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How to Set Up a Solo 401(k) as a Business Owner

If you’re self-employed with no full-time employees other than a spouse, a Solo 401(k) offers dramatically higher contribution limits than a standard IRA — here’s how to actually set one up.

→ Related: Gold IRA for Self-Employed and Small Business Owners(#74) — covers the contribution math and self-directed variant in depth.

Who Qualifies

A Solo 401(k) is available to self-employed individuals and business owners — sole proprietors, freelancers, consultants, and single-member LLCs — with no full-time employees other than a spouse. Once you hire other employees, this structure generally stops being available, and a different small-business retirement plan becomes the relevant option.

2026 Contribution Limits

For 2026, total contributions can reach $72,000 for those under 50, combining:

• An employee deferral of up to $24,500
• An employer contribution of up to 25% of net self-employment income

Catch-up contributions raise the total further: $80,000 for ages 50–59 or 64+, and $83,250 for ages 60–63 under SECURE 2.0’s expanded “super catch-up” provision.

Step 1: Choose a Provider

Solo 401(k) plans are offered by most major brokerages (Fidelity, Schwab, Vanguard) at no cost for a standard plan, or through specialized providers if you want a self-directed version capable of holding alternative assets like real estate or precious metals — standard brokerage Solo 401(k)s typically restrict you to their own funds and stocks.

Step 2: Establish the Plan Documents

Setting up a Solo 401(k) requires adopting formal plan documents — most providers handle this as part of account opening, but it’s a genuine legal step, not just opening a brokerage account.

Step 3: Obtain an EIN

Even sole proprietors typically need an Employer Identification Number specifically for the Solo 401(k), separate from any EIN used for other business purposes.

Step 4: Fund the Account

You can contribute via the employee deferral (deducted from your own compensation) and the employer contribution (calculated as a percentage of net self-employment income) — both can be made up until your tax filing deadline, including extensions, for the prior tax year.

Ongoing Requirements

Once your Solo 401(k)’s total assets exceed $250,000, you’re required to file Form 5500-EZ annually with the IRS — a genuine compliance step many first-time filers don’t anticipate, since below that threshold no annual filing is required.

Solo 401(k) vs. SEP-IRA

Both are common choices for self-employed individuals, but they work differently:

• Solo 401(k): higher total contribution potential at moderate income levels (since the employee deferral doesn’t depend on the 25%-of-compensation formula), plus the option to borrow against the balance in many plans
• SEP-IRA: simpler administration, no annual filing requirement regardless of size, but generally requires higher income to reach the same total contribution level

→ Related: Gold IRA for Self-Employed and Small Business Owners(#74) — covers a full worked comparison between the two.

Can a Solo 401(k) Hold Alternative Assets?

A standard Solo 401(k) opened through a typical brokerage restricts you to that brokerage’s stocks and funds. To hold real estate, precious metals, or other alternative assets, the plan needs to be established as self-directed from the start, through a provider that specifically supports those asset types.

Frequently Asked Questions

Can my spouse also contribute to my Solo 401(k)? Yes — if your spouse is legitimately employed by the business, they may be eligible to make their own contributions, one of the few scenarios where a Solo 401(k) still applies with more than one participant.

What happens if I hire an employee after setting up a Solo 401(k)? Generally, you’d need to either extend coverage to eligible employees under broader retirement plan rules, or transition to a different plan structure — a Solo 401(k) is specifically designed for owner-only businesses.

Can I roll over an existing IRA or old 401(k) into my Solo 401(k)? Generally yes, via a direct rollover — the same core mechanics that apply to any qualified retirement account rollover.

Is a Solo 401(k) worth the extra complexity over a SEP-IRA? It depends heavily on your income level and whether the higher contribution ceiling meaningfully exceeds what a SEP-IRA would allow at your specific income — worth running the actual numbers with a tax professional rather than assuming one is universally better.

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That covers the practical steps to setting up a Solo 401(k) as a self-employed business owner. Thanks for reading.