Solo 401(k): quantity example
Assume an eligible owner-only plan, sufficient qualifying earnings, $24,