Solo 401(k) Rules and Contribution Limits for 2026: The Complete Guide

That is the headline. The details are where people lose money: miscounting self-employment income, missing a December 31 election, forgetting the Form 5500-EZ, or hiring a part-timer without realizing it ends the “solo” part. I walk through all of it below, with real 2026 numbers.

What a Solo 401(k) is (and why it beats most alternatives)

A Solo 401(k), also called an individual 401(k), one-participant 401(k) or self-employed 401(k), is an ordinary 401(k) plan that happens to cover only the business owner (and a spouse, if the spouse works in the business). The IRS calls it a “one-participant 401(k) plan.”

The reason it is so popular with freelancers, consultants and small business owners is that you wear two hats:

• As the employee, you make elective deferrals, the same kind of paycheck contributions a corporate employee makes to a workplace 401(k). These can be pre-tax (traditional) or Roth.
• As the employer, your business can make a profit-sharing contribution (the IRS calls it a “nonelective contribution”) on top.

A SEP IRA only has the employer hat. That is why, at most income levels below roughly $375,000 of profit, a Solo 401(k) lets you shelter far more. I compare the two in detail in SEP IRA vs Solo 401(k): which shelters more for one owner.

Because it covers only owners, a Solo 401(k) is not subject to the nondiscrimination testing that makes company 401(k) plans expensive to run. Most brokerages offer a pre-approved plan document at little or no cost.

Who qualifies for a Solo 401(k)

You can sponsor a Solo 401(k) if you have self-employment income or own a business, and the business has no common-law employees other than you and your spouse. The business can be a sole proprietorship, a single-member LLC, a partnership (all partners and their spouses can participate), an S corporation or a C corporation.

A few points that trip people up:

Contractors do not count, employees do

People you pay on a 1099 as genuine independent contractors are not your employees and do not disqualify you. A W-2 employee who meets the plan’s eligibility rules does. (Calling someone a contractor does not make them one. If the IRS would treat the relationship as employment, the plan has a problem.)

The 1,000-hour rule and the part-time trap

A 401(k) plan can generally exclude employees who are under age 21 or who have not completed one year of service, usually defined as 1,000 hours in a 12-month period. So a part-timer working under 1,000 hours a year does not automatically blow up your plan.

But SECURE 2.0 added a long-term part-time rule. For plan years beginning after 2024, an employee who works at least 500 hours in each of 2 consecutive 12-month periods (and is at least 21) must be allowed to make elective deferrals. In plain English: a part-time assistant working 10 hours a week for two years can become eligible, and once you have an eligible non-owner employee, you no longer have a solo plan. You would need to convert to a regular 401(k), with testing and administration. If you are thinking of hiring, look at retirement plans built for businesses with employees before the second year arrives.

Your other businesses count too

If you own (or are part of a group that owns) another business with employees, the controlled group rules can treat both businesses as one employer. A doctor who owns 80% of a practice with staff generally cannot set up a Solo 401(k) for side consulting income and leave the staff out. Ask your CPA or a plan attorney if you own more than one business.

Your spouse can double the savings

If your spouse earns income from the business, your spouse can participate with his or her own full set of limits. For a couple, that can mean up to $144,000 a year before catch-ups. The spouse must be paid real compensation for real work.

You can have a day job too

Many people have a workplace 401(k) at a full-time job and a Solo 401(k) for side income. That is allowed, with one important limit covered in the next section.

2026 Solo 401(k) contribution limits

These are the 2026 figures from IRS Notice 2025-67.

Putting it together, the most one person can put in for 2026 is:

• Under age 50: $72,000
• Age 50 to 59, or 64 and older: $80,000 ($72,000 plus $8,000)
• Age 60 to 63: $83,250 ($72,000 plus $11,250)

The deferral limit is per person, not per plan

The $24,500 employee deferral limit follows you across every 401(k) and 403(b) you participate in. If you already defer $24,500 at your day job, you have no deferral room left in your Solo 401(k). You can still make the employer profit-sharing contribution, because the $72,000 limit applies separately to each unrelated employer’s plan.

The age 60 to 63 super catch-up

SECURE 2.0 created a larger catch-up for people who turn 60, 61, 62 or 63 during the year. For 2026 it is $11,250 instead of $8,000. At 64 you drop back to the regular catch-up. If you are in this window, these four years are a real opportunity, and the Solo 401(k) is one of the few places a self-employed person can use it.

The new Roth catch-up rule for high earners

Starting in 2026, SECURE 2.0 requires that catch-up contributions be made as Roth (after-tax) contributions for anyone whose FICA wages from the employer sponsoring the plan were more than $150,000 in the prior year. For 2026 catch-ups, the test looks at your 2025 wages.

