Want to save more for retirement as an LLC owner? A Solo 401(k) plan, which is often referred to simply as a solo 401k, lets you save up to $70,000 in 2025. That’s ten times more than a regular IRA. This guide shows you exactly how to do it. Updated for 2025 Solo 401k limits under SECURE 2.0 Act
Most LLC owners struggle with retirement savings. Regular IRAs only allow $7,000 per year. That’s not enough for most business owners. SEP IRAs have higher limits but need big earnings to max out.
The Solo 401(k) is different. It’s built for business owners like you. You can save much more money. You get big tax breaks. And you have full control over your investments.
This guide covers everything you need to know. You’ll learn the 2025 rules, tax benefits, and setup steps. Plus, we’ll show you how to avoid common mistakes that cost money.
Can an LLC Have a Solo 401k?
Yes, an LLC can set up a Solo 401k as long as it meets the eligibility rules. According to the IRS guidelines, a Solo 401k (sometimes called a one-participant 401k) is available to business owners with no full-time employees other than a spouse. That means most LLC owners qualify.
Here’s why it works: as an LLC owner, you are both the employee and the employer. This lets you contribute to the Solo 401k in both roles, which dramatically increases how much you can save for retirement compared to an IRA or SIMPLE plan. In 2025, the contribution limit is up to $70,000, or more if you are eligible for catch-up contributions.
Types of LLCs that can open a Solo 401k include:
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Single-member LLCs (taxed as sole proprietorships)
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Multi-member LLCs where only the partners participate
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LLCs taxed as S-Corps or C-Corps
This flexibility makes the Solo 401k one of the best retirement plans for entrepreneurs. If you are still in the process of forming your company, you can read our guide on how to start an LLC and then decide if a Solo 401k is the right next step for your retirement planning.
What Is a Solo 401(k) for LLC Owners?
A Solo 401(k) is a retirement plan for business owners. It’s also called a self-employed 401(k). You can only use it if you have no full-time workers (except your spouse).
Here’s what makes it special for LLC owners. You get to contribute money in two ways. First, as an employee of your LLC. Second, as the employer (your LLC). This double contribution lets you save much more than other plans.
Key Benefits for LLCs:
- Save more money: Up to $70,000 in 2025 (more if you’re older)
- Big tax breaks: Cut your taxes now or in retirement
- Your choice of investments: Stocks, bonds, real estate, and more
- Borrow if needed: Get loans from your account (with limits)
- Simple setup: Less paperwork than big company plans
The plan works for many business types. This includes freelancers, contractors, sole owners, LLCs, S corps, C corps, and partnerships with no employees.
Solo 401(k) Eligibility Requirements for LLC Owners
Before diving into the benefits, let’s confirm your LLC qualifies for a Solo 401(k). The eligibility requirements are straightforward but crucial:
Primary Eligibility Criteria:
- No full-time employees: Your single member LLC must not have any non-owner employees (not including spouse(s))
- Self-employment income: Your LLC must generate business income (doesn’t need to be profitable every year)
- Business structure flexibility: Single-member LLCs, multi-member LLCs, and LLCs taxed as corporations all qualify
Important Employee Definition:
The rule that your business must have no employees ONLY applies to employees. Partners are allowed. Additionally, part-time employees who work less than 500 hours annually for three consecutive years don’t disqualify you.
Spouse Participation:
If your spouse works in your LLC and receives compensation, they can also participate in the Solo 401(k), effectively doubling your household’s contribution potential.
Solo 401k Contribution Limits for LLC Owners in 2025
Understanding the Solo 401k contribution limits is crucial for LLC owners who want to maximize retirement savings while lowering taxes. Unlike a traditional IRA or SIMPLE IRA, a Solo 401k allows you to contribute as both the employee and the employer, which significantly increases your total contribution potential.
