You probably won't miss much when you say goodbye to your traditional 9-to-5, but one of the things that you might regret leaving behind is your 401(k). You could struggle to save enough for your future if all you have is an IRA. But there is another option: a solo 401(k).

These accounts are similar to traditional 401(k)s, but they're specifically designed for self-employed workers with no employees. You essentially act as employee and employer, which enables you to contribute far more money than you could even to the regular 401(k) you may have had with your former employer. Here's how to decide if it's right for you.

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How a solo 401(k) works

In order to open a solo 401(k), you must be self-employed with no employees, though you may also contribute funds for a spouse who works for the business, too. You must also have an employer identification number (EIN) in order to open a solo 401(k).

You can make two contributions for yourself: one as an employee and one as an employer. Your employee contribution limit is the same as for any employee of a traditional company enrolled in a 401(k). In 2020, you may contribute up to $19,500, or $26,000 if you're 50 or older. 

If you plan to exceed this limit for the year, you can make an additional contribution to your 401(k) as an employer. The limit for this contribution is 25% of your net self-employment income in 2020 -- that is, your income minus business expenses, half of your self-employment tax, and the first $19,500 (or $26,000) that you contributed to your solo 401(k) as an employee. Only the first $285,000 you earn counts toward your maximum contribution calculation in 2020, so the maximum amount you can contribute to your solo 401(k) is $57,000 this year or $63,500 if you're 50 or older. The exception is if you have a spouse who also works for the business. In that case, you can contribute up to $57,000 (or $63,500) for each of you, provided you both meet the income requirements outlined above.

Solo 401(k)s can be either tax-deferred or Roth. Tax-deferred contributions reduce your taxable income for the year, but then you must pay taxes on your distributions in retirement. This is the way to go if you suspect you're in a higher tax bracket today than you will be once you retire. You must pay taxes on Roth contributions the year you make them, but after this, your money grows tax-free. This makes more sense if you think you're in the same or a lower tax bracket today than you will be in once you retire. You could also have some of each type of savings, but note that the above contribution limits are for your total solo 401(k) savings, not for each type.

Alternatives to a solo 401(k)

While there is a lot to appreciate about a solo 401(k), it isn't always the right choice. It can be more difficult to open and more costly than an IRA, so some people prefer a simplified employee pension (SEP) IRA instead. These accounts are similar to solo 401(k)s, and their maximum contribution limits are also $57,000 in 2020. But SEP IRAs don't offer a Roth option and you're unable to take loans from the plan, as you can with a solo 401(k).

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a better alternative for self-employed individuals who have some employees. There is a mandatory employer contribution requirement: either 2% of a qualifying employee's salary regardless of whether they contribute money to their retirement account or a 3% matching contribution. Employer contributions to employee SIMPLE IRAs are tax-deductible. 

How to open a solo 401(k)

If you decide a solo 401(k) is the right retirement account for you, you can open one with any broker. You'll need your EIN, and you'll have to fill out an application. Once that's done, you'll be able to start making contributions and choosing how you'd like to invest your money.

You must open your account by Dec. 31 of this year in order to make contributions for 2020. You must make your employee contribution (up to $19,500 in 2020 or $26,000 if you're 50 or older) by the end of the year, though you have until the tax filing deadline to make your employer contribution. 

It's a little more of a hassle to open a solo 401(k) than an IRA, but it can enable you to save for retirement much more quickly, especially if you have a spouse who also works for your business. Consider opening one today if you're eligible.