The wealth builder
The i401k
(also known as a One Participant or Solo 401k)
Becoming an ‘i401k millionaire’ is easier than you think; it requires zero skill, but it takes time.
What is the i401k?
The get-rich, slow investment vehicle that will work in the background for your career.
The i401k (aka Solo 401k) is a tax-protected retirement account for freelancers and single-person businesses (and your spouse) to which you contribute money. The ‘i’ is for individual; you can’t have any employees unless it’s your spouse. The Knowledge post here discusses other accounts you can use if you have employees.
Think of it as a wrapper that we will sit a few simple investments inside.
It’s like the 401k staffers get, except YOU are the employer and the employee. Yes, it’s yours, you are the boss. That’s why you’re freelance, right?
iWhat? Why do I care?
It’s a huge tax deduction. A total tax-man-crushing, monster deduction.
ME: In 2023 I dumped $60,000 in mine, that’s a $60k tax deduction. If my taxable income were $200,000, it would now be $140,000.It’s not hard to become an i401k millionaire by age 55. It’s simple investing over a long period.
So how does it make money and fund my future?
We will put one to three stock market funds inside the i401k. This is a simple and proven investment strategy; very little attention is required. We will use the classic Three-Fund Portfolio.
Private investment management companies run the i401k. The ones I use and will discuss are Schwab and E*Trade. There are virtually no fees.
What types of i401k are there?
Pre-tax (deferred) i401k: The money is not taxed as it goes in, so it’s a tax deduction like a business expense. Example: earn $100,000 of gross income, put $20,000 into the i401k that year, and your taxable income is now $80,000. It’s a big, beautiful tax deduction every year.
From 59½, you can start to use the money if you retire. It will be taxed as you pull it out, which is why it’s called a deferred account. Your tax rate will most likely be lower in retirement than in your prime earning years; more on that later.
Roth i401: You contribute the money after paying tax, so there is no tax deduction as mentioned above. However, when you retire sometime after 59½ and start spending it, the money is not taxed.
In general, a pre-tax deferred i401k is the way to go. However, you can have both types of i401ks at the same time. They must be with the same provider.
My Union has a 401k set up for me; what about that?
If you’re freelance and have a Union pension/401k that employers contribute money to, this does not count towards your contribution limit as long as you don’t put money into it.
Benjamin Graham, author of The Intelligent Investor:
“To be successful, people don't need extraordinary insight or intelligence. What they need most is the character to adopt simple rules and stick to them.”
How much can I put in every year?
This is the fantastic part for freelancers, single-person businesses, and our spouses. The yearly contribution limits are huge compared to what staffers can put away.
In 2025, we can contribute up to:
Up to age 49:
$70,000/year
Age 50+ :
$77,500/year
Age 60-63 :
$81,250/year
*The IRS raises these limits most years. The amount you can contribute is also based on your earnings; more later.
The soundtrack for this section is courtesy of Tiesto. Press play and read on!
The ASAP - it’s really, really important
Compounding interest, watch that sucker grow.
Starting as soon as possible is really important because of compounding interest. As you add money to your i401k, it grows in our stock market funds at an average of 7% per year—more on how later. The i401k starts getting bigger and bigger because the 7% compounds every year on the money you add, as well as the previous 7% gains from the years before.
Time is what matters. It needs time to work. It’s the rolling snowball effect: Your money gets bigger and bigger as it rolls downhill over time. The early money is the most important as it will give the most time to grow and get that yearly 7% bump.
In reality, you’ll start investing smaller amounts early in your career and contribute more yearly as you earn more. But for the example below, I’m assuming you put in $20,000 yearly, with the i401k growing at a very conservative 7% yearly.
Are you reading this and you’re already a bit older? No drama; just start now and pound as much money in as you can. Me: I started my i401k at 43 in 2015 when I went freelance. Eight years later, in 2024, it’s worth over $650,000. This shows that even starting late can lead to significant growth. BooYah!
