Solo 401(k): Rules, 2026 Limits, and How to Set One Up

If you're self-employed with no full-time employees, a solo 401(k) is almost certainly the most powerful retirement vehicle available to you. Here's exactly how it works, what you can contribute in 2026, and when to start layering on additional strategies.

What is a solo 401(k)?

A solo 401(k) — also called a one-participant 401(k) or individual 401(k) — is a standard 401(k) plan written for a business with no common-law employees other than the owner and their spouse. Because there are no non-owner participants, the plan skips most of the nondiscrimination testing that burdens employer-sponsored plans. You get the same contribution limits as a Fortune 500 employee 401(k), with none of the administrative overhead.

Who qualifies

Three requirements:

1. Self-employment income. Sole proprietors, single-member LLCs, S-corp owner-employees, and partners in a partnership all qualify — as long as you have earned income from the business.
2. No full-time W-2 employees other than your spouse. Part-time employees who work fewer than 1,000 hours per year are generally excluded. If you hire a full-time employee, you can no longer maintain a solo 401(k) and must convert to a plan that covers employees.
3. The plan is established before December 31 of the plan year. You can contribute up to the tax-filing deadline, but the plan document must be signed by year-end. (Exception: sole proprietors and single-member LLCs taxed as Schedule C may adopt a plan as late as their personal tax-filing deadline under SECURE 2.0 § 317.)²

How contributions work: two buckets

A solo 401(k) has two separate contribution sources, and each has its own limit and deadline:

Bucket 1 — Employee elective deferral

As the employee, you can defer up to $24,500 of your compensation in 2026 — pre-tax (Traditional) or after-tax (Roth). This is the same limit that applies to any W-2 employee's 401(k) at a regular employer. If you have both a solo 401(k) and another employer 401(k) in the same year (e.g., you had a W-2 job earlier in the year), your combined employee deferrals across all plans are capped at $24,500.

Catch-up amounts for 2026: ages 50–59 and 64+ may add $8,000 (total $32,500). Ages 60–63 may add $11,250 under the SECURE 2.0 super catch-up provision — this replaces, not stacks on top of, the regular $8,000 catch-up.¹

Deadline: the deferral election must be made by December 31 of the plan year for which you want to defer. You don't have to make the cash contribution by then — just elect the amount in writing before year-end.

Bucket 2 — Employer profit-sharing contribution

As the employer, you can contribute an additional profit-sharing amount on top of your employee deferral:

• S-corp or C-corp owner: up to 25% of your W-2 compensation from the company.
• Sole proprietor or single-member LLC: up to 20% of your net self-employment income (effectively 25% of net income after the SE tax deduction).

The employee deferral and employer profit-sharing combined cannot exceed the §415(c) annual additions limit: $72,000 for 2026 (not counting catch-up contributions).¹

Deadline: employer contributions can be made up to your business tax-filing deadline including extensions — typically October 15 for the prior tax year.

2026 contribution scenarios

Sole-prop employer rate is 20% of net SE income (equivalent to 25% of net income after SE tax deduction). S-corp employer rate is 25% of W-2 salary. Combined employee + employer contributions are capped at $72,000 per IRC §415(c), 2026.

Traditional vs. Roth solo 401(k)

Most custodians now offer both options for the employee deferral portion. The employer profit-sharing contribution is always pre-tax.

• Traditional: contribution is pre-tax; lowers your taxable income now; distributions in retirement are taxed as ordinary income. Best when you expect your marginal rate in retirement to be lower than today.
• Roth: contribution is after-tax; no deduction now; qualified distributions in retirement are tax-free. Best when you're in a lower bracket now than you expect in retirement, or when you have significant other pre-tax assets and want tax diversification.

At income levels where QBI optimization matters (near the $201,775 / $403,550 phase-out thresholds in 2026), pre-tax contributions often recover more in QBI deduction value than the Roth trade-off is worth. Run the numbers with an advisor or use the QBI Deduction Optimizer.

Opening a solo 401(k): where and how

Major custodians offer free prototype plan documents and low-cost investment menus. The main options:

• Fidelity: no account fees, broad fund selection, Roth option available, allows after-tax contributions (for mega-backdoor Roth) if you set up the right plan type.
• Schwab / TD Ameritrade: similar to Fidelity. Schwab merged TD and offers a solid solo 401(k) with Roth and loan features.
• Vanguard: limited to Vanguard funds; does not support Roth solo 401(k) or loans.
• Third-party administrators (e.g., Nabers Group, Carry): for "checkbook control" plans with self-directed investments (real estate, private deals). More expensive but allows non-traditional investments.

Opening the account is straightforward: fill out the application, sign the plan adoption agreement, and you're done. The key step most people miss is documenting the deferral election in writing before December 31.

Rollover of old 401(k) or IRA into a solo 401(k)

A solo 401(k) can accept rollovers from:

• Prior employer 401(k), 403(b), or 457(b) plans
• Traditional IRAs (important: see the pro-rata trap below)

The pro-rata trap: if you have a traditional IRA with pre-tax money, you cannot do a backdoor Roth contribution cleanly — the conversion will be partially taxable, proportional to pre-tax IRA balances. Rolling your traditional IRA into the solo 401(k) clears the deck and lets you execute a clean backdoor Roth each year going forward. This is one of the most underused advantages of the solo 401(k) for high-income self-employed earners.

When to add a cash balance plan

Once your income is consistently above $200K and you've maxed the solo 401(k), a cash balance plan is the logical next layer. A 50-year-old earning $350K can stack a $72,000 solo 401(k) with a $200,000+ cash balance contribution — a combined $272,000+ annual deduction. The solo 401(k) handles the deferral portion; the cash balance plan provides the bulk of the additional deduction. See the full breakdown in the Cash Balance Plan guide.

Solo 401(k) vs. SEP IRA: when to switch

The solo 401(k) wins at almost every income level where you're below the annual additions cap, because the employee deferral makes the effective rate much higher at lower incomes. For example, at $100K net income, a solo 401(k) gets you $44,500 (44% of income); a SEP IRA gets you only $20,000 (20%). The gap closes only as income rises above ~$240K, where both approaches converge at $72,000.

Reasons to choose a SEP IRA anyway:

• You hire employees (solo 401(k) disqualifies with full-time W-2 staff).
• Simplicity: SEP IRA has no plan document, no year-end election, and contributions can be made all the way to October 15.
• You're already invested in maximizing a traditional IRA and want to avoid the pro-rata issue (though rolling the IRA into a solo 401(k) solves this).

Use the Retirement Plan Selector to compare your specific numbers side by side.