A solo401(k) plan (or one-participant 401k) plan is relatively new and is a traditional 401(k) plan that covers a business owner with no employees or that person and their spouse. A solo 401(k) plan is subject to the same rules and regulations as its larger Traditional and Roth 401(k) 401(k) plan counterparts.
According to the IRS, the business owner wears “two hats” in a solo 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
· $20,500 in 2022 ($19,500 in 2020 and 2021), or $27,000 in 2022 ($26,000 in 2020 and 2021) if age 50 or over; plus
Employer nonelective contributions up to:
· 25% of compensation as defined by the plan.
Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $61,000 for 2022.