Does this hit the self-employed? It depends on how you are paid:

• Sole proprietors, single-member LLCs taxed as sole proprietors, and partners do not receive FICA wages. Their income is self-employment income. The final Treasury regulations confirm that a participant with no FICA wages from the plan sponsor in the prior year is not subject to the Roth catch-up requirement, even if self-employment income was far above $150,000. Your catch-up can stay pre-tax.
• S corporation and C corporation owners are paid W-2 wages, which are FICA wages. If your 2025 Box 3 wages from your corporation were above $150,000, your 2026 catch-up must be Roth. And if your plan does not offer a Roth option, you cannot make a catch-up contribution at all. Check that your plan document includes Roth deferrals.

The final regulations generally apply from 2027, with a “reasonable, good faith” standard for 2026. In practice, if you are an S-corp owner over the threshold, treat 2026 catch-ups as Roth.

How the employer contribution is calculated

This is where most online calculators and most do-it-yourselfers go wrong, so it is worth slowing down.

If you are an S-corp or C-corp owner

It is simple. The corporation can contribute up to 25% of your W-2 salary (your gross salary, before your own deferrals come out, up to the $360,000 cap). Distributions from an S corporation do not count. Only salary does.

If you are a sole proprietor, single-member LLC or partner

Your “compensation” is net earnings from self-employment, which the IRS defines as net profit minus half of your self-employment tax, minus the contribution itself. Because the contribution reduces the number it is based on, the 25% rate works out to 20% of net profit after the self-employment tax deduction. IRS Publication 560 has the rate table and worksheet.

Here is the short version:

1. Start with net profit from Schedule C (or your partnership K-1 self-employment income).
2. Multiply by 92.35% to get net earnings subject to self-employment tax.
3. Self-employment tax is 12.4% (Social Security) on the first $184,500 of that amount in 2026, plus 2.9% (Medicare) on all of it.
4. Subtract half of the self-employment tax from net profit.
5. Multiply the result by 20%. That is your maximum employer contribution.

Your elective deferral does not reduce the base for step 5, but total contributions cannot exceed your net earnings.

Worked example 1: a sole proprietor

Maria is 45, a self-employed marketing consultant filing Schedule C. Her 2026 net profit is $150,000. She has no employees.

A SEP IRA would allow Maria only the $27,880.57 employer piece. The Solo 401(k) adds the full $24,500 deferral on top.

If Maria were 61 instead of 45, she could add the $11,250 super catch-up, bringing her total to $63,630.57. Because she is a sole proprietor with no FICA wages, that catch-up could be pre-tax or Roth, her choice.

How the total grows with profit for a sole proprietor under 50 (2026, before catch-ups):

Notice that at $50,000 of profit, the deferral alone is half the benefit. That is why the Solo 401(k) matters most for people with modest self-employment income.

Worked example 2: an S-corp owner on W-2 salary

David is 61 and owns 100% of an engineering consulting firm taxed as an S corporation. He pays himself a W-2 salary of $160,000 in 2026 and took a similar salary in 2025 (Box 3 wages above $150,000). The rest of the profit comes out as distributions.

Two things to notice:

• Salary drives everything. If David wanted to hit the full $72,000 before catch-ups, he would need a salary of $190,000 ($47,500 employer contribution is 25% of $190,000). But a higher salary also means more payroll tax, so the right number is a tax decision, not just a retirement decision. Salary also has to be reasonable for the work you do. You can model the trade-off with our S-corp salary calculator.
• The deferral must run through payroll. For an S-corp owner, your elective deferrals are withheld from your paychecks during the year, just like any employee. You cannot wait until April and write a check for the employee portion. The employer profit-sharing contribution can be made later (see deadlines below).

Because David’s 2025 wages were above $150,000, his $11,250 catch-up must be designated Roth. If his plan did not offer Roth, he could not make the catch-up at all.

Roth Solo 401(k): deferrals and employer contributions

Most Solo 401(k) providers now let you make your employee deferrals as Roth. Roth deferrals go in after tax, grow tax-free, and come out tax-free in retirement if the rules are met. Unlike a Roth IRA, there is no income limit on Roth 401(k) deferrals, so a high earner can put the full $24,500 into Roth.

SECURE 2.0 also allows employer contributions to be designated as Roth, if the plan document permits it. A Roth employer contribution is taxable income to you in the year it is made. Not every Solo 401(k) provider supports this yet, so check before you count on it.

Whether Roth or pre-tax is better depends on your tax bracket now versus what you expect in retirement. A year with lower income (a startup year, a sabbatical, an early retirement year) is often a good time to lean Roth. Run the comparison with your CPA before you choose.

