Fractional executives are unusually good candidates for a solo 401k: high income, no employees, and full control over the entity that sponsors the plan. The question is rarely whether it beats a plain IRA, it does by a wide margin, but whether it beats the alternatives and justifies the small amount of administration.
Two contribution layers, employee and employer
A solo 401k, sometimes called an individual 401k, is a standard 401k plan covering only a business owner and, optionally, their spouse. Its power comes from letting you wear both hats. As the employee, you can defer compensation up to the annual employee deferral limit, the same limit that applies to any corporate 401k, with an additional catch-up amount if you are 50 or older. As the employer, your business can also contribute a percentage of your compensation, up to 25% of W-2 wages for an S corp, or an equivalent calculation based on net self-employment earnings for a sole proprietor. The specific dollar caps for the deferral, the catch-up, and the combined total are adjusted by the IRS each year, so check the current figures rather than relying on a remembered number.
For a fractional CFO or CMO with strong profit, stacking both layers routinely shelters several times what an IRA allows, and every pre-tax dollar contributed reduces this year's taxable income. Most providers also offer a Roth option for the employee deferral side if you would rather pay tax now.
The $250,000 line and the plan's real obligations
Administration is light but not zero. You must formally establish the plan with a provider, and the plan document has deadlines: the plan generally needs to exist before you can make employee deferrals for a year, so opening one in December for the closing year is tight, while employer contributions can typically be made up to your tax filing deadline including extensions. Once total plan assets pass $250,000, you must file Form 5500-EZ annually, a short informational return that is easy to file and expensive to forget, because late-filing penalties are steep.
The hard boundary is employees. The moment your practice hires a common-law employee other than your spouse, the solo plan stops being solo, and you take on real 401k compliance obligations. Contractors you engage for projects do not count, but plan ahead if you expect to build a team.
Solo 401k versus SEP IRA for a fractional practice
The usual alternative is a SEP IRA, which allows only the employer-style contribution. At identical income, the solo 401k almost always permits a larger total contribution because of the employee deferral layer, and it supports Roth deferrals and, under many plan documents, loans, which SEPs do not. The SEP's advantages are simplicity and the ability to open and fund one entirely at tax time. If your fractional income is high and recurring, the solo 401k is generally worth the extra setup. If you have elected S corp status, remember that contributions key off your W-2 salary, which is one more reason not to set that salary artificially low.