A solo 401(k) (one-participant 401(k)) is a workplace-style plan for a business owner with no common-law employees other than a spouse. You wear two hats: employee (elective deferrals, traditional or Roth if the plan allows) and employer (profit-sharing contribution). That dual structure is why many freelancers outgrow a SEP IRA once they want higher combined limits or Roth deferrals inside the plan. SEP employer funding calendars (often through the filing deadline with extensions) differ from solo 401(k) elective deferral deadlines: SEP IRA contribution deadline basics.
Self-employment tax still applies on net earnings: Self-employment tax basics. W-2 vs 1099 framing: W-2 vs 1099 tax basics.
Employee side vs employer side
| Side | What it is | Plain-language cue |
|---|---|---|
| Employee deferral | Money you elect from “compensation” into the plan | Shares the annual elective deferral cap with any W-2 401(k) you also have |
| Employer profit-sharing | Contribution the business makes for you | Percentage-of-compensation style limit, subject to the overall annual additions cap |
| Roth vs traditional | Plan document may allow Roth deferrals | Employer profit-sharing is usually pre-tax unless the document says otherwise |
If you also defer into a day-job 401(k) at Fidelity or Vanguard, the employee deferral limit is shared across plans. The solo 401(k) employer contribution is a different bucket—but overall annual-addition limits still apply. Starter framing: Roth IRA vs 401(k).
Solo 401(k) vs SEP vs SIMPLE (fit check)
| Need | Often lean solo 401(k) | Often lean SEP | Often lean SIMPLE |
|---|---|---|---|
| Max sheltering with employee + employer sides | Yes, when profitable | Employer-only style contributions | Lower combined ceiling |
| Roth deferrals inside the plan | Commonly available | SEP is traditional-style | Roth SIMPLE features exist in some years—verify |
| Employees other than spouse | Generally not a solo plan | Possible (must cover eligible staff) | Built for small staff |
| Admin | More plan paperwork / possible Form 5500-EZ later | Very light | Light-to-moderate |
Shops that already have staff usually compare SIMPLE IRA basics or a full 401(k), not a solo plan.
Worked example
Alex runs a design LLC with no employees. Net self-employment profit supports meaningful compensation. In a strong year Alex:
- Defers up to the IRS employee elective deferral limit into a Schwab solo 401(k) (some Roth, some traditional per the plan).
- Adds an employer profit-sharing contribution based on the plan’s formula and IRS percentage/dollar caps.
- Keeps a separate day-job 401(k) deferral in mind so the shared employee limit is not double-counted.
Illustrative only: if the year’s employee deferral cap were treated as already half-used at the W-2 job, Alex’s solo employee room would shrink even if employer profit-sharing room remained. Run IRS worksheets or tax software for the tax year—do not copy a blog’s dollar figures onto gross 1099 receipts.
Some high savers later explore after-tax / mega-backdoor features only if the plan document allows them: Mega backdoor Roth basics. That is optional complexity, not a year-one requirement.
Setup and deadline cues
- Adopt a written plan before funding deadlines for the year (brokerage prototypes at Fidelity, Schwab, Vanguard, E*TRADE are common).
- Employee deferrals generally must follow the plan’s election timing rules for the year.
- Employer contributions often can land by the business tax filing deadline including extensions—confirm the year’s IRS rule.
- Assets stay inside the plan’s trust; invest in low-cost funds like any 401(k).
- When plan assets cross IRS Form 5500-EZ thresholds, budget for the filing.
A solo 401(k) does not replace quarterly estimates (Quarterly estimated taxes).
Checklist
- Confirm you have no common-law employees (spouse-only is the usual exception).
- Open a solo 401(k) with a written prototype; keep the adoption agreement.
- Separate employee deferral math from employer profit-sharing math.
- Coordinate the shared elective deferral cap with any W-2 401(k).
- Compare SEP vs solo vs SIMPLE with current IRS limits before you lock a provider.
- Calendar funding and any 5500-EZ triggers.
Employee elective deferral deadlines vs employer profit-sharing dates: Solo 401(k) employee deferral deadline basics.
Educational only. Not tax, legal, or investment advice. Contribution limits, Roth features, and Form 5500-EZ thresholds change by tax year—verify with IRS publications, the plan document, or a qualified tax professional.