One of the best ways to get on track for retirement is by leveraging the right accounts.
Some of the most common options:
While all of those are great, there's an account that is a better option (if you qualify).
It’s called the Solo 401(k).
In this post, I'm going to walk you through everything you need to know about it:
It’s a retirement plan for one-person businesses (or you and your spouse). If you have any full time W-2 employees, then you do not qualify.
You also cannot setup and use a Solo 401(k) if you own 80% or more of a business, otherwise you run into control group issues.
A Solo 401(k) allows you to contribute both as an employee and as an employer.
You can do $23,500 as an employee in 2025 and can do Roth or Traditional. You can also do an additional $7,500 if you are above 50 (or $11,250 extra if 60-63).
Then you can do either:
Then you also have the ability to do the Mega Backdoor Roth 401(k) with the remaining room if you have enough in wages/profits. You can get in a total of $70,000 into a solo 401(k) in 2025.
Let’s look at examples for both.
S Corp: $125,000 of wages
Employee side: can do $23,500 Roth or Traditional
Employer side: 25% of $125,000 = $31,250
After utilizing both of those, you have $70,000 - $23,500 - $31,250 = $15,250 of room left
Mega Backdoor Roth: $15,250
Sole Prop: $150,000 of profit (post half of self employment taxes)
Employee side: $23,500
Employer side: $30,000
After utilizing both of those, you have $70,000 - $23,500 - $30,000 = $16,500 of room left
Mega Backdoor Roth: $16,500
If you need help calculating this, carry has a great online calculator you can use here.
You can get a ton of tax savings from utilizing a Solo 401(k).
If you use pre-tax, this all comes as a deduction both at the state and federal level. If you put in $30,000 and are in the 37% bracket, this reduces your taxes this year by $11,100 at the federal level. But know you will pay income taxes in the future when you withdraw.
Or you could do Roth, pay the taxes today, and then never pay taxes again.
The other great benefit of a Solo is that it has the employee side (SEP does not). This means the employee side does not reduce profit which means you do not have to end up reducing the qualified business income deduction for those under the phaseout.
The Solo is 10x better than the SEP IRA and it is not even close.
Here are the main reasons why:
To dig into the numbers more, let’s go through an example of SEP vs Solo.
S Corp with $125,000 of wages:
Solo 401(k)
Employee side: can do $23,500 Roth or Traditional
Employer side: 25% of $125,000 = $31,250
Mega Backdoor Roth: $15,250
SEP IRA
25% of wages = $31,250
With the SEP, you miss out on the $23,500 employee contribution and the $15,250 mega backdoor Roth as well.
At the end of the day, if you're one of the lucky ones to get to use a solo 401(k), you should heavily consider it.
It's the best retirement account option out there.
Financial Advisor