The Solo 401(k) Is A Godsend for Self-Employed Americans — Here’s How To Open One

A 2023 study found that 15% of Americans are considered to be self-employed — they might not even realize it while working on freelance designs for local businesses, driving for Lyft, or running an Etsy shop.

The 1099 maximalists might envy the stability of a W-2 job with benefits, a 401(k), and all the rest. But more and more, there’s less to be envious of. Tax savings opportunities in 1099 land are robust and plentiful. What’s more, some of the best ones may be hiding in plain sight.

Rise of the Solo 401(k): Self-employed Americans can choose from workplace retirement plans like SEP and SIMPLE IRAs — but if you wanna go big, you gotta go 401(k). Since 2001, Americans have been able to open their own ‘Solo 401(k)’ and contribute up to the allowable limit (for tax year 2024, employee contributions are capped at $23.5K). But once you hit that ceiling, many plans boast additional ways to save and invest — producing significant tax savings in the process.

• Many plans allow employer contributions to be made on behalf of your single-member LLC — usually up to 20% of net business income, which can be written off.
• Some providers even allow after-tax contributions, which can be used for mega backdoor Roth contributions of up to $69K this year.

How Do I Open a 401(k)?

Millions of Americans are eligible to open these workplace retirement plans — even if they have a W-2 job — for retirement savings and other qualifying reasons. And generally speaking, these plans are becoming widely available, low-cost, and easy to set up and manage. You just have to pick a provider.

• Solo 401(k)-focused platform Carry lets users open an account starting at $250, with upgrades for those seeking more asset type options like private companies and crypto.
• Workplace retirement provider Guideline, recently acquired by payroll heavyweight Gusto, offers a managed Solo 401(k) option for $49/mo and 0.15% per year in management fees.
• Roboadvisor Betterment recently rolled out its own Solo 401(k) option, allowing self-employed users to automate retirement savings starting at 0.30% annually.

There are others, too: For those who prefer a more hands-on approach, traditional brokers like Fidelity and E*TRADE also offer Solo 401(k)s. However, research is recommended before jumping in, starting a plan, and making contributions — especially ones that are dependent on your business’ net income. Consider consulting a tax professional before diving in.