Solo 401(k) Guide: What Software Salespeople Need to Know

What Is a Solo 401(k)?

A Solo 401(k) is a retirement plan designed for self-employed individuals or business owners with no employees (except a spouse). It's like a traditional 401(k), but it's designed for solo entrepreneurs, independent contractors, and side hustlers.

For software salespeople, a Solo 401(k) can be valuable if you have side income, independent contractor work, or a side business. It allows you to contribute significantly more to retirement than traditional IRAs, with higher contribution limits and more flexibility.

Here's what software salespeople need to know about Solo 401(k)s.

Who Qualifies for a Solo 401(k)?

You qualify for a Solo 401(k) if you:

Have self-employment income: You earn income from a business, side hustle, or independent contractor work. This can be in addition to your W-2 job.

Have no employees: You can't have full-time employees (except a spouse). Part-time or seasonal employees are generally okay, but check the rules.

Have a business entity: You can set up a Solo 401(k) as a sole proprietor, LLC, S-Corp, or C-Corp.

Why it matters for salespeople: Many software salespeople have side hustles, consulting work, or independent contractor income. If you have this type of income, a Solo 401(k) can help you save more for retirement.

Solo 401(k) vs Traditional 401(k)

Solo 401(k)s are different from traditional 401(k)s:

Traditional 401(k):

Offered by your employer
Contribution limit: $23,000 (2024) as employee contribution
Employer may match contributions
Limited control over investment options

Solo 401(k):

You set it up yourself
Contribution limit: $69,000 (2024) total (employee + employer contributions)
You can contribute as both employee and employer
More control over investment options

The key difference: Solo 401(k)s allow you to contribute as both employee and employer, significantly increasing your contribution limits.

Contribution Limits

Solo 401(k)s have higher contribution limits than traditional IRAs:

Employee contribution: Up to $23,000 (2024), or $30,500 if you're 50+ (catch-up contribution). This is the same as traditional 401(k)s.

Employer contribution: Up to 25% of your net self-employment income (for corporations) or 20% of net self-employment income (for sole proprietors/LLCs).

Total contribution limit: $69,000 (2024), or $76,500 if you're 50+. This is the combined employee + employer contribution limit.

Example: If you have $100,000 in net self-employment income:

Employee contribution: $23,000
Employer contribution: $20,000 (20% of $100,000)
Total: $43,000 (well below the $69,000 limit)

Why it matters: Solo 401(k)s allow you to contribute significantly more than traditional IRAs ($7,000 limit) or even traditional 401(k)s ($23,000 employee limit).

Tax Advantages

Solo 401(k)s offer the same tax advantages as traditional 401(k)s:

Traditional Solo 401(k):

Contributions are tax-deductible
Growth is tax-deferred
You pay taxes when you withdraw in retirement

Roth Solo 401(k):

Contributions are made with after-tax dollars
Growth is tax-free
You don't pay taxes when you withdraw in retirement

Why it matters: Tax-advantaged retirement savings compound over time. Solo 401(k)s allow you to maximize these advantages with higher contribution limits.

How It Works for Software Salespeople

For software salespeople, Solo 401(k)s can be valuable if you have:

Side hustle income: Consulting, coaching, content creation, or other side businesses.

Independent contractor work: 1099 income from freelance work or consulting.

Business income: Income from an LLC, S-Corp, or other business entity.

The key: You can contribute to both your employer's 401(k) and a Solo 401(k), but the employee contribution limit ($23,000) is shared across both. However, you can still make employer contributions to the Solo 401(k) based on your self-employment income.

Example: If you have a W-2 job and side hustle income:

Contribute $23,000 to your employer's 401(k) as employee
Contribute up to 20% of net self-employment income to Solo 401(k) as employer
This allows you to save more than just the $23,000 limit

When a Solo 401(k) Makes Sense

A Solo 401(k) makes sense if you:

Have significant self-employment income: You earn meaningful income from side hustles, consulting, or independent contractor work.

Want to maximize retirement savings: You want to contribute more than traditional IRA or 401(k) limits allow.

Have a side business: You have a legitimate business entity (LLC, S-Corp, etc.) with self-employment income.

Want more control: You want more control over investment options and plan administration.

Why it matters: Solo 401(k)s allow you to save significantly more for retirement if you have self-employment income.

When a Solo 401(k) Doesn't Make Sense

A Solo 401(k) doesn't make sense if you:

Don't have self-employment income: You only have W-2 income from your employer.

Have minimal side income: Your side hustle income is too small to justify the setup and administration costs.

Have employees: You have full-time employees (except a spouse), which disqualifies you from a Solo 401(k).

Prefer simplicity: You prefer the simplicity of traditional IRAs or employer 401(k)s.

Why it matters: Solo 401(k)s require setup, administration, and ongoing maintenance. They're only worth it if you have significant self-employment income.

