Taxes are often a solopreneur’s single largest expense, but with the right retirement plan, you can redirect a big portion of those dollars into long-term wealth. A Solo 401(k) is the only plan that lets you contribute both as the employee and the employer, giving you more ways to save while lowering your taxable income. Add in Roth and after-tax options, and this plan becomes a true tax-to-wealth engine.
In 2025, that means the potential to defer $23,500 as the employee and contribute up to a combined $70,000 when you add employer dollars. If you’re age 50 or older, catch-ups boost those limits even higher—with a new “super catch-up” for ages 60–63 introduced by SECURE Act 2.0.
Key Takeaways
- The Solo 401(k) combines employee and employer contributions for the highest potential annual savings.
- When allowed, after-tax contributions plus conversions (Mega Backdoor Roth) let high earners build a large Roth balance quickly.
- From Form 5500-EZ filings to IRS contribution rules, IRA Financial ensures your Solo 401(k) is set up and maintained correctly, so you can focus on maximizing wealth.
Why the Solo 401(k) Is the Tax‑to‑Wealth Engine for Solopreneurs
Two contribution “buckets,” one massive limit
A Solo 401(k) plan allows a self-employed individual to save as both the employee and the employer. This makes the “Solo K” the most attractive retirement plan for those that want to sock away the most money for their golden years.
- Employee elective deferral: Up to $23,500 in 2025 (traditional or Roth). The catch‑up for age 50+ $7,500; if you’re 60–63, an additional catch‑up of $11,250 applies.
- Employer profit‑sharing: Add enough to bring your combined Solo 401(k) total to $70,000, $77,500 if you’re 50 or over, and $82,500 if you are 60-63.
Note: The “super” catch-up is new for 2025 thanks to SECURE Act 2.0
For S corporations and LLCs taxed as an S corp, employer contributions are generally limited to 25% of W-2 compensation, not including distributions. Sole proprietors and single-member LLCs filing Schedule C face a slightly different calculation: while the same 25% rule applies, it effectively works out to about 20% of “plan compensation” because net earnings must first be adjusted for the deductible half of self-employment tax and the retirement plan contribution itself. To ensure accuracy and avoid over- or under-funding, it’s best to follow the worksheets in IRS Publication 560.
Often beats a SEP IRA at higher incomes
Solo 401(k)s allow employee deferrals (SEPs don’t) and catch‑ups, so high earners can usually shelter more—especially with Roth options and plan loans when allowed. (If you’re planning on hiring employees, a SEP’s simplicity can be attractive, but pure contribution potential typically favors Solo 401(k) plans.
But remember, you cannot adopt a Solo 401(k) if you have non-owner employees, other than your spouse.
You control the tax mix
Blend pretax (reduce this year’s income) and Roth (build tax‑free retirement dollars). Many solopreneurs also pursue the “Mega Backdoor Roth” by making after‑tax contributions up to the overall plan limit and then converting to Roth (in‑plan or to a Roth IRA) if the plan allows this feature. (IRA Financial will help you structure this correctly.)
Compliance note: When your Solo 401(k) tops $250,000 in assets, you must file Form 5500‑EZ annually.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
“Mega Backdoor Roth” in a Solo 401(k)
When your employer’s plan allows after-tax contributions and in-plan Roth conversions (or rollovers to a Roth IRA), you gain a powerful way to maximize savings beyond the standard deferral limits. The IRS sets an overall annual contribution cap that includes employee deferrals and employer contributions. By adding after-tax contributions up to that limit, you can “fill the gap” between what you’ve already contributed pre-tax or Roth and the total allowed amount.
Once those after-tax dollars are in the plan, they can be converted to Roth, creating what’s often referred to as a “Mega Backdoor Roth” strategy. This allows high earners to accelerate the growth of their tax-free retirement bucket far more quickly than through annual Roth IRA contributions alone. Keep in mind, however, that plan documents must specifically permit after-tax contributions and conversions. As our client, we ensure this structure is properly established and compliant, so you can take full advantage of this advanced savings strategy.
Put simply, this strategy works in two steps: first, you put in after-tax money beyond your normal 401(k) contributions; second, you convert that money into Roth, where it can grow without tax. By repeating this each year, you can steadily build a much larger pool of tax-free retirement savings than most investors can through traditional contribution limits alone.
Advanced Tax Planning Angles to Discuss with Your CPA
- AGI & ACA subsidy targeting. Large pretax Solo 401(k) contributions can lower AGI, which for some clients helps with ACA premium credits; confirm with your tax pro.
- QBI (§199A) interactions. Pre‑tax contributions can reduce Qualified Business Income; in some cases, Roth deferrals may preserve more QBI while still funding retirement.
- Payroll design (S‑Corp). Setting a “reasonable salary” affects the 25% employer contribution ceiling.
- Roth catch‑up for high earners. SECURE 2.0 requires some higher‑income catch‑ups to be Roth; the wage threshold remains $145,000 (as measured for 2024 to determine 2025 treatment).
Remember: IRA Financial is a plan administrator and custodian. We do not offer any financial advice. Consult with a qualified professional that can help you and your specific financial goals.
Set‑up Checklist: Turning Taxes into Savings in 10 Days or Less
- Confirm eligibility (you and, optionally, your spouse; no full‑time W‑2 employees other than a spouse).
- Choose plan options (Roth, after‑tax source, in‑plan conversions, loan feature).
- Adopt the plan and open the plan trust account.
- Set payroll/deferral elections (S‑Corp) or track Schedule C deferrals.
- Fund employer profit‑sharing by your tax‑filing deadline (extensions allowed).
- Enable after‑tax + conversion if doing Mega Backdoor Roth.
- Track plan assets; file Form 5500‑EZ once you cross $250,000 in plan assets.
Pro move: We’ll model a Solo 401(k) vs. SEP IRA for your income pattern and entity type so you see the real after‑tax impact before you commit.
Quick FAQ
Can I open a Solo 401(k) if I have employees?
No. A Solo 401(k) is designed specifically for self-employed individuals with no full-time employees other than a spouse. If you plan to hire employees in the future, other retirement plan options may be more appropriate.
How much can I contribute to a Solo 401(k) in 2025?
You can contribute up to $23,500 as the “employee.” With employer contributions, your total can reach $70,000. If you’re age 50 or older, you may also take advantage of catch-up contributions of up to $7,500, plus an additional $11,250 if you’re between ages 60–63, thanks to SECURE Act 2.0.
What is the “Mega Backdoor Roth” strategy?
It’s a two-step process. First, you contribute after-tax dollars beyond your standard employee and employer amounts. Then, you convert those funds into Roth, where they can grow tax-free. If your plan allows it, this strategy can help you build a much larger tax-free retirement account than traditional contributions alone.
What you’ll get with IRA Financial
- Plan design for high earners (Roth + after‑tax + in‑plan conversions so the Mega Backdoor is actually usable).
- Compliance support (we keep you on the right side of 5500‑EZ and IRS rules).
- Expert, partner‑style guidance—clear answers, fast responses, and a structure that lets you Invest Freely. Retire Confidently.
Start here: Schedule a free Solo 401(k) strategy call. We’ll calculate your exact 2025 maximums and map the path to keep more of what you earn.
