What is a solo 401(k) and who qualifies?
Generally available to owner-only businesses
A solo 401(k) is a 401(k) plan under IRC §401(k) covering only the business owner and spouse. For 2026, the owner can defer up to $24,500, plus $8,000 at age 50 or older ($11,250 at ages 60 to 63), and the business can add a profit-sharing contribution. Total additions excluding catch-ups are capped at $72,000 under IRC §415(c). Eligible employees must be covered.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed · Law and figures current as of September 17, 2026
Key takeaways
- 2026 limits: $24,500 deferral, $8,000 catch-up (50+), $11,250 catch-up (ages 60–63), $72,000 §415(c) limit.
- For sole proprietors, the employer contribution is effectively 20% of net self-employment earnings after the half-SE-tax deduction.
- Roth deferrals are not deductible; pre-tax deferrals and employer contributions are.
- Eligible employees, including long-term part-time employees, can end solo status.
- Form 5500-EZ is generally required once plan assets reach $250,000 at year-end.
What it is
A solo 401(k), sometimes called an individual 401(k), is a standard 401(k) profit-sharing plan for a business with no eligible employees other than the owner and the owner's spouse. You contribute in two roles: as an employee through elective deferrals, and as the employer through profit-sharing contributions.
It is available to sole proprietors, single-member LLCs, partnerships, and corporations, including S corporations, as long as no other employees meet the plan's eligibility requirements.
What the law says
IRC §401(k) permits a cash or deferred arrangement under which employees elect to have contributions made to the plan instead of receiving cash. IRC §402(g) limits elective deferrals, and IRC §414(v) permits catch-up contributions. IRC §415(c) limits annual additions to the lesser of the indexed dollar amount or 100% of compensation, and IRC §404 limits the employer's deduction for profit-sharing contributions to 25% of compensation.
For self-employed individuals, compensation is earned income under IRC §401(c)(2), reduced by the deduction for one-half of self-employment tax and by the contribution itself, which makes the effective employer rate 20% of net earnings. IRS Notice 2025-67 sets the 2026 amounts: $24,500 for deferrals, $8,000 and $11,250 for catch-ups, $72,000 for §415(c), and $360,000 for the compensation limit.
Requirements and tests
A solo 401(k) works as intended when these conditions are met:
- A written plan document is adopted on time. A new plan can generally be adopted as late as the business's return due date for employer contributions, and SECURE 2.0 gives some newly established sole proprietor plans extra time for first-year deferrals; in later years, deferral elections must be made on time.
- No employees other than owners and spouses are eligible; long-term part-time employees under SECURE 2.0 must be considered.
- Deferral elections are made on time, and contributions are based on actual compensation (W-2 wages for S corporation owners, net self-employment earnings for sole proprietors).
- Total deferrals across all your 401(k) and 403(b) plans stay within the $24,500 limit.
- Form 5500-EZ is filed once plan assets are $250,000 or more at year-end, and for the plan's final year.
How it works
A sole proprietor computes net profit, subtracts one-half of self-employment tax, and applies 20% to find the maximum employer contribution. The owner can also defer up to 100% of that earned income, up to $24,500. For an S corporation owner, deferrals come out of W-2 wages through payroll, and the employer contribution is up to 25% of those wages.
Deferrals can be pre-tax or Roth if the plan allows. Pre-tax amounts and employer contributions are deductible; Roth deferrals are not, but qualified withdrawals are tax-free. Plans may also allow employer contributions to be designated as Roth, in which case they are included in your income. Contributions for a sole proprietor are deducted on Form 1040, not on Schedule C, so they reduce income tax but not self-employment tax. For an S corporation owner, the employer contribution is deducted by the corporation. Beginning in 2026, catch-up contributions for employees whose prior-year FICA wages exceeded $150,000 must be Roth; this rule is tied to FICA wages, so it generally does not apply to self-employed owners with no wages from the plan sponsor.
Assumptions: Tax year 2026; sole proprietor age 45 with $100,000 of Schedule C net profit and no other wages.; Self-employment tax: 15.3% on 92.35% of profit (below the $184,500 wage base).; Employer contribution at the 25% plan rate, which equals 20% of net earnings after the half-SE-tax deduction.; All deferrals are pre-tax.
| Self-employment tax ($100,000 × 92.35% × 15.3%) | $14,130 |
|---|---|
| Deduction for one-half of self-employment tax | $7,065 |
| Net earnings after that deduction | $92,935 |
| Employer contribution (20% × $92,935) | $18,587 |
| Employee deferral | $24,500 |
| Total contribution (below the $72,000 limit) | $43,087 |
| Same facts at age 55 with $8,000 catch-up | $51,087 |
On $100,000 of profit, the owner can contribute about $43,087, or about $51,087 with the age-50 catch-up.
Illustration only; not a projection of your results.
Risks and IRS scrutiny
Common problems include excluding an employee who became eligible, exceeding limits when the owner also participates in another employer's plan, depositing contributions late, miscomputing self-employed compensation, and missing Form 5500-EZ filings, which carry penalties. Excess deferrals must be corrected by April 15 of the following year to avoid double taxation.
Owners of more than one business should also watch the controlled group and affiliated service group rules. If you own another company with employees, those employees may have to be counted for coverage testing, which can make a solo plan fail. Plan documents need periodic updates for law changes, and the plan must operate according to its written terms, including loan and hardship provisions if you include them.
Who it is not for
A solo 401(k) does not fit a business with eligible employees other than owners and spouses, or an owner of several businesses whose other companies have employees who must be counted. It adds less value for owners with low earnings who cannot fund much beyond what a simpler IRA-based plan allows, and it may not provide as large a deduction as a defined benefit plan for older owners with high, stable income.
How ebotCPA helps
We calculate your deferral and employer contribution from your actual earnings, coordinate limits with any other plans, confirm eligibility rules for future hires, and track filing requirements.
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.
Frequently asked questions
What is the solo 401(k) contribution limit for 2026?
Up to $72,000 in total additions, plus catch-up contributions of $8,000 at age 50 or older or $11,250 at ages 60 to 63, subject to 100% of compensation.
How is the employer contribution calculated for a sole proprietor?
It is effectively 20% of net profit after subtracting one-half of self-employment tax, which equals the 25% plan rate applied to compensation reduced by the contribution.
Can I have a solo 401(k) if I have part-time employees?
Only if they are not eligible under the plan terms and the law. Long-term part-time employees can become eligible under SECURE 2.0, which would end solo status.
When does a solo 401(k) need to file Form 5500-EZ?
Generally when plan assets are $250,000 or more at the end of the plan year, and for the final plan year.
Have facts like these?
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