Being self‑employed is inherently liberating—but for many of us, the flip side is wrestling with expensive health insurance. If you’re feeling the pinch, here’s something you might not know: a Solo 401(k) can be your secret weapon to reduce—or even eliminate—your monthly premiums, legally.

Let’s unpack how this works, why it matters, and how to make it happen—step by step.

🤔 Quick Preview: What You’ll Learn

• Eligibility requirements for health insurance deductions
• How a Solo 401(k) works and its 2025 limits
• The smart strategy that pairs Solo 401(k) contributions with insurance deductions
• A comparison with other retirement plans
• Canada-specific insight
• Actionable next steps

1. Who Qualifies for the Self‑Employed Health Insurance Deduction?

To claim 100% of your health insurance premiums—yes, that means full coverage—you need to meet three IRS conditions (for the USA):

1. You must have self-employment net income from Schedule C, Schedule F, or a K‑1 partnership.
2. Neither you nor your spouse can have access to employer-sponsored coverage—even if you’re not enrolled.
3. You must pay premiums with after-tax dollars—and deduct them “above-the-line” on Form 1040, Schedule 1 .

📌 In Canada, the rules differ. Self-employed individuals can deduct medical expenses on line 33099 of the T1 through the Medical Expense Tax Credit, but premiums themselves aren’t fully deductible. Instead, you manually total medical expenses (including premiums) against the lower of 3% of net income or an annual threshold.

2. How the Solo 401(k) Supercharges Your Coverage Strategy

What is a Solo 401(k)?

A Solo 401(k) is a retirement plan for solo business owners and their spouses—no employees allowed. It’s unique in letting you contribute both as an employee and as an employer (Wikipedia).

2025 Contribution Limits in a Nutshell

* A special “super catch-up” is available for ages 60–63 under the SECURE 2.0 Act (solo401k.com).

3. The Smart Pairing: Solo 401(k) + Insurance Deduction = $0 Premium

Here’s how it works:

1. You pay your health insurance premiums with after-tax income.
2. You deduct these premiums as part of the self-employed health insurance deduction (reduces AGI).
3. Simultaneously, you maximize your Solo 401(k) contributions—to the tune of $70k+—which further lowers your AGI.
4. With lower AGI, you may become eligible for ACA Premium Tax Credits, which can reduce premiums to $0—even after claiming those Solo contributions.

This is totally legal, widely used by high-income freelancers, consultants, and gig workers—and known in tax circles as “coordinating deduction stacking”. 📚

4. Solo 401(k) vs. SEP IRA vs. SIMPLE IRA: Which One Helps Most?

Here’s a quick comparison for 2025:

👉 The Solo 401(k) offers much higher contribution limits and flexibility—making it ideal if you’re intentionally pairing it with your health deduction strategy (IRA Financial, CountingWorks Learning Center, Tax Extension, Kiplinger, SmartAsset, solo401k.com).

5. Canada Considerations: Can You Copy This Strategy?

• Canada’s net income deduction for medical expenses helps, but doesn’t allow above-the-line treatment—even when paired with RRSP contributions.
• RRSP vs. Solo 401(k): In Canada, maximizing RRSP room (18% of prior-year earned income) reduces taxable income—so you still lower net income and thus medical expense thresholds.
• Provincial benefits may offset some insurance costs—but the key difference remains: you don’t eliminate premiums to $0, only reduce after-tax cost.

6. Getting Started: Step-by-Step

1. Verify eligibility: No employer coverage allowed, confirm net profit.
2. Start a Solo 401(k): Open with bróker, set up before Dec 31 of the plan year .
3. Pay premiums with after-tax funds: Keep receipts.
4. Max Solo contributions: Ensure you don’t reduce net income below your premium total—deduction is limited by net income (Investopedia).
5. File taxes correctly:
   • In USA: Schedule 1 for premiums; Solo contributions on Schedule 1/Form 5500-EZ if necessary.
   • In Canada: Claim medical on Schedule ON428 or central federal form.
6. Explore ACA credits (USA): Plug reduced AGI into Marketplace.gov to see if you qualify for $0 premiums.

7. Benefits You’ll Actually Feel

• $0 monthly health coverage (USA)
• Big tax savings—reducing AGI means less tax owed + more potential credits
• Fast retirement savings growth—you’re effectively funding two goals at once
• Flexibility: Roth or pre-tax contributions, spouse participation, investment control

8. Tips and Pitfalls

• Track income carefully: Too much Solo contributions could unintentionally reduce eligibility for the full deduction—don’t exceed net income limitation (TurboTax, Internal Revenue Code Simplified, moneytology.com, IRA Financial).
• Open Solo plan by Dec 31: Only then can you fund it for that tax year (The Motley Fool, mysolo401k.net).
• Plan for Form 5500-EZ: If plan assets exceed $250k, you must file this return.
• Get professional help: A tax pro ensures coordination between deductions, credits, and AGI thresholds.

9. Real‑World Example (U.S.)

Meet Sarah, a freelance consultant, age 55:

• Net self-employment income: $150,000
• Health insurance premiums: $18,000/year
• Solo 401(k) contributions:
  • Employee deferral: $23,500
  • Employer profit share: ~$31,000 (25%)
  • Catch-up: +$7,500 → Total $62,000

Year-end AGI calculation:

• $150k income
• − $18k premiums (above-the-line)
• − $50k solo contributions (some reduce AGI)
  → Adjusted AGI = ~$82k → qualifies her for ACA subsidies → $0 premiums.

10. Final Takeaway

If you’re self-employed and facing high insurance premiums, combining the self-employed health insurance deduction with a maxed-out Solo 401(k) is a smart, entirely legal move. In 2025, thanks to increased limits and catch‑up options, this strategy is more powerful than ever.

• USA: You can legitimately reduce your out-of-pocket premium cost to $0/month.
• Canada: You can reduce your tax burden, though premiums aren’t eliminated.

Your Next Moves

1. Check your situation: income, premium costs, coverage access
2. Open a Solo 401(k) now, before year-end
3. Calculate max contribution—and potential AGI after deductions
4. Use Marketplace or tax calculator to see if you qualify for full subsidy
5. File returns: Schedule 1 (USA) or medical line (Canada)

Leveraging a Solo 401(k) to transform health insurance from a burden into a strategic investment is one of the smartest moves a self-employed person can make in 2025. Feel free to drop me a note if you’d like help modeled scenarios for your specific income or guidance on Canada’s nuances.