What is a Solo 401(k)?
A Solo 401(k), also known as an Individual 401(k) or Self-Employed 401(k), is a retirement plan designed specifically for business owners with no employees (other than a spouse). It allows you to contribute as both the employer and the employee, maximizing your retirement savings while minimizing your tax burden.
As a small business owner, you wear many hats—entrepreneur, strategist, and financial planner. But are you maximizing your retirement savings while also reducing your tax liability? If you’re self-employed or own a business with no employees (other than a spouse), a Solo 401(k) could be the most powerful retirement plan available to you in 2025.
Unlike a Traditional IRA, which has contribution limits that can restrict high-income earners, a Solo 401(k) allows for significantly higher contributions, tax advantages, and flexible investment options—all while helping you build wealth for the future.
Why Choose a Solo 401(k) Over a Traditional IRA?
| Feature | Solo 401(k) | Traditional IRA |
|---|---|---|
| 2025 Contribution Limit | Up to $69,000 (or $76,500 if age 50+) | $7,000 (or $8,000 if age 50+) |
| Profit-Sharing Contributions | Yes, employer can contribute up to 25% of compensation | No |
| Spousal Participation | Yes, if the spouse earns income from the business | Yes, but at standard IRA limits |
| Loan Option | Yes, up to $50,000 or 50% of balance | No |
| Roth Option | Yes, Roth Solo 401(k) available for Employee contributions | Yes, but subject to income limits |
| Required Minimum Distributions (RMDs) | Not required if still working | Required after age 73 |
For small business owners, the Solo 401(k) offers the ability to defer significantly more income, lowering taxable earnings and allowing for faster retirement savings accumulation.
2024 Profit-Sharing Contribution: A Smart Tax Strategy
If you haven’t yet set up a Solo 401(k), the good news is that you may still make profit-sharing contributions for the 2024 tax year—even in early 2025 if you did not finish your tax filling. This allows business owners to lower their taxable income for the prior year.
How It Works:
- Establish a Solo 401(k) plan before the business’s tax filing deadline (including extensions).
- Make an employer profit-sharing contribution for 2024 (up to 25% of compensation).
- Reduce your tax burden while maximizing retirement savings!
This strategy is particularly effective for small business owners looking to reduce 2024 taxable income while taking advantage of higher contribution limits in 2025.
Spouse Inclusion: Doubling the Benefits
If your spouse earns income from your business, they can also participate in the Solo 401(k), effectively doubling your household retirement contributions. This means that together, you could contribute up to $138,000 ($153,000 if age 50+) in 2025—far beyond what any traditional IRA would allow.
A CPA’s Best Recommendation: Setting Up a Solo 401(k)
For CPAs advising small business clients, recommending a Solo 401(k) can be one of the best tax-saving and retirement planning strategies. Here’s why CPAs should encourage their clients to take action:
✔️ Higher Contribution Limits: More than 9x the IRA limits.
✔️ Immediate Tax Savings: Reduce taxable income through employee and employer contributions.
✔️ Flexibility: Choose between traditional pre-tax/ tax-deferred or Roth contributions.
✔️ Business Owner Control: Besides traditional investment options, with certain providers a self-directed investment options, including real estate, crypto, and more is available.
✔️ Estate Planning Benefits: Pass assets tax-efficiently to heirs.
By acting before the tax deadline, business owners can maximize contributions for both 2024 and 2025, securing retirement savings while leveraging tax benefits.
Take Action: Set Up Your Solo 401(k) Today!
With 2025 underway, now is the perfect time to establish a Solo 401(k) and start maximizing your savings. If you’re a small business owner, don’t leave money on the table—reduce your tax liability and accelerate your retirement savings today.
Contact Us Now and Schedule a call for a free consultation to check if this is the right option for you.
Invest in your future while saving on taxes—401k Bull is here to help you build the strongest retirement strategy for your business!