Deadlines to open and fund a Solo 401(k)

This is the part that costs people the most, because the deadlines are different for each piece.

A few clarifications:

• The December 31 election matters. Under the Treasury regulations, a self-employed person’s compensation is treated as received on the last day of the year, so the election to defer must be made by then. The money itself can go in later, but write down your deferral election (amount, and pre-tax or Roth) by December 31 and keep it with your plan records.
• The first-year exception is narrow. SECURE 2.0 lets a sole owner of an unincorporated business open a new 401(k) after year end and still make first-year deferrals by the unextended return due date. It applies only to the first plan year. It does not help an S-corp owner, whose deferrals have to come from payroll.

If it is already 2027 and you never opened a plan, you may still have options, but the right answer depends on your entity type. Talk with your CPA quickly, because the unextended deadline arrives fast.

Form 5500-EZ and the $250,000 rule

A Solo 401(k) is not covered by most of ERISA, but it still has one annual filing. You must file Form 5500-EZ for any year in which the plan’s assets at year end are more than $250,000. If you have more than one one-participant plan, you add their assets together for this test, and once the total crosses $250,000, every plan files.

You also must file for the plan’s final year, no matter how small the balance. People forget this one when they terminate a plan or convert it.

For a calendar-year plan, the form is due by July 31 of the following year (the last day of the seventh month after year end). Form 5558 extends it. The penalty for not filing can be steep: $250 a day, up to $150,000 per plan year. If you have missed filings, the IRS has a late filer penalty relief program for one-participant plans that costs far less than the penalty. Ask your CPA about it before the IRS asks you.

Loans from a Solo 401(k)

Many Solo 401(k) plans allow loans, but not all. A plan is permitted, but not required, to offer them. If yours does, the usual IRS limits apply:

• You can borrow the lesser of $50,000 or the greater of $10,000 or half your vested balance. (A plan can cap it lower.)
• Repayment is generally within 5 years, in substantially equal payments of principal and interest at least quarterly. A loan to buy your main home can run longer.
• If you miss payments, the outstanding balance can be treated as a taxable distribution, with a possible 10% penalty if you are under 59½.

A loan is a feature that SEP IRAs and IRAs do not have. Used carefully, it can be a short-term liquidity tool. Used carelessly, it pulls money out of the market at the wrong time. I generally treat it as a backstop, not a plan.

Rolling IRAs in, and fixing the backdoor Roth pro-rata problem

Most Solo 401(k) plans accept rollovers from traditional IRAs, SEP IRAs and old employer 401(k)s. (A plan does not have to accept rollovers, so confirm with your provider.) Roth IRAs cannot be rolled into a 401(k).

This is more than housekeeping. It can fix one of the most common backdoor Roth mistakes.

A backdoor Roth means making a nondeductible contribution to a traditional IRA ($7,500 for 2026, or $8,600 at 50 and older) and converting it to a Roth IRA. The problem is the pro-rata rule: when you convert, the IRS looks at all your traditional, SEP and SIMPLE IRA balances on December 31 of the year of conversion. If you have $200,000 of pre-tax money sitting in an old rollover IRA or a SEP IRA, most of your “tax-free” conversion becomes taxable.

The fix: roll the pre-tax IRA money into your Solo 401(k) before December 31 of the year you convert. 401(k) balances do not count in the pro-rata calculation. With your IRA balance at zero at year end, the conversion of your nondeductible contribution can be largely tax-free.

Two cautions:

• Only pre-tax money can roll into the 401(k). Your after-tax IRA basis stays behind, which is exactly what you want.
• Timing and Form 8606 reporting matter. I explain the mechanics in the pro-rata rule that ruins a backdoor Roth for owners, and you can test your own numbers with the backdoor Roth pro-rata calculator.

This is one reason I often suggest owners use a Solo 401(k) instead of a SEP IRA even when the contribution amounts are similar: a SEP IRA balance counts against you in the pro-rata math, and a Solo 401(k) balance does not.

When a SEP IRA is simpler

The Solo 401(k) is not always the right answer. A SEP IRA can make more sense when:

• Your income is high enough that both plans hit $72,000. At roughly $376,000 or more of sole proprietor profit (or $288,000 or more of S-corp W-2 pay), a SEP alone reaches the cap, and its simplicity starts to win.
• You missed the December 31 deadline and are not eligible for the first-year exception. A SEP can be opened and funded up to your extended return due date.
• You expect to hire employees soon. A SEP has to cover eligible employees too, but it has no testing and no 5500-EZ, and it is simpler to administer than converting a Solo 401(k) into a full 401(k).
• You do not want any paperwork. A SEP never files a Form 5500-EZ.

