solo 401k
A 401k plan for self-employed individuals with no employees — allows both employer and employee contributions.
Example
“The solo 401k allowed her to contribute $66,000 annually as both employer and employee.”
Memory Tip
SOLO 401K — for self-employed with no staff. Higher limits than SEP IRA in many cases.
Why It Matters
A solo 401k is crucial for self-employed individuals because it allows you to save significantly more for retirement than traditional IRAs while also reducing your current taxable income. This dual contribution structure makes it one of the most powerful retirement savings tools available to freelancers and business owners.
Common Misconception
Many people mistakenly believe that a solo 401k is only for those with very high incomes, but in reality anyone who is self-employed with no employees can open one regardless of their earnings level. Even a part-time freelancer earning modest income can benefit from the tax advantages and contribution flexibility it offers.
In Practice
Consider a freelance consultant earning 80000 dollars annually who opens a solo 401k. They can contribute up to 23500 dollars as an employee deferral and then contribute approximately 14000 dollars as an employer contribution based on their net self-employment income, resulting in a total annual contribution of about 37500 dollars compared to the 7000 dollar limit for a traditional IRA.
Etymology
Modern retirement plan for the self-employed — combining both contribution roles.
Common Misspellings
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See Also
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