Can You Open a 401k Without an Employer?

by | Aug 1, 2023

No matter where you are in your career, you should have a plan in place to save for retirement. While some people contribute to a 401k through their employer, this isn’t an option for everyone. Notably, self-employed people need to have alternative plans in place for retirement savings.

If you’re wondering how to open a 401k without an employer, the answer can get a little complicated. You’re required to have an employer to set up a 401k plan, but you may have other, similar options. In this article, we’ll answer common 401k questions and go over what you can do without an employer.

What Are Your 401k Options Without An Employer?

Opening a 401k is one of the best steps you can take in order to prepare for retirement. But if you own a business or work for a company that doesn’t offer a 401k, what are your options? 

The reality is that 70% of people in the United States actively contribute to a 401k plan despite the fact that only 14% of companies offer it. That’s possible because of the existence of solo 401ks (AKA “SoloKs”).

How to Start a 401k Without An Employer

Starting a 401k without employer assistance might sound imposing, but it’s not that complicated with help from the right partner. Essentially, you’ll just need to follow these steps:

  • Meet the requirements to open your own 401k. These aren’t too restrictive. You just need to own your own business (or run a business along with your spouse) with zero employees. Beyond small businesses, this includes freelancers, independent contractors, and sole proprietors.
  • Review the contribution limits to your 401k. Since you’re acting as both employee and employer, you’ll be able to contribute up to $61,000 to one of these accounts as of 2022. And if you’re at least 50 years old, you can add a $6,500 “catch-up” contribution to that total. One thing to note is that 401k contribution limits are based on the individual, not the plan. If you have a 401k with your primary employer and a different plan for a side job, you’ll share the same limit across both plans.
  • Understand the differences between a traditional and Roth solo 401k. In a traditional solo 401k, you’ll make contributions pre-tax and have qualified distributions taxable as income. Meanwhile, in a Roth solo 401k, you’ll contribute after-tax monies and get tax-free qualified distributions.

When you’ve got all that taken care of, it’s time to actually establish your solo 401k. If you have your own employer identification number, you’ll be prepared to open one of these accounts.

Benefits of a Solo 401k

Creating a solo 401k isn’t your only option when you need to save for retirement independently. Some alternatives include stocks, SEP IRAs, and SIMPLE IRAs.

But solo 401k plans have some undeniable advantages, including: 

  • A high level of control. With a solo 401k, you act as both the beneficiary and manager. That means you’ll be able to take full control of this account – something that wouldn’t be possible with an employer-supported 401k.
  • Flexibility regarding taxes. As a self-employed person, you’ll be able to choose between traditional and Roth solo 401k plans. When you work alongside a qualified broker, this will allow you to pick the option that best fits your own tax situation.
  • Opportunities for double-dipping. This has already come up, but it bears repeating. Since you’re both the employee benefiting from your solo 401k and the employer managing it, you can personally contribute up to the full contribution limit – not just the employee limit.

Common Questions When Opening a 401k Without An Employer

 Some of the most frequently asked questions about SoloKs are: 

How Much Does it Cost?

Different businesses offer different rates for solo 401k creation services. To get the best rates, you’ll want to create one of these plans outside of a brokerage. Brokerages often require confusing paperwork and aren’t clear about their fee structure. 

Is Creating a Solo 401k Difficult?

Working with a brokerage account to set up one of these plans is almost as confusing as doing it yourself since you’ll need to read statements full of dense legalese, make tough decisions related to your funds, and more. Instead, it’s a good idea to look for a product capable of simplifying this process.

Do I Need a Broker or Partner?

While most people need some sort of partner to set up a solo 401k, you don’t have to go through a broker or advisor for these services. Instead, the best way to set up an individual retirement plan is by working with the experts at Retire4one. The Retire4one team can give you step-by-step guidance and support at every stage of the SoloK creation process.

Moreover, their knowledge is backed up by investments through Voya. Start planning for your future today. With Retire4One by your side, the process will nearly be effortless.