The Potential of Solo 401(k) Plans: Eligibility, Benefits, and Compliance

For self-employed individuals without employees, planning for retirement can present unique challenges. A Solo 401(k) plan offers a tailored solution, providing high contribution limits and flexible investment options.

What Is a Solo 401(k) Plan?

A Solo 401(k), also known as a one-participant 401(k) plan, is designed for self-employed individuals with no employees other than a spouse. It allows the business ownerto contribute both as an employee and employer, resulting in higher savings potential. The plan can include both traditional (pre-tax) and Roth (after-tax) contribution options.​

Eligibility Criteria

To qualify for a Solo 401(k) plan, you must meet the following requirements:

• Self-Employment: You must be a sole proprietor, independent contractor, or small business owner with no full-time employees other than your spouse.​
• Business Structure: Eligible business structures include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.​

Contribution Limits

As of 2025, the contribution limits for Solo 401(k) plans are as follows:​

• Employee Contributions: Up to $23,500 or 100% of compensation, whichever is less.​
• Catch-Up Contributions: Individuals aged 50 and above can contribute an additional $7,500.​
• Employer Contributions: Up to 25% of compensation as defined by the plan.​
• Total Limit: The combined total of employee and employer contributions cannot exceed $70,000.​

For individuals aged 60 to 63, the SECURE 2.0 Act introduces increased catch-up contributions, allowing an additional $11,250, instead of $7,500, during this age bracket. ​

Comparing Solo 401(k) to Other Retirement Plans

When evaluating retirement plan options, it's essential to consider factors such as contribution limits, administrative responsibilities, and eligibility:

• SEP IRA: Simpler administration but may have lower contribution limits compared to a Solo 401(k).​

• SIMPLE IRA: Designed for businesses with up to 100 employees; offers lower contribution limits and requires employer contributions.​

A Solo 401(k) often provides higher contribution limits and greater flexibility, making it a preferred choice for many self-employed individuals.​

Compliance and Employee Inclusion

It's crucial to understand that a Solo 401(k) is intended for businesses without full-time employees other than the owner and spouse. Please note that, effective January 1, 2025, the SECURE 2.0 Act reduced the eligibility period for part-time workers to enroll in 401(k) plans from three years to two. If a business has no full-time employees, other than the owner and spouse, but does have part-time employees, who may have to be included in the plan, the plan is no longer a Solo 401(k) but a traditional 401(k) plan. However, this does not change the compliance requirements. For more information on the Long-Term, Part-Time provision, read our blog here.

How RMC Group Can Assist

Establishing a Solo 401(k) involves navigating various administrative and compliance requirements. RMC Group specializes in retirement plan services, offering expertise in setting up and managing Solo 401(k) plans tailored to your specific needs. Their team can guide you through the process, ensuring compliance with current regulations and optimizing your retirement savings strategy.​

A Solo 401(k) plan can be a powerful tool for self-employed individuals seeking to maximize their retirement savings. Understanding the eligibility criteria, contribution limits, and compliance requirements is essential. With the assistance of professionals like RMC Group, you can establish a plan that aligns with your financial goals and adheres to regulatory standards.