Vanguard is a favored custodian in the small business retirement space. For many companies we work with, it’s their #1 choice.
But is a Vanguard solo 401(k) plan the right plan for your business?
In this post, we will offer up some of our top strategies that will allow you to get the most from your plan.
Benefits of a Vanguard Solo 401(k)
Working for yourself has its benefits, especially in today’s volatile economy. But there’s one area that many feel it lacks – saving for retirement.
When you don’t have an employer-sponsored 401(k), you may feel like it’s impossible to save for your golden years with the small limits placed on a traditional or Roth IRA. Fortunately, there’s an answer – the Solo 401(k).
As the name suggests, the Solo 401(k) is only for individual business owners. If you have employees, you won’t qualify. It’s strictly for solo-business owners that want to save for retirement while realizing the same tax benefits employees with sponsored 401K accounts have.
The solo 401(k) has many benefits, most importantly and obvious is the ability to save for your retirement as an entrepreneur. You don’t have to be a specific age, and in fact, if you are over 50-years old, you can make catch-up contributions that exceed the already high maximum contribution allowances.
Here are the 401(k) limits for the current year:
| 401(k) Contribution Limit for 2026 | Amount |
|---|---|
| Deferral for under age 50 | $24,500 |
| Deferral for age 50-59 & 64+ | $32,500 |
| Deferral for age 60-63 | $35,750 |
| Maximum for under age 50 | $72,000 |
| Maximum for age 50+ | $80,000 |
| Maximum for age 60-63 | $83,250 |
The money grows without tax liabilities as well – it’s when you withdraw the funds in retirement (at least age 59 ½) that you pay taxes. At that point, hopefully you are in a lower tax bracket and will pay fewer taxes.
How do They Work?
When you set up a Solo 401(k), you are both the employee and the employer. In other words, you make both contributions, but one comes from your earnings and the other from your profit-sharing.
Employees (you) can contribute the annual deferral amount noted above toward your retirement account. If you make less than the annual deferral, you may contribute 100% of your earnings.
You also contribute as the employer. This money comes from your company’s profit sharing. You’ll need the following equation to determine how much you may contribute as the employer:
- 25% x you earned income – ½ of your self-employment tax
- The maximum IRS contribution amount noted in the table above.
Why Choose a Plan?
There are many options for setting up a Solo 401(k) account, but Vanguard offers a great option for side hustlers and those that own their own business.
Vanguard doesn’t charge a setup fee for the account, but they do have some limitations. For example, you can’t take a loan on your money, no matter the balance. The only way you could access your funds early is with a hardship withdrawal before the age of 59 ½, but you must qualify for it. This is also consistent with an owner-only plan.
Use EMPARION PLANS on
*Emparion is not affiliated with, endorsed by, or sponsored by these institutions.*
Vanguard does charge some trading fees, but they are minimal and some are avoidable. Most commonly, investors pay a $20 per fund annual fee. If you have several funds, you’ll pay the fee for every fund you have, which can take away from your profits, so keep that in mind when choosing your investments.
Vanguard Solo 401(k) Plan Document
Starting a Solo 401(k) at Vanguard is easy. If you are already a Vanguard client, you can set the account up online by logging into your account and choosing Individual 401(k). If you don’t have an account with Vanguard right now, you must call 1-800-992-1788 and a representative will walk you through the process.
Before you can apply for a Solo 401(k), you’ll need an Employee Identification Number. You get this number directly from the IRS and it only takes a matter of minutes as they provide it to you instantly. Head to the IRS website and complete the required information to get your EIN.
Beyond the EIN, you’ll need to sign a few Vanguard documents, which they will send to you. You’ll need to sign them and send back the originals, but make sure you keep a copy for yourself.
As a part of the process, you’ll also need to choose a plan administrator. Many business owners choose to handle it themselves, but if you don’t want the responsibility, you can assign it to your spouse or your accountant (or anyone else you designate).
Roth Contributions
You do have the option to open a Roth Solo 401(k). If you do choose this, you contribute the funds after taxes. Just like the traditional Solo 401K, the money grows tax-free. However, the difference occurs when you withdraw the funds as your earnings grow tax-free. In other words, you don’t owe taxes on your earnings.
Vanguard requires all contributions to be made online. The entire process takes about 2 weeks to complete. Once your account is set up, you can make contributions.
Is a Cash Balance or Defined Benefit Plan Right For You?
If you want them to count for the year, they must be made by the tax filing deadline for your business, which for most businesses is April 15th. Your advisor will contact you with all of the necessary information to log into your account and make contributions.
Choosing your investments is the most important decision in the Solo 401(k) process. You can use the advice of the Vanguard advisors, but a lot of the decision lies on your shoulders.
Think about your risk tolerance, age, and the goals you have for retirement when choosing your investment. Also keep in mind the cost of the funds if paying the fees is important to you.
Small Business Plan
As we said above, the Solo 401(k) is for entrepreneurs that work alone – with no employees. There is one exception, though. If your spouse works with you, he/she can be a part of the Solo 401(k). This means you can have double the maximum contribution amount as you and your spouse have the same requirements.
Your spouse can make the same individual contributions that you make. As his/her employer, you can also contribute up to 25% of your spouse’s income to his/her account.
The Solo 401(k) is the best way to keep yourself on track for retirement as a solo business owner. As an entrepreneur, you create your own future but still have the tax benefits that those working for someone else would enjoy.
Vanguard makes it easy to set up your own retirement account, ensuring that the future of you and your spouse (if applicable) is well cared for with a tax-advantaged account.
Vanguard vs Fidelity 401(k)
We have many clients who are comparing a Vanguard plan to a solo 401(k) plan offered by Fidelity. The truth is – we are fans of both plans.
We have contacts at both companies and are familiar with both plans. The reality is that the business owner needs to decide which company they would rather work with. It usually comes down to which one you currently have accounts with.
It might make more sense to you to open up an account with a company that you are already doing business with. That way you can use their app to consolidate your financial holdings.
5 Top Contribution Strategies
- Don’t forget the Retirement Savers Credit. The credit is still available but it starts to phase out at $65,000. It can be 50%, 20% or 10% of your retirement contribution depending on adjusted gross income on your tax return.
- Maximize your profit sharing. Don’t forget you can contribute up to the annual maximum through profit-sharing and employee deferral.
- Consider adding a cash balance plan. A cash balance plan can complement your 401(k) plan. You could possibly add $100,000 in retirement contributions.
- Catch up 401k contributions. Don’t forget that folks 50+ years old may add an extra amount.
- A Mega Backdoor Roth might work. If a Roth works for you, consider the Mega Backdoor Roth. You may be able to max the 401k max if you can’t do it the profit sharing contribution.
Bottom Line
In short, the Vanguard Solo 401(k) offers a compelling retirement vehicle for solo business owners—combining flexibility, relatively low costs, and the ability to contribute both as employee and employer. With smart strategies, you can maximize your deferral and profit-sharing contributions, take advantage of Roth options, and keep your retirement path aligned with your broader financial goals.
Yet even a strong plan like this isn’t necessarily sufficient for high-earning business owners who want to push the envelope on tax deductions or savings. That’s where additive solutions like cash balance or defined benefit plans come into play. When layered thoughtfully, they can unlock materially greater retirement benefits without derailing the existing 401(k) structure.
