You probably already know about typical retirement savings accounts like the IRA and 401(k). But you may have access to a special retirement account that could supercharge your savings.

The solo 401(k) is designed for entrepreneurs with no employees besides themselves and a spouse. And if you make even a dollar of self-employment income, you're eligible to open an account and contribute. Here's why you might want to do that ASAP.

About the solo 401(k)

The solo 401(k) is a lot like the typical 401(k) you might be offered from your employer. The only difference is you get to act as both the employee and employer. That means your "company match" can be massive.

The IRS allows solo entrepreneurs to contribute up to 25% of their wages or 20% of their net earnings to a solo 401(k). Importantly, that's on top of the normal employee contribution, which is the same as a regular 401(k) -- $22,500, or $30,000 if you're 50 or older, for 2023.

Total contributions to a solo 401(k) cannot exceed $66,000, or $73,500 if you're 50 or older.

Importantly, the limits apply across all 401(k)s. So if you're eligible for a 401(k) at work, you'll have to consider which 401(k) it makes sense to contribute to. Most likely you'll want to contribute at least some to both accounts.

So why should investors open a solo 401(k) if they already have a 401(k) at work?

A person with their hand under their chin thinking.

Image source: Getty Images.

Saving extra for retirement

The primary benefit of a solo 401(k) is that it allows you to save more for retirement.

Even if you're maxing out your employee contribution at your work's 401(k), you can still sock away up to 25% of your self-employed wages or 20% of self-employed income in the solo 401(k). With such high limits for total contributions across all 401(k)s, it's unlikely you'll hit the limit unless your side hustle really takes off.

It's very easy to open a solo 401(k). Most online brokerages offer free boilerplate solo 401(k) plans that will allow you to invest in most securities offered by the brokerage. That means you won't be subject to high fees or limited to the few mutual funds or ETFs in your workplace retirement plan. That alone could be worth the price of admission (which, did I mention, was free?).

Keeping the backdoor open

An added benefit of the solo 401(k) is that it makes it easier to maintain or acquire access to the backdoor Roth IRA.

The backdoor Roth IRA allows people making more than the income limit to contribute to a Roth IRA to get their money into the tax-advantaged account. The process requires a non-deductible traditional IRA contribution first. Then those funds are converted into a Roth IRA.

There's a catch, though.

If you already have pre-tax funds in an IRA -- any IRA -- you'll end up paying additional taxes on the conversion. That's due to the pro-rata rule, which will prorate any IRA conversion based on the percentage of funds that are pre-tax and those that are after-tax.

In other words, if you've contributed to a traditional IRA in the past for the tax deduction, you probably don't want to try to do the backdoor Roth.

That's where the solo 401(k) comes in. You can roll over your funds from your traditional IRA into the solo 401(k). Now you have $0 in pre-tax money in your IRAs. You're free to perform the backdoor Roth without tax complications.

This works out much better than rolling funds into a workplace retirement account. That's because many workplace retirement accounts have substantial fees. You don't want to pay those fees unnecessarily just to get some extra money into a Roth IRA. But most solo 401(k) plans don't charge any fees and they have the same investment options as an IRA.

It's worth noting this won't work with some other small-business retirement savings plans -- namely, the SEP IRA or SIMPLE IRA. That's because the IRS sees those accounts as IRAs. But the solo 401(k) isn't an IRA, so the backdoor is wide open again.

Remember, you can open a solo 401(k) even if you have a minimal amount of self-employment income. So even if you won't contribute much to the plan directly, it can be a great landing spot for your existing IRA funds.

Get more from your money

A solo 401(k) is a valuable account to have in your savings arsenal. Opening one can open a lot of doors to increasing your retirement savings. You might take the direct path and contribute your funds straight into the solo 401(k), or you may benefit from simply moving your money around to open new savings pathways.