How to Start a 401(k) Without an Employer

For self-employed individuals, freelancers, and small business owners without a W-2 job and access to a 401k plan, setting up a Solo 401k is a viable and beneficial option to ensure their retirement security. This guide will walk you through How to Start a 401k without an Employer, i.e. a Solo 401k also known as a Self-Employed 401(k), including eligibility criteria, contribution limits, and the steps to get started. Plus, we’ll explore some hypothetical scenarios to help you understand how a Solo 401(k) can fit into your financial plan.

To get oriented, check out this quick video regarding the eligibility criteria one of our daily My Community Q&A Webinars. Subscribe to our YouTube Channel to get notifications of our Daily FAQs and Weekly Webinars.

What is a Solo 401(k)?

A Solo 401(k) is a retirement savings plan designed for self-employed individuals or business owners with no employees other than a spouse. This plan allows you to contribute as both the employer and the employee, offering higher contribution limits compared to traditional IRAs and providing tax advantages that can significantly benefit your retirement savings strategy.

Eligibility for a Solo 401(k)

To be eligible for a Solo 401(k), you must:

Be self-employed or own a business with no full-time w-2 employees other than yourself, your business partner, and your spouse (if any).
Have earned income from your self-employment or business activities.

Choose a Solo 401k Provider: Here is a guide regarding important considerations: Solo 401k Provider – My Solo 401k Financial
Fill Out the Application: Open a Solo 401k Account – My Solo 401k Financial
Set Up Your Account: We help our Solo 401k clients open accounts (such as preparing documents and the paperwork) at the bank or brokerage of choice such as 100s of banks and credit unions and brokerages such as Fidelity, Schwab, etc.

Contribution Limits and Tax Benefits

For 2024, the total contribution limit for a Solo 401(k) is up to $69,000, or $76,500 if you’re 50 or older. This includes both employee deferrals and employer contributions. Contributions to a Solo 401(k) can be made pre-tax, reducing your taxable income for the year, or if you have a plan like our plan that allows it, as Roth and/or Mega Backdoor Roth Solo 401k contributions, offering tax-free withdrawals in retirement.

Hypothetical Scenarios

Scenario 1: Alex, a 35-year-old freelance graphic designer, earns $100,000 in self-employment compensation. For 2024, Alex can contribute $23,000 as an employee and up to $20,000 (i.e. 20% of her self-employment compensation) as the employer, maximizing her retirement savings and reducing her taxable income.
Scenario 2: Jordan and Taylor own a consulting business together. They have no employees and both draw a salary from the business. They can open a Solo 401(k) for their business and each participate and make contributions, to maximize their family’s retirement savings potential.