A Complete Guide to the Solo 401(k): Eligibility, Costs, and Tax Considerations
Is a Solo 401(k) Right for You?
For self-employed professionals, a Solo 401(k) {also known as an Individual 401(k)} can be a powerful tool for both retirement savings and tax planning.
It offers high contribution limits (far exceeding IRA limits), flexible funding options, and valuable tax advantages.
Because there are no annual funding requirements, a Solo 401(k) provides flexibility and peace of mind for business owners and freelancers whose income may fluctuate from year to year.
Are You a Good Candidate?
A Solo 401(k) is designed for individuals who are self-employed or own a business with no full-time employees other than a spouse.
| YES, if you: | NO, if you: | MAYBE, if you: |
| Are a sole proprietor, independent contractor, or small business owner | Have full-time employees other than your spouse | Receive a W-2 from a company you do not own, but also earn self-employment or 1099 income |
If you have both W-2 income and self-employment income, you can still open a Solo 401(k) for your business activity. Contributions can only be made from your self-employment income, and your total employee deferral limit across all 401(k)s remains combined.
How to Fund a Solo 401(k)
Contributions to a Solo 401(k) are split into two categories: employee contributions and employer (profit-sharing) contributions.
Employee Contributions
- Made by you, as the participant (similar to a traditional 401(k))
- Can be Pre-tax or Roth
- 2025 limit: $23,500
- Catch-up (age 50+): $7,500 → total $31,000
- Super Catch-up (ages 60–63): $11,250 → total $34,750
Employer “Profit-Sharing” Contributions
- Made by your business
- Pre-tax only
- Up to 25% of your compensation
Other Funding Rules
- Combined employee + employer contributions cannot exceed:
- $70,000 if under age 50
- $77,500 if age 50+
- $81,250 if age 60–63
- Total contributions also cannot exceed 100% of compensation.
Costs for Setting Up a Solo 401(k)
At Hobbs Group Advisors, we provide comprehensive setup and support for Solo 401(k) plans.
| Service | Cost |
| HGA Investment Management Fee | 1% |
| One-Time Setup Fee (HGA) | $300/hour (typically 2–3 hours) |
| TPA Form 5500 Fee* | $225 (only required once plan exceeds $250,000) |
| Estimated Total – Year 1 | $600-900 + 1% of plan assets* |
| Ongoing Annual Cost | $225 (5500 filing if applicable) + 1% of plan assets* |
Solo 401(k) plans are required to file Form 5500 once assets exceed $250,000 as of December 31 of the prior plan year.
*Advisory fees vary depending on plan balance.
Year-End Deadlines to Remember
To take advantage of 2025 tax savings, be mindful of the following deadlines:
| Action | Deadline |
| Establish Solo 401(k) Plan | December 31, 2025 is recommended |
| Elect Employee Deferrals | 2025 tax filing deadline (including extensions) |
| Make Employer Contributions | 2025 tax filing deadline (including extensions) |
Key Benefits of a Solo 401(k)
- Reduce your taxable income for 2025
- Save more than with a SEP IRA or Traditional/Roth IRA
- Maintain flexibility in contribution timing
- Keep more of what you earn and invest for your future
- If your business isn’t incorporated, you can generally deduct employer contributions) for yourself from your personal income.
- If your business is incorporated, you can count these contributions as a business expense.
Ready to Explore Whether a Solo 401(k) Is Right for You?
If you’re self-employed or earn 1099 income and want to maximize your retirement savings while reducing taxable income, a Solo 401(k) could be a smart move.
Contact our office before year-end to start your plan and secure 2025 tax benefits. It is recommended for the plan to be in place by December 31 – exact deadlines depend on the tax election of your organization.