Employee Contributions
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Under age 50: Up to $23,500
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Age 50 and older: Up to $31,000 with catch-up contributions
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Age 60 to 63: Up to $34,750 with the new super catch-up option
Employer Contributions (LLC contributions)
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Single-member LLCs (sole proprietorship taxation): Up to 20 percent of net self-employment income
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LLCs taxed as S-Corps or C-Corps: Up to 25 percent of W-2 wages
Total Contribution Limits for 2025
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Under age 50: $70,000
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Age 50 and older: $77,500
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Age 60 to 63: $81,250
Comparison Table: Solo 401k vs Other Plans for LLC Owners
| Retirement Plan | 2025 Contribution Limit | Who Qualifies | Employer Contributions | Roth Option | Loan Option |
|---|---|---|---|---|---|
| Solo 401k | Up to $70,000 (plus catch-up) | LLCs with no full-time employees (other than spouse) | 20% of net income (sole prop) or 25% of W-2 wages (S-Corp/C-Corp) | Yes | Yes |
| SEP IRA | Up to $70,000 | Self-employed or business owners | 25% of net earnings or wages | No | No |
| Traditional IRA | $7,000 ($8,000 if 50+) | Anyone with earned income | N/A | Limited | No |
| SIMPLE IRA | $16,500 ($19,000 if 50+) | Small businesses with up to 100 employees | Employer must match up to 3% or contribute 2% | No | No |
Example for LLC Owners
If your single-member LLC earns $150,000 net profit in 2025 and you are under 50:
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Employee contribution: $23,500
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Employer contribution: $30,000 (20% of $150,000)
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Total: $53,500 saved in your Solo 401k
If you are 61, you can also add the $11,250 super catch-up, bringing your total to $64,750.
For more details on eligibility and official rules, visit the IRS Solo 401k contribution guidelines. If you have not yet formed your company, check our guide on how to start an LLC to make sure your business structure qualifies.
Top 5 Benefits of Solo 401(k)s for LLC Owners
1. Save Way More Than Other Plans
Solo 401(k) vs other plans (2025 limits):
- Regular IRA: $7,000 ($8,000 if 50+)
- SEP IRA: $70,000 (but you need $280,000+ income to max out)
- Solo 401(k): $70,000 (much easier to reach)
2. Big Tax Savings Right Now
Your Solo 401(k) cuts your taxes in two ways:
Pre-tax money reduces your income dollar for dollar. Save $50,000 in the 24% tax bracket? You cut $12,000 off your federal taxes.
Business deduction for employer contributions reduces your LLC income. This lowers both income taxes and self-employment taxes (15.3%).
3. Borrow From Your Account
Unlike IRAs, many Solo 401(k) plans let you borrow money. Here’s how it works:
- Borrow up to: 50% of your balance or $50,000 (whichever is less)
- Low rates: Usually 1-2% above prime rate
- No credit check: You’re borrowing your own money
- Payments go back: Into your own account
Warning: Only borrow as a last resort. Missed payments mean taxes and penalties.
4. Invest in Almost Anything
Solo 401(k)s give you way more investment choices:
- Stocks and bonds
- Mutual funds and ETFs
- Real estate (through your account)
- International investments
- Alternative investments (with self-directed plans)
You can even invest in real estate or raw land without taxes or penalties (when held in the account).
5. Choose Your Tax Strategy
Solo 401(k)s offer both traditional and Roth options:
Traditional: Pay no taxes now, pay later in retirement Roth: Pay taxes now, withdraw tax-free in retirement
This flexibility helps you plan for different tax situations.
How to Set Up Your Solo 401(k) for LLC: Easy Steps
Step 1: Check If You Qualify
Make sure your LLC has no employees (except your spouse) and makes money. Your LLC reports income on Schedule C of your personal tax return (Form 1040).
Step 2: Pick a Provider
Look for these things when choosing:
- Investment options you want
- Low fees (setup, annual, trading fees)
- Loan options if you need them
- Roth contributions allowed
- Good customer service
Top providers include Fidelity, Charles Schwab, E*TRADE, and special Solo 401(k) companies.
Step 3: Set Up Your Plan
Good news! The rules changed in 2025. You now have more time to start your plan. You can set it up until your tax deadline (April 15, 2026 for 2025 contributions). If you file an extension, you get until October 15, 2026.
Step 4: Open Your Account and Add Money
- Fill out plan papers and agreements
- Open a separate bank account for the plan
- Get an EIN (business tax number) if needed
- Put money in based on what your LLC earned
Step 5: Stay on Track
- File forms: File Form 5500-EZ if your plan has over $250,000
- Meet deadlines: Employee money by Dec 31; employer money by tax deadline
- Keep records: Save all papers about contributions and trades
- Roth contribution options
- Customer service quality
Popular providers include Fidelity, Charles Schwab, E*TRADE, and specialized Solo 401(k) companies.
Step 3: Establish Your Plan
Previously, Solo 401k plans had to be established by December 31 of the tax year to make contributions for that year. However, starting in 2025, the SECURE 2.0 Act allows new Solo 401k plans to be established up until the tax filing deadline.
