The individual 401K, also known as the solo 401K, the solo k, or uni-k – works much the same as traditional 401K plans offered by large companies, as well as SEP IRAs designed for the self-employed. Unlike other retirement plans, though, an individual 401K is strictly for sole proprietors who have no employees, although your spouse may contribute if he or she earns income from your business. The individual 401K comes in both a traditional and Roth version, just like IRAs.

With the traditional individual 401K, you put away money on a pretax basis and it grows tax-deferred. Your money is taxed when you withdraw it, in a future that may well include higher tax rates. If you opt for the Roth version, you put in after-tax dollars and your money grows tax exempted, which means it is not taxed upon withdrawal. You can split your contributions between the two types of accounts. One other point: Unlike SEP IRAs, solo 401K’s allow you to borrow against your savings.

These plans are ideal if you intend to sock away large sums. An individual 401K allows you to save for retirement both as an employer and an employee, often enabling you to contribute more than would be possible with other retirement plans. Here’s how: As an employee, you can stash away as much as 18,000 dollars. As the boss, you can contribute an additional 25 percent of compensation, up to a maximum of 53,000 dollars including your employee contribution.

These contributions are discretionary, so you can save the maximum in flush years and nothing in tougher times. If you and your spouse are both in the plan and enjoy a banner year, you could save a total of 106,000 dollars. And if you are both 50 or older and eligible for catch-up contributions of 6,000 dollars each, the total climbs to 118,000 dollars.

An individual 401K is strictly for sole proprietors who have no employees, although your spouse may contribute if he or she earns income from your business.

Typically you need to keep the money invested in the retirement account until you reach age 59 and a half. Withdraw money before then and you’ll be hit with a 10 percent early withdrawal penalty, on top of the income taxes you’ll pay on the withdrawal. There are a few exceptions to the early withdrawal rule. Each plan’s rules vary, but you may be able take money out of your retirement account penalty-free before age 59 and a half if you use it for –

However, there are options for getting at the money if you really need to.

In general, the best solution is to take out an individual 401K loan, which uses the accumulated balance of the account as collateral. You can borrow up to half of the total balance on your solo 401K, as long as the loan doesn’t exceed 50,000 dollars. The remainder of your balance is still invested in your individual 401K, with tax-deferred investment earnings growth. Loan payment plans vary by provider.

The alternative is to simply withdraw money from your individual 401(k). If you choose to do so before you are at least 59 and a half, you’ll typically owe a 10 percent early withdrawal penalty. You’ll also owe income tax on the withdrawal – even if you hold a Roth 401K. There are exceptions, however. The IRS allows the 10 percent penalty to be waived for certain hardship withdrawals such as burial or funeral expenses or large out-of-pocket healthcare expenses.

When you open your 401K, you’ll have to pick your investments. Your employer usually works with an investment broker to come up with a list of options. This means you’re stuck with the list they offer, and sometimes, the list isn’t great. There are five major types of funds you’ll likely have to pick from:

1. Stock Funds: As the name suggests, this type of fund covers a variety of stocks that you can invest a percentage of your account in. According to Investor Place, Most 401ks only offer a handful of stock funds to choose from, so selecting funds in this category shouldn’t be hard, just look at expenses, lower is better and long-term returns with higher is better to find the best fit.

2. Target-Date Funds: These funds are pretty simple and basic. You pick your target date for retirement, then pick the matching fund. Because they’re so simple, there’s not much maintenance, as the fund adjusts your asset allocation over time. The fees of target-date funds might be higher.

3. Blended-Fund Investments: These funds have a set ratio of stocks and bonds. You can pick one that’s appropriate for your situation. This means you’ll have to consider your tolerance for risk and how many years you have until retirement.

4. Bonds or Managed Income: These are funds are meant to safeguard your money, but your money won’t grow much with these funds

5. Money Market Funds: Investor Place calls the money market fund a glorified CD. There’s zero growth here, and, in fact, these funds barely keep up with inflation rates. They recommend avoiding money market funds if you want your money to grow.