How to Set Up a Solo 401(k)

Here's how to set up a Solo 401(k):

Step 1: Choose a provider

Carry — Makes setting up and managing a Solo 401(k) incredibly easy. Carry handles all the paperwork, plan documents, and administration, so you can focus on contributing and investing. It's designed specifically for self-employed individuals and side hustlers who want simplicity without sacrificing benefits.
Traditional providers: Fidelity, Vanguard, Charles Schwab, E*TRADE, and others offer Solo 401(k)s
Compare fees, investment options, and features

Step 2: Establish a plan document

If using Carry, they handle this automatically — no paperwork required
Traditional providers will help you set up the plan document
This defines the plan rules and contribution limits

Step 3: Open an account

With Carry, you can set up your Solo 401(k) in minutes online
Traditional providers: Open the Solo 401(k) account with your chosen provider
You'll need your EIN (Employer Identification Number) if you have a business entity

Step 4: Make contributions

Contribute as both employee and employer
Track contributions and ensure you don't exceed limits
Carry makes it easy to track contributions and stay within limits

Step 5: File Form 5500-EZ (if needed)

If your plan assets exceed $250,000, you must file Form 5500-EZ annually
This is an IRS requirement
Carry handles this filing automatically, removing another administrative burden

Why it matters: Setting up a Solo 401(k) requires some paperwork and administration, but tools like Carry make it incredibly easy. With Carry, you can set up your Solo 401(k) in minutes, and they handle all the ongoing administration, including Form 5500-EZ filings. This removes the complexity that often prevents people from setting up Solo 401(k)s.

Important Considerations

Here are important considerations for Solo 401(k)s:

Contribution limits: The $23,000 employee contribution limit is shared across all 401(k) plans. If you contribute to your employer's 401(k), you can't contribute more as an employee to your Solo 401(k).

Employer contributions: You can still make employer contributions to your Solo 401(k) based on self-employment income, even if you've maxed out employee contributions elsewhere.

Deadlines: Contributions must be made by the tax filing deadline (typically April 15) for the previous year. Plan setup must be completed by December 31 of the tax year.

Fees: Solo 401(k)s may have setup fees, annual fees, or investment fees. Compare providers to find the best option.

Administration: Solo 401(k)s require some administration, including tracking contributions and filing Form 5500-EZ if assets exceed $250,000. Tools like Carry automate this administration, making Solo 401(k)s much easier to manage.

Why it matters: Understanding these considerations helps you make informed decisions and avoid mistakes. Using a tool like Carry can eliminate most of the administrative burden, making Solo 401(k)s accessible to more people.

Solo 401(k) vs SEP-IRA

Solo 401(k)s are often compared to SEP-IRAs:

SEP-IRA:

Simpler setup and administration
Contribution limit: 25% of net self-employment income (up to $69,000)
No employee contribution allowed
Less flexibility

Solo 401(k):

More complex setup and administration
Contribution limit: $23,000 employee + 20-25% employer (up to $69,000 total)
More flexibility and control
Can include Roth option

When to choose Solo 401(k: If you want to maximize contributions and have more flexibility. If you're under 50 and want to contribute more than SEP-IRA allows.

When to choose SEP-IRA: If you want simplicity and don't need the extra contribution room.

The Bottom Line

Solo 401(k)s can be valuable for software salespeople who have self-employment income:

Higher contribution limits: Up to $69,000 (2024) vs $7,000 for IRAs
Tax advantages: Same tax benefits as traditional 401(k)s
Flexibility: More control over investment options and plan administration
Dual contributions: Can contribute as both employee and employer

Who it's for: Software salespeople with side hustles, consulting work, or independent contractor income who want to maximize retirement savings.

Who it's not for: Those with only W-2 income, minimal side income, or who prefer simplicity.

The framework: Evaluate your self-employment income, compare Solo 401(k) vs SEP-IRA, choose a provider (consider Carry for the easiest setup and management), set up the plan, and make contributions.

Making it easy: Tools like Carry have made Solo 401(k)s much more accessible. They handle all the paperwork, plan documents, and ongoing administration, including Form 5500-EZ filings. This removes the complexity that often prevents people from setting up Solo 401(k)s, making it possible to maximize retirement savings without the administrative burden.

The sales professionals who maximize retirement savings aren't just the ones who max out their employer 401(k). They're the ones who also leverage Solo 401(k)s to save more when they have self-employment income — and they use tools like Carry to make it easy.

That's how you turn variable income into lasting financial security — by maximizing retirement savings opportunities with tools that simplify the process.

Disclaimer: This content is for informational purposes only and does not constitute financial, tax, or legal advice. Solo 401(k) rules, contribution limits, and tax implications vary by individual circumstances, business structure, and tax laws. You should consult with qualified financial advisors, tax professionals, or retirement plan specialists before setting up a Solo 401(k) or making any retirement planning decisions. Individual circumstances vary, and this information may not be suitable for your specific situation.