How to Use a Solo 401(k) to Grow Your Wealth and Shrink Your Tax Bill

How to Use a Solo 401(k) to Grow Your Wealth and Shrink Your Tax Bill

As a business owner, you’re likely focused on growing your company—but are you giving the same attention to growing your personal wealth? One of the smartest tax-saving and wealth-building tools available to solo entrepreneurs is the Solo 401(k). If you’re self-employed with no full-time employees other than your spouse, this plan can deliver massive benefits—both today and in the future.

Unlike traditional retirement accounts with lower contribution limits, a Solo 401(k) allows you to contribute both as the employee and the employer, enabling you to sock away far more than you could with an IRA or SEP plan. For 2024, you can contribute up to $23,000 as an employee ($30,500 if you’re age 50 or older), plus up to 25% of your net business income as the employer, up to a total maximum of $69,000 ($76,500 with catch-up contributions). That’s a serious opportunity to defer taxes while accelerating your retirement savings.

The tax advantages are hard to beat. Contributions reduce your taxable income in the year you make them—helping you keep more of your earnings. And the investments inside the Solo 401(k) grow tax-deferred until retirement, compounding your savings faster without the annual drag of taxes.

But there’s more. Many Solo 401(k) plans offer a Roth component, which allows you to make after-tax contributions that grow tax-free forever—a valuable option if you expect your tax rate to be higher in retirement or want to diversify your tax exposure.

Another major benefit? Solo 401(k)s allow for loans of up to $50,000 or 50% of the account balance (whichever is less), which can be used for any purpose. While borrowing from your retirement account should be done with caution, it does offer flexibility if you ever need short-term capital.

Setting up a Solo 401(k) is relatively easy and inexpensive, but timing matters. To make contributions for the current tax year, you typically need to establish the plan by December 31—even if you fund it the following year before your tax deadline.

If you’re a solo business owner or married couple running a company together, don’t overlook this powerful retirement vehicle. The Solo 401(k) offers high contribution limits, flexible investment options, and huge tax-saving potential. It’s not just about saving for retirement—it’s about keeping more of what you earn today and building long-term financial freedom.

Stay empowered & stay protected,
Wealth Protection Alliance