New flexibility for 2025: For example, to make contributions for the 2025 tax year, you can establish your Solo 401k as late as April 15, 2026, or October 15, 2026, if you file for an extension.
Step 4: Open Your Account and Fund Contributions
- Complete plan documents and adoption agreement
- Open a dedicated bank or brokerage account for the plan
- Obtain an Employer Identification Number (EIN) if needed
- Make your contributions based on your LLC’s earnings
Step 5: Maintain Compliance
- Annual filing: File Form 5500-EZ if plan assets exceed $250,000
- Contribution deadlines: Employee deferrals by December 31; employer contributions by tax filing deadline
- Record keeping: Maintain detailed records of all contributions and transactions
Important Rules and Deadlines for LLC Owners
Contribution Timing Requirements
Employee deferrals: Must be made by December 31 of the tax year. For LLCs, this means you need to establish your contribution election before year-end.
Employer contributions: Business owners who operate his or her business as a single member LLC can establish a Solo 401(k) plan for the taxable year up until taxes are filed, generally April 15, or, if an extension is filed, October 15.
LLC-Specific Contribution Calculations
For single-member LLCs taxed as sole proprietorships:
- Employee deferrals: Up to 100% of net self-employment income (up to annual limits)
- Employer contributions: Up to 20% of net self-employment income (after deducting self-employment taxes)
For LLCs taxed as S-Corps or C-Corps:
- Employee deferrals: Up to 100% of W-2 wages (up to annual limits)
- Employer contributions: Up to 25% of W-2 compensation
Annual Reporting Requirements
If your Solo 401k plan assets exceed $250,000 at the end of the year, you must file IRS Form 5500-EZ annually. This form provides oversight and ensures continued compliance with federal regulations.
Solo 401(k) vs. Other Retirement Plans: Why It Wins for LLCs
Solo 401(k) for LLC vs. SEP IRA
| Feature | Solo 401(k) | SEP IRA |
|---|---|---|
| 2025 contribution limit | $70,000 | $70,000 |
| Income needed to maximize | ~$280,000 | $280,000 |
| Roth options | Yes | No |
| Loan provisions | Yes | No |
| Employee deferrals | Yes | No |
| Setup complexity | Moderate | Simple |
Winner: Solo 401(k) for flexibility and lower income requirements to maximize contributions.
Solo 401(k) for LLC vs. Traditional IRA
| Feature | Solo 401(k) | Traditional IRA |
|---|---|---|
| 2025 contribution limit | $70,000 | $7,000 |
| Income restrictions | None | Yes (for deductions) |
| Early withdrawal penalties | Yes (with exceptions) | Yes (with exceptions) |
| Required minimum distributions | Age 73 | Age 73 |
Winner: Solo 401(k) by a landslide for contribution capacity.
Solo 401(k) for LLC vs. Simple IRA
The SIMPLE IRA’s contribution limit has increased to $16,500 for 2025, with additional catch-up contributions available, but this still falls far short of Solo 401(k) limits.
Winner: Solo 401(k) for significantly higher contribution limits and better tax benefits.
Advanced Strategies: Maximizing Your Solo 401(k) LLC Benefits
The Mega Backdoor Roth Strategy
A “mega backdoor Roth” is a process that involves contributing to a solo 401(k) after-tax employee contributions, which are different from your normal employee deferrals, then rolling them over to a Roth IRA.
This advanced strategy allows high-income LLC owners to contribute even more to tax-free retirement accounts, but requires careful planning and plan document review.
Spousal Participation Optimization
If your spouse works in your LLC, they can also participate in the Solo 401(k). This increases the annual contribution to $140,000 (under 50) or $155,000 (50+) that a couple can make for 2025.
Tax Loss Harvesting Within Your Solo 401(k) LLC
Use your Solo 401(k)’s investment flexibility to implement tax-loss harvesting strategies, potentially improving your overall portfolio performance while maintaining tax-deferred growth.
Common Mistakes to Avoid
1. Exceeding Contribution Limits
Contribution limits apply to contributions made to ALL of your 401(k) accounts. So if you have more than one account (say, you have a day job and are self-employed on the side), you need to make sure you do not over-contribute.
2. Missing Deadlines
Employee deferrals must be completed by December 31, while employer contributions have until the tax filing deadline. Missing these deadlines can result in lost contribution opportunities.
3. Hiring Employees Without Plan Adjustment
If you hire employees, your Solo 401(k) becomes ineligible. You’ll need to transition to a traditional 401(k) or terminate the plan.
