Originally published September 2015. Last updated March 2026.
If you’re self-employed with no employees (other than a spouse), a solo 401(k) is one of the most powerful retirement savings tools you can set up. Add the Roth option, and you’re building a pool of tax-free retirement income with some of the highest contribution limits available.
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2025 Solo 401(k) Contribution Limits
A solo 401(k) has two components:
- Employee contribution: Up to $23,500 (or $31,000 if you’re 50 or older). New for 2025: if you’re ages 60-63, the catch-up increases to $11,250, for a total employee contribution of $34,750.
- Employer contribution: Up to 25% of your net self-employment income (20% if you’re a sole proprietor or single-member LLC)
- Combined maximum: $70,000 for 2025 ($77,500 if 50+, or $81,250 for the new 60-63 super catch-up)
Compare that to a SEP IRA, which only allows employer contributions (no employee deferrals) and caps at $70,000. Or a SIMPLE IRA, which maxes out at $16,500 employee + 3% match. The solo 401(k) gives you the most room to save.
Why the Roth Option Matters
With a Roth solo 401(k), your employee contributions go in after tax. That means:
- No tax deduction now on the Roth portion
- Tax-free growth on those contributions
- Tax-free withdrawals in retirement
- No RMDs during your lifetime (as of 2024, SECURE 2.0 eliminated Roth 401(k) RMDs)
The employer contribution portion is always pre-tax, regardless of whether your employee contributions are Roth or traditional. So you’ll end up with both pre-tax and Roth money in the plan.
Three Reasons to Go Roth
1. Tax-free income in retirement
If you’re building a business and expect your income to grow, paying taxes now at a lower rate and withdrawing tax-free later is a strong bet. And with a solo 401(k), the amounts you can contribute on the Roth side ($23,500-$34,750 per year) are much larger than what you can put into a Roth IRA ($7,000-$8,000).
2. Tax diversification
Having both pre-tax (employer contributions) and Roth (employee contributions) in the same plan gives you flexibility. In retirement, you can draw from either bucket depending on what your tax situation looks like that year.
3. No income limits
Unlike a Roth IRA, there’s no income limit on Roth solo 401(k) contributions. Whether you make $50,000 or $500,000, you can put the full employee deferral into the Roth side.
Who Qualifies?
- Self-employed individuals with no employees (other than a spouse)
- Sole proprietors, single-member LLCs, S-corps, partnerships
- Freelancers, consultants, independent contractors
- Side-business owners (you can have a solo 401(k) alongside an employer’s 401(k), but the employee contribution limits are shared across all plans)
FAQ
Can my spouse participate?
Yes, if they earn income from the business. A spouse can make their own employee contributions (up to the same limits), and the business can make employer contributions on their behalf. That means a married couple running a business together could contribute up to $140,000+ combined in 2025.
Solo 401(k) vs. SEP IRA: which is better?
Solo 401(k) usually wins if you want to maximize contributions, especially at lower income levels. A SEP only allows employer contributions (25% of income), so you’d need $280,000 in net income to max it out. A solo 401(k) lets you contribute $23,500 in employee deferrals regardless of income, plus the employer percentage on top.
Can I borrow from a solo 401(k)?
Yes, if your plan document allows it. You can borrow up to $50,000 or 50% of your vested balance, whichever is less. You pay yourself back with interest. This isn’t available with SEP or SIMPLE IRAs.
Schedule a free 20-minute consultation to see if a solo 401(k) is the right move for your business.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
