by Dave Horwedel, CEO of Torchlight Tax
Want to contribute over seventy thousand dollars a year to retirement and slash your tax bill at the same time? The Solo 401(k) can potentially do this. It’s one of the most powerful strategies available in 2025.
Today we’re breaking down what a Solo 401(k) is, how much you can contribute, and exactly who qualifies.
A Solo 401(k) is a retirement plan for self-employed individuals with no full-time employees, except the business owner or spouse.
If you have self-employment income, you may qualify. Business structures that work include sole proprietorships, single-member LLCs, S Corps, C Corps, and certain partnerships.
It doesn’t matter whether you work part-time or full-time in your business. You still qualify. Even if you’re a full-time W-2 employee of your own corporation, as long as there are no other full-time employees besides you or your spouse, you qualify.
Partnerships can also qualify, but only if there are no full-time employees other than the partners or their spouses. The moment a non-owner employee works full-time, it’s no longer eligible for a Solo 401(k).
So, how much can you contribute?
In 2025, you can contribute up to seventy thousand dollars total — or seventy-seven thousand five hundred if you’re fifty or older. You do this in two parts:
First, as an employee, you can defer up to twenty-three thousand five hundred dollars of your W-2 wages or self-employment income. If you’re age fifty or older, you can also contribute a catch-up amount of seventy-five hundred dollars, bringing your employee total to thirty-one thousand.
Then, your business can contribute up to twenty-five percent of your compensation as the employer. With a high enough income, that can add up to forty-six thousand five hundred dollars — getting you to the full seventy-seven thousand five hundred dollar limit.
You can also choose between traditional or Roth contributions. Traditional gives you a tax deduction now. Roth gives you tax-free growth and tax-free withdrawals in retirement. Some Solo 401(k) plans even allow a Mega Backdoor Roth — letting you contribute even more, if your plan is designed for it.
Your spouse can also participate in the Solo 401(k) if they work in the business. That means you could potentially double your contribution limits. And yes, even if your spouse is a full-time employee of the business, you’re still in Solo 401(k) territory.
Passive income, like rent, dividends, or capital gains, doesn’t qualify.
Would you like to lower your tax liability or increase your refund? Would you like to discuss the Solo 401(k) or other tax-saving strategies? Do you have other tax or asset protection questions or concerns?
Contact Torchlight Tax for a free consultation at 877-758-7797 or email info@torchlighttax.com.
