute lump sums anytime, but employee deferrals must be designated by December 31 of the tax year
Deadline to open: December 31 of the tax year you want to contribute for. You can fund the account up to your tax filing deadline (including extensions), but the account must exist by year-end.
The Tax Impact Is Real
For a freelancer in the 22% federal bracket plus a 6% state tax rate, a $23,000 traditional Solo 401(k) contribution saves approximately $6,440 in taxes that year. On top of the compounding retirement savings, this is a meaningful annual benefit.
At $46,000 in contributions (employee + employer at $100K income), the tax savings exceed $12,880 per year.
What Happens to the Account If Your Income Changes?
Lower income year: You can contribute less or nothing. The account stays open. No minimums, no penalties for skipping a year.
No self-employment income: If you stop freelancing entirely and take a W-2 job, you can no longer make new contributions — but the account stays open and continues growing.
Want to consolidate accounts later: Solo 401(k) accounts can be rolled over to an IRA or to a new employer’s 401(k) when you change situations.
Frequently Asked Questions
Can I have both a Solo 401k and a Roth IRA? Yes. These are separate accounts with separate contribution limits. You can max both in the same year if income supports it.
I have a W-2 job with a 401k AND freelance income. Can I still open a Solo 401k? Yes. The $69,000 total limit applies across all 401(k) plans — so your W-2 contributions count toward it. But you can still make employer contributions to a Solo 401(k) based on your freelance net income, and potentially make additional employee deferrals up to the combined limit.
What if I hire an employee? The Solo 401(k) requires that you have no full-time employees (other than a spouse). If you hire full-time employees, you’d need to convert to a regular 401(k), SEP-IRA, or SIMPLE IRA — all of which have their own rules.
Is a Solo 401k better than a SEP-IRA? For most freelancers, yes — unless your income is very high. The Solo 401(k) allows both employee and employer contributions, so you can shelter more at lower income levels. A SEP-IRA only allows employer contributions (up to 25% of income), which means you’d need $184,000+ in income to match a maxed Solo 401(k) employee deferral.
Do I need an EIN to open one? Most providers require an Employer Identification Number (EIN) — free and easy to get at irs.gov/ein. Takes about 5 minutes online.
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