4. Inadequate Record Keeping
Maintain detailed records of all contributions, especially important for LLCs with complex compensation structures.
Solo 401k Tax Benefits for LLC Owners
One of the biggest advantages of a Solo 401k is how much it can reduce your tax bill while helping you build retirement wealth. LLC owners benefit in two major ways: immediate tax deductions today and long-term tax flexibility in retirement.
Current Year Tax Benefits
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Pre-tax employee contributions lower your taxable income dollar for dollar. For example, if you contribute $23,500 in 2025 and your LLC income puts you in the 24% tax bracket, you could save about $5,640 in federal taxes.
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Employer contributions made by your LLC are deductible as a business expense. This not only lowers your income tax but also reduces self-employment taxes.
For single-member LLCs taxed as sole proprietorships, employer contributions can be up to 20 percent of your net self-employment income. For LLCs taxed as S-Corps or C-Corps, employer contributions can be up to 25 percent of W-2 wages.
Roth Solo 401k Option
Many Solo 401k providers allow Roth contributions. These are made with after-tax dollars, meaning you pay taxes now but withdraw funds tax-free in retirement. This option is especially useful for LLC owners who expect their tax rate to be higher later or who want tax-free income streams.
Long-Term Tax Planning for LLC Owners
Strategic use of both traditional and Roth contributions creates tax diversification. You can lower your tax liability during high-income years while setting aside tax-free money for retirement. This gives you flexibility to manage your taxable income later in life.
Real-World Example
Let’s say your LLC earns $120,000 in net income for 2025.
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As the employee, you contribute $23,500 pre-tax.
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As the employer, your LLC contributes $24,000 (20 percent of $120,000).
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That’s a total of $47,500 in contributions.
If you are in the 24% federal tax bracket, your deductions could save you roughly $11,400 in federal taxes this year. That does not even include the long-term tax benefits of compound growth inside the account.
Why It Matters
For many LLC owners, the Solo 401k is not just about retirement savings—it is a tax strategy. You get the ability to:
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Lower taxable income today
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Reduce self-employment taxes
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Deduct business contributions directly from LLC income
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Build a mix of taxable and tax-free retirement income
To explore how to combine Solo 401k contributions with other strategies like entity structuring or international tax planning, check out our Tax and Residency Consultation service.
Investment Options: Building Your Portfolio
Core Investment Categories
Stock market investments: Individual stocks, mutual funds, and ETFs offer growth potential and liquidity.
Fixed income: Bonds and CDs provide stability and income generation.
Alternative investments: With self-directed Solo 401(k)s, you can invest in real estate, private equity, and other alternatives (following IRS guidelines).
Portfolio Allocation Strategies
Age-based allocation: Common rule of thumb suggests holding your age as a percentage in bonds (e.g., 40% bonds at age 40).
Risk tolerance alignment: Aggressive investors might favor growth stocks, while conservative investors prefer bonds and dividend-paying stocks.
Diversification principles: Spread investments across asset classes, sectors, and geographic regions to reduce risk.
Frequently Asked Questions
Can an LLC have a Solo 401k?
Yes. An LLC can set up a Solo 401k if it has no full-time employees other than a spouse. The IRS allows LLC owners to contribute both as the employee and the employer, which makes it one of the most powerful retirement plans available. You can read the official IRS one-participant 401k guidance for more details.
What is the best retirement plan for LLC owners?
For many small business owners, the Solo 401k is the best option because of its high contribution limits and tax advantages. In 2025, you can save up to $70,000 depending on your age and income. Alternatives include a SEP IRA or SIMPLE IRA, but those plans usually have lower flexibility. If you are just forming your business, our guide on how to register your LLC will help you get started before choosing a retirement plan.
How much can an LLC owner contribute to a Solo 401k in 2025?
The contribution limit depends on your role as both employee and employer.
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As an employee, you can contribute up to $23,500 if you are under 50. If you are 50 or older, you can add an extra $7,500.
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As the employer, your LLC can contribute up to 20 percent of net income (if taxed as a sole proprietorship) or 25 percent of W-2 wages (if taxed as a corporation).
In total, you can contribute up to $70,000 in 2025, or more with catch-up contributions.
Can my LLC set up a Solo 401k if I already have a 401k at my day job?
Yes, but the employee contribution limit applies across all 401k plans you participate in. If you have already contributed the full employee amount at your job, you can still make employer contributions through your LLC’s Solo 401k.
Can I roll over an IRA or old 401k into a Solo 401k?