Take a look at the compounding magic in the graph above. The graph shows someone starting with $10,000, then adding $20,000 per year, growing at 7%. See what happens when you start at 30, 35, or 40 years old to the final amount when you’re 60. Start early, and the final amount will be much larger.
Starting a little later in your career? No drama. Put in as much as you can every year and watch it grow.
Imagine a snowball rolling downhill, getting bigger and bigger — this is your i401k gathering speed and size over time.
Watch the money grow as you invest.
The charts below show someone investing from 25 years old. On average, over long periods, the growth will be around 7% a year for a Three-Fund Portfolio. Watch the amount in the right column start to shoot up in later years. That snowball gets big and keeps getting bigger.
Kids, expenses, emergencies, and how much you make in a year will all affect the amount you can contribute from year to year, too. Just put in as much as you can.
Here’s an i401k investor example
This is an example of someone who earns an income of around $120,000 by the time they are in their prime earning years (that’s in their 40s—50s).
Over time, their contributions per year go up as they earn more. With an average 7% growth rate from stock market investments, they will end up with over a million dollars in their i401k at 55 years old.
At age 55, they will have approx. $1,572,918
At 60, around $2,378,621
An example of supersizing the contributions
This is an example of someone who makes larger contributions as they earn more.
At age 55, they will have around $1,930,126
At 60, around $3,017,642
“One. Million. Dollars!”
What if you start your i401k later in life?
I started mine when I was 43 years old when I went freelance. Put as much into the i401k as possible for the tax deduction and get the long-term average of 7% a year growth. It’s totally worth it.
In November 2024, after just nine years, my i401k was worth over $695,000 with an annualized growth rate of 8.9% per year. Yes, the growth rate can be higher than 7% with an aggressive allocation. More later.
If you make less in your job than in the above examples, don’t worry; just put away as much as you can, and the 7% growth will remain the same
Why didn’t you know about this?
It's annoying, right? It’s not magic, it’s not complicated, and there is no hustle here. This is basic investing.
No one teaches us basic financial and investment literacy as a must-have knowledge—not schools, universities, or unions. It’s not your fault. Try to get going as soon as possible, and send this site to all of your fellow freelancers and single-person business owners so we can all take control of our future.
Also, there is no money in simplicity for certain sectors of the advisory investment industry; they’re not about to tell you how simple it is. Some companies want you to pay them to ‘make you money,’ not figure out how easy it is yourself.
Have a play with the compound interest calculator at the bottom of the page to see the effect of changing the years you invest and the amount invested.
The three funds inside the i401k
So, where does the 7% growth
come from?
It comes from the 1 to 3 simple stock market low-fee Index ETFs or Mutual funds we will have inside the i401k.
An ETF (Exchange Traded Fund) or mutual fund is a single investment with many stock market listed companies or bonds inside it.
Think of the i401k as the wrapper on the outside protecting the ETF/mutual fund candy in the middle from the tax man.
The stock market is simpler and less scary than you may think. Read The Knowledge post about it here.
Three funds cover our investment needs
What do we invest in? —
The ‘Three-Fund Portfolio’
All we need is three ETFs in the stock market. That’s it. We don’t need to play the game of picking winning companies. This is a simple and well-respected investment strategy investors use that filters out all the hype.
The three funds we invest in with Schwab or Vanguard are:
U.S. Broad Stock Market
International Stocks
U.S. Bonds.
It’s low-cost, simple, and outperforms the vast majority of smartasses on Wall Street over the long term.
We will buy them every three months.
We'll dig deeper on page 3, ‘What to Invest In.’
Retirement vehicles: the i401k, SEP and IRA
AI images of freelancers pondering tax protected retirement vehicles. So much fun.
Read The Knowledge post here about the differences between them. Even among accountants, there is some confusion about which one is the best to use.
Play around with the numbers
with this calculator to see the magic of compound interest.
See what effect changing the amounts and time will have.
Principal - assuming you start with zero dollars in your Solo 401k.
Interest rate - that’s the rate the i401K will grow at 7%
Term - how long the snowball has been rolling.
Contribution - How much you put in each year.