A Solo 401(k) is a retirement savings plan designed specifically for self-employed individuals who have no employees, other than their spouse. It allows you to make contributions both as an employer and as an employee, potentially allowing for larger contributions than other types of retirement accounts.
As an employer, you can contribute up to 25% of your net earnings from self-employment, up to a maximum of $61,000 in 2021. As an employee, you can contribute up to $19,500 in 2021, or up to $26,000 if you are age 50 or older.
One potential advantage of a Solo 401(k) over a SEP IRA is that it allows for both employer and employee contributions, potentially allowing you to save more for retirement. Additionally, a Solo 401(k) may offer more flexibility in terms of loans and distributions.
However, a Solo 401(k) may not be the best option for all freelancers. If you have employees, for example, a Solo 401(k) may not be suitable as it requires you to have no employees other than your spouse. Additionally, setting up and maintaining a Solo 401(k) may be more complex and costly than a SEP IRA or other retirement savings options.