Small Business Owners: How to Use a Solo 401(k) to Double Your Retirement Savings

When you're self-employed, you're not just the boss—you’re the CEO, CFO, and HR department all rolled into one. And while that comes with its challenges, it also unlocks one of the best-kept secrets in retirement savings: the Solo 401(k). If you’re running your own business and don’t have full-time employees (other than your spouse) ((spoiler alert)), this account is a game-changer for building long-term wealth.

What is a Solo 401(k) and How Does it Work?

A Solo 401(k) is a retirement savings plan designed specifically for self-employed individuals and small business owners with no employees other than a spouse. It functions similarly to a traditional employer-sponsored 401(k), allowing business owners to save for retirement while benefiting from tax advantages.

Here’s how it works:

• As both the employee and employer, you can make contributions from both roles, allowing for higher savings potential than traditional retirement accounts.
• Contributions can be made on a pre-tax basis, lowering your taxable income, or through a Roth component, allowing for tax-free withdrawals in retirement. Read Roth vs Traditional blog here.
• You have full control over how your funds are invested—whether that’s stocks, ETFs, mutual funds, or even real estate, depending on your provider. You can also have someone manage your account.

Now, let’s dive into why a Solo 401(k) is such a powerful tool for financial independence.

Read: The complete guide to Retirement Accounts for Small Business owners.

Why a Solo 401(k) is a Power Move

Solo 401(k)s work just like traditional 401(k)s, but with way higher contribution limits—meaning you can stash away a lot more cash for your future while slashing your tax bill today.

✅ Max Contributions = Max Tax Savings
For 2025, you can contribute up to $23,500 as an employee, plus an extra $7,500 if you're 50 or older. But wait—there’s more. 

As your own employer, you can kick in up to 25% of your net self-employment income. The total combined limit? $70,000 (or $77,500 if you're 50+).

✅ Roth Option = Tax-Free Growth
If your Solo 401(k) has a Roth component, you can make after-tax contributions that grow tax-free and can be withdrawn in retirement without Uncle Sam taking a cut.

✅ You Control Your Investments
Stocks, ETFs, real estate—you name it. A Solo 401(k) gives you the flexibility to invest in what aligns with your long-term financial strategy. Employer managed 401k plans don’t have that level of flexibility.

How to Double Your Contributions with the Spouse Rule

Here’s where it gets interesting: Your spouse can also contribute to your Solo 401(k) if they’re working for the business. This means you can essentially double your household’s retirement savings while still taking full advantage of tax breaks.

How It Works:

🔹 Your spouse must be officially working for your business. They need to earn income (you can’t just list them for fun).

🔹 They can contribute the same employee limit as you—up to $23,500 (plus a catch-up if they’re 50+).

🔹 As the employer, you can also make profit-sharing contributions for them—up to 25% of their salary—just like you do for yourself.

🔹 Total combined contributions? Up to $140,000 per year (or $155,000 if you're both 50+). That’s a serious wealth-building strategy.

🔹Secret Secret tax savings: If you’re spouse is receiving an income from your business that means you are deducting that income from your tax liabilities! That’s pretty cool.

What About Required Minimum Distributions (RMDs)?

A Required Minimum Distribution (RMD) is the amount of money you’re required to withdraw from your retirement account each year once you reach a certain age. The IRS sets these rules to make sure retirement savings are eventually taxed. The beauty of a Solo 401(k) is that as long as you're still working, you don’t have to start withdrawing funds. But once you retire, here’s what you need to know:

• If you're actively working, you don’t need to take RMDs.
• Once you stop working, RMDs kick in at age 73.
• If you or your spouse own more than 5% of the business, RMDs start at 70.5—even if you’re still working.
• If you don’t take your RMD on time? You’ll face a hefty penalty—up to 25% of the amount you should have withdrawn.

Why You Shouldn't Sleep on This Opportunity

Most people aren’t even coming close to maxing out their retirement contributions—let alone taking advantage of the spouse loophole to double their savings. But when you’re running your own business, you have way more control over your financial future than most people do—and a Solo 401(k) lets you turn that control into serious wealth.

If you're not using this yet, it's time to start playing the game the smart way. Your future self will thank you.

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