Yes. Most Solo 401k plans accept rollovers from traditional IRAs or former employer 401k accounts. This allows you to consolidate retirement savings and potentially expand your investment options.
What are the tax benefits of a Solo 401k for LLC owners?
Solo 401k contributions reduce your taxable income, lowering both income taxes and self-employment taxes. Employer contributions are deductible as a business expense. Many plans also offer a Roth Solo 401k option, which allows you to pay taxes now and enjoy tax-free withdrawals later. To learn more about structuring your business for maximum tax efficiency, check out our tax and residency consultation service.
What happens if my LLC hires employees?
Once your LLC hires employees who meet eligibility requirements, your Solo 401k is no longer valid. You will need to transition to a traditional 401k plan that covers all eligible workers or terminate the Solo 401k.
What investment options are available with a Solo 401k?
You can invest in a wide range of assets, including stocks, bonds, ETFs, mutual funds, and in some cases, real estate or alternative assets through a self-directed plan. Restrictions apply to collectibles, life insurance, and transactions with disqualified persons.
How much does it cost to maintain a Solo 401k?
Costs depend on the provider. Many brokerage firms like Fidelity and Charles Schwab offer low-cost options with little or no annual fees. Specialized Solo 401k providers may charge setup and administration fees ranging from $100 to $500 per year.
Can I set up a Solo 401k for my LLC if I live in California?
Yes. California LLC owners can open a Solo 401k as long as they meet the IRS requirements (no full-time employees other than a spouse). The plan is tied to your LLC income, not your state of residence. If you are starting fresh, you may want to compare forming a California LLC versus a business-friendly state like Wyoming or Delaware.
Can Texas LLC owners open a Solo 401k?
Absolutely. A Solo 401k is available to Texas LLC owners who run their business without full-time employees. You will make contributions based on your self-employment income or W-2 wages, depending on how your LLC is taxed. Learn more in our guide on how to start an LLC in Texas.
What about Florida LLCs — can they have a Solo 401k?
Yes. Florida LLCs are eligible for Solo 401k plans under the same IRS rules. The flexibility of the Solo 401k makes it especially attractive for business owners in states like Florida that do not have a state income tax. If you are still deciding on formation, see our Florida LLC guide for the basics.
What is the best state to form an LLC and open a Solo 401k?
The best state depends on your business goals. Many entrepreneurs choose states like Wyoming or Delaware because of strong privacy protections and business-friendly laws. However, if you operate primarily in your home state, it is often simpler and more cost-effective to form the LLC where you live and then open a Solo 401k attached to that LLC.
The Bottom Line: Why Solo 401(k)s Are Essential for LLC Success
The Solo 401(k) represents one of the most powerful retirement savings tools available to LLC owners. With contribution limits reaching $70,000 in 2025 ($81,250 for those aged 60-63), tax advantages that can save thousands annually, and investment flexibility that traditional employer plans can’t match, it’s an essential component of any entrepreneurial financial strategy.
Key takeaways for LLC owners:
- Maximize contributions early: The higher limits and compound growth make early contributions extremely valuable
- Leverage tax benefits: Use both employee and employer contributions to minimize current tax burden
- Plan for flexibility: Roth options and loan provisions provide financial flexibility other plans lack
- Stay compliant: Proper setup and maintenance ensure you capture all available benefits
The combination of high contribution limits, tax advantages, and investment control makes the Solo 401(k) a cornerstone of retirement planning for successful LLC owners. By implementing the strategies outlined in this guide, you’ll be well-positioned to build substantial retirement wealth while operating your business with maximum tax efficiency.
Take Action: Start Building Your Retirement Empire Today
Ready to supercharge your retirement savings? Don’t let another tax year pass without maximizing your Solo 401(k) potential. With the new 2025 limits and enhanced flexibility from the SECURE 2.0 Act, there’s never been a better time to establish your plan.
Your next steps:
- Verify your eligibility using the criteria outlined above
- Calculate your potential contributions based on your LLC’s income
- Research providers to find the best fit for your investment strategy
- Establish your plan before the deadline to capture maximum 2025 benefits
Remember, every year you delay is a year of lost contribution capacity and compound growth. The entrepreneurs who build lasting wealth are those who prioritize retirement savings alongside business growth.
Contact BusinessAnywhere.io today to learn how we can help you optimize your LLC structure and retirement planning strategy for maximum tax efficiency and wealth building potential. Whether you need help with LLC registration, business formation, or ongoing compliance, our team of experts can guide you through every step of building your business empire.
