 TITLE: What Is a Solo 401(k)? CONTENT: How a Solo 401(k) Works\n-----------------------\nThis type of retirement account, also known as an individual 401(k) or one-participant 401(k), has the same rules and requirements that apply to traditional 401(k)s. The only difference is that it's designed specifically for business owners who don't have employees. With a traditional 401(k), the contributions you put in as an employee are tax-deductible. That means they reduce your taxable income today—a nice perk during your working years. Your employer may also choose to match some or all of your contributions. Solo 401(k)s are no different, but they are unique in that the business owner fulfils both roles—acting as both the employee and the employer.\nYou can make regular contributions to the solo 401(k) and, as the employer, you can also kick in a certain percentage of your total compensation. This sets the stage for higher contributions when compared with regular 401(k)s or individual retirement accounts (IRAs). But just like these accounts, you'll be taxed on the withdrawals you make in retirement. If you choose to tap your account balance prior to age 59½, you may also be hit with a 10% penalty. END