Solo 401(k): The Self-Employed Retirement Powerhouse
Learn how a Solo 401(k) works, who qualifies, and how it compares to SEP and SIMPLE IRAs.
A Solo 401(k) (also called an Individual 401(k)) is designed for self-employed people with no full-time employees. It often allows higher total contributions than a SEP IRA or SIMPLE IRA, making it a centerpiece of self-employed tax strategies.
Key Takeaways
- Solo 401(k) lets you contribute as both employee and employer — up to $72,000 total in 2026 (under 50).
- Roth and traditional (pre-tax) options are often available, giving you tax diversification.
- Eligibility requires self-employment income and no full-time employees (spouses OK).
- Employee deferrals must be made by December 31; employer contributions can wait until the filing deadline.
Who Qualifies
- You have self-employment income (sole prop, LLC, or S-corp)
- You have no employees other than a spouse
Contribution Structure
Solo 401(k) contributions come from two buckets:
- Employee deferrals (like a W-2 401(k))
- Employer profit-sharing contributions
This combination typically yields higher total limits than SEP or SIMPLE IRAs. If you also have a day job with a 401(k), your employee deferral limit is shared across plans, but employer contributions are calculated separately for each employer.
Solo 401(k) Limits (2025 vs 2026)
| Limit Type | 2025 | 2026 |
|---|---|---|
| Employee deferral (under 50) | $23,500 | $24,500 |
| Employee deferral (50-59 or 64+) | $31,000 | $32,500 |
| Employee deferral (60-63) | $34,750 | $35,750 |
| Total contributions (under 50) | $70,000 | $72,000 |
| Total contributions (50-59 or 64+) | $77,500 | $80,000 |
| Total contributions (60-63) | $81,250 | $83,250 |
How to read this: The employee deferral limit is shared across all 401(k) plans you participate in. The total contribution limit includes both employee and employer contributions (including catch-up for ages 50+).
Calculating Employer Contributions: Sole Prop vs S-Corp
The employer contribution calculation differs by entity type:
S-Corp owners:
- Employer contribution = W-2 wages × 25%
- Example: $100,000 W-2 salary → up to $25,000 employer contribution
Sole proprietors / Single-member LLCs:
- Base = Net self-employment income − ½ of self-employment tax
- Employer contribution = Base × 20% (not 25%)
- The 20% accounts for the fact that you’re both employer and employee
Example (Sole Prop, 2026):
- Net Schedule C profit: $150,000
- Self-employment tax: ~$21,200
- ½ SE tax deduction: $10,600
- Adjusted net: $150,000 − $10,600 = $139,400
- Employer contribution: $139,400 × 20% = $27,880
- Plus employee deferral (under 50): $24,500
- Total: $52,380
Most provider calculators will do this math for you—just enter your net profit.
Roth vs Traditional
Many plans allow Roth contributions, so you can decide when to pay taxes. If your marginal rate is low now (early in your business), Roth may be better. If you need the tax deduction now, traditional is stronger. For the full tradeoff analysis, see Roth vs Traditional tax tradeoffs and the traditional vs. Roth math breakdown.
Solo 401(k) vs SEP vs SIMPLE
| Feature | Solo 401(k) | SEP IRA | SIMPLE IRA |
|---|---|---|---|
| Employee deferral | Yes ($24,500 in 2026) | No | Yes ($16,500 in 2026) |
| Employer contribution | Up to 25% of comp | Up to 25% of comp | 2% or 3% match |
| Roth option | Yes (many providers) | No | Yes (SECURE 2.0, 2023+) |
| Total limit (under 50) | $72,000 | $72,000 | ~$19,500 |
| Loan provision | Yes (some plans) | No | No |
For a detailed comparison, see the Solo 401(k) vs SEP IRA guide.
Timing and Deadlines
- Open the plan by December 31 to make employee deferrals for that year.
- Employer contributions can be made up to your tax filing deadline (including extensions).
- If you are an S-corp, set W-2 wages before year-end so the employer contribution math is correct.
DIY Checklist: Forms + Questions
Forms you’ll see
- Plan adoption agreement from your provider (keep with your records)
- Form 5500-EZ once plan assets exceed $250,000 (or when you terminate the plan)
- Form 1099-R only if you take distributions or rollovers
Questions you can answer yourself
- Do I have any common-law employees (other than a spouse)?
- What is my net self-employment income for the year?
- Does my provider support Roth deferrals or mega backdoor contributions?
- What are the contribution deadlines for employee and employer portions?
Mega Backdoor Roth in a Solo 401(k)
Some Solo 401(k) providers allow after-tax contributions with in-plan Roth conversions — the mega backdoor Roth. This lets you convert after-tax dollars (above the employee deferral) to Roth, potentially sheltering the full $72,000 (2026) in Roth. Not all providers support this, so ask before opening the plan.
Next Steps
- Confirm eligibility (no full-time employees).
- Compare provider fees, Roth availability, and mega backdoor support.
- Open the plan before December 31 and fund employer contributions by the filing deadline.
- Consider stacking with an HSA for additional tax-free growth.
How sharper.tax Helps
sharper.tax detects self-employment income on your return and calculates your maximum Solo 401(k) contribution — including the employer profit-sharing portion that most people underestimate. We compare the Solo 401(k) against SEP IRA and SIMPLE IRA options so you can pick the plan that saves the most. We also show how Solo 401(k) contributions stack with other strategies like the home office deduction and Section 179 depreciation. The tax code is complicated, but better tools have leveled the field.
Sources
- IRS Notice 2025-67 (2026 retirement plan limits)
- IRS Publication 560 (2025 small business retirement limits)
The information above is educational and not tax advice. You can complete this strategy yourself by confirming eligibility, using your provider’s contribution calculator, and filing any required 5500-EZ forms.