Solo 401(k)
Solo 401(k) & Keogh Plans
If you're self-employed with no employees, the Solo 401(k) is arguably the most powerful retirement savings vehicle available to you.
Solo 401(k): The Self-Employed Power Plan
Also called an Individual 401(k) or One-Participant 401(k), the Solo 401(k) is designed for self-employed individuals and business owners with no full-time employees (a spouse may participate). What makes it exceptional is the ability to contribute as both the employee and the employer.
2025 Contribution Limits
| Role | Contribution Type | 2025 Limit |
|---|---|---|
| Employee (you) | Elective Deferral | $23,500 |
| Employee (age 50–59, 64+) | Catch-Up | +$7,500 |
| Employee (age 60–63) | Enhanced Catch-Up (SECURE 2.0) | +$11,250 |
| Employer (you) | Profit-Sharing Contribution | Up to 25% of net self-employment income |
| Combined Total | Employee + Employer | Up to $70,000 ($81,250 with catch-up) |
Why Solo 401(k) Beats SEP-IRA at Lower Income Levels
A self-employed person earning $60,000 can contribute approximately $13,500 to a SEP-IRA (25% of ~$54,000 net), but up to $37,500 to a Solo 401(k) (the full $23,500 elective deferral + ~$14,000 in profit sharing). At lower income levels, the Solo 401(k)'s dual-role contribution structure wins significantly.
Roth Option & Loan Provisions
Many Solo 401(k) providers now offer a Roth designation for the elective deferral portion- Plans can allow loans, up to 50% of the vested balance, maximum $50,000
- Loan must be repaid within 5 years (except for home purchases)
- Required to file Form 5500-EZ once plan assets exceed $250,000
- Must be established by December 31 of the tax year (not extended deadline)
Keogh Plans: The Historical Predecessor
Keogh Plans (named after Congressman Eugene Keogh) were the original self-employed retirement plan, established in 1962. Today, they are largely superseded by the Solo 401(k) and SEP-IRA, but some existing Keogh plans remain active, particularly for partnerships and professional practices (law firms, medical practices) established before the modern alternatives became available.
Defined Contribution Keogh
Functions like a profit-sharing plan. Contribution limit: up to 25% of net self-employment income, max $70,000 (2025). More flexible, contribution is discretionary each year.
Defined Benefit Keogh
Promises a specific monthly benefit at retirement. Contributions are actuarially determined, can be very high for older high earners but require annual actuarial calculations and mandatory contributions each year.
Keogh plans require Form 5500 filing annually regardless of plan assets and have more complex administration than Solo 401(k) plans. For most self-employed individuals, a Solo 401(k) is the preferred modern alternative. However, for high-income professionals in partnerships, a Defined Benefit Keogh can still shelter significantly more income than any other option.
Self-Employed Retirement Planning
Choosing and optimizing a self-employed retirement plan requires careful calculation of net self-employment income and contribution timing. Randall Parker can help you maximize every dollar.
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