Definition
A 401(k) for a business owner with no employees (a spouse is allowed). You contribute as both employee and employer, so the total limit is the highest available to most self-employed savers, and a Roth option exists.
Why it matters
At moderate self-employment income it usually beats the SEP IRA, because the employee contribution does not depend on a percentage of earnings: even a modest year can shelter a lot.
Example
With $50,000 of net self-employment earnings, a solo 401(k) allows the full employee deferral (about $23,500) plus roughly $9,300 as the employer, close to triple what a SEP IRA alone would allow at that income.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.