The trade-offs: no employee deferral, no catch-up contributions, no loans, and the balance hurts a backdoor Roth. My full comparison is in the SEP vs Solo article linked above.

How Modern Wealth can help

For self-employed clients and owners, I help decide whether a Solo 401(k), a SEP IRA or a larger plan fits, how much to contribute each year, how to split between pre-tax and Roth, and how the plan connects with your salary, your backdoor Roth and your long-term retirement plan. I work alongside your CPA, who prepares the return, so the numbers on the plan and the numbers on the return agree.

Frequently asked questions

What is the maximum Solo 401(k) contribution for 2026?

$72,000 for someone under 50, combining the $24,500 employee deferral and the employer profit-sharing contribution. Add $8,000 if you are 50 or older ($80,000 total), or $11,250 if you turn 60 to 63 during 2026 ($83,250 total). Your actual maximum depends on your income: the employer piece is limited to 25% of W-2 pay, or about 20% of net self-employment earnings.

Can I have a Solo 401(k) and a 401(k) at work?

Yes, if the Solo 401(k) is for a separate business you own. But the $24,500 employee deferral limit is shared across all your plans. Whatever you defer at work reduces what you can defer in the Solo 401(k). The employer contribution in your Solo 401(k) is separate and still available.

Can my spouse contribute to my Solo 401(k)?

Yes, if your spouse earns compensation from the business for real work. Your spouse gets his or her own deferral, catch-up and employer contribution limits, and the plan stays a “solo” plan because spouses are allowed.

What happens if I hire an employee?

If the employee becomes eligible under the plan’s rules (generally age 21 and 1,000 hours in a year, or 500 hours in each of two consecutive years under the long-term part-time rule), the plan is no longer a one-participant plan. You would need to cover the employee and move to a standard 401(k) or another plan. Plan ahead before the employee becomes eligible.

Do I have to file anything for a Solo 401(k)?

Only Form 5500-EZ, and only when plan assets are above $250,000 at year end (combined across your one-participant plans) or in the plan’s final year. Contributions are also reported on your tax return, and Pennsylvania residents should know the state does not follow the federal treatment of 401(k) deferrals.

Is a Solo 401(k) better than a SEP IRA?

For most self-employed people with less than about $375,000 of profit, yes, because the employee deferral lets you contribute more at the same income. It also offers catch-ups, Roth deferrals and loans, and it does not interfere with a backdoor Roth. A SEP IRA wins on simplicity and on its later setup deadline.

Can I contribute to a Solo 401(k) if I have a side business with only a little income?

Yes. Your total contribution cannot exceed your net self-employment earnings (or W-2 pay), but at low income levels the employee deferral can shelter nearly all of it. On $20,000 of side profit, for example, you could defer essentially all of the roughly $18,600 left after the self-employment tax deduction.

This article is for general education and is not tax, legal or investment advice for your situation. Talk with your tax and legal advisors before acting.

Sources

• IRS, IR-2025-111, “401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500”: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
• IRS Notice 2025-67, 2026 cost-of-living adjustments (415(c), 402(g), 414(v) catch-ups, Roth catch-up wage threshold, 401(a)(17)): https://www.irs.gov/pub/irs-drop/n-25-67.pdf
• Treasury Decision 10033, final regulations on catch-up contributions, 90 Fed. Reg. (September 16, 2025): https://www.govinfo.gov/content/pkg/FR-2025-09-16/pdf/2025-17865.pdf
• IRS, One-participant 401(k) plans: https://www.irs.gov/retirement-plans/one-participant-401k-plans
• IRS Publication 560 (2025), Retirement Plans for Small Business: https://www.irs.gov/pub/irs-pdf/p560.pdf
• Treas. Reg. § 1.401(k)-1(a)(6)(iii), timing of self-employed deferral elections: https://www.law.cornell.edu/cfr/text/26/1.401(k)-1
• IRS Issue Snapshot, Deductibility of employer contributions to a 401(k) plan made after the end of the tax year (IRC 401(b)(2)): https://www.irs.gov/retirement-plans/issue-snapshot-deductibility-of-employer-contributions-to-a-401k-plan-made-after-the-end-of-the-tax-year
• Social Security Administration, Contribution and Benefit Base (2026: $184,500): https://www.ssa.gov/oact/cola/cbb.html
• IRS, Instructions for Form 5500-EZ (2025): https://www.irs.gov/pub/irs-pdf/i5500ez.pdf
• IRS, Retirement plans FAQs regarding loans: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans
• IRS, Rollover chart: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
• IRS, Rollovers of retirement plan and IRA distributions: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions
• 26 U.S.C. § 408(d)(2) and (d)(3), IRA aggregation and rollover rules: https://www.law.cornell.edu/uscode/text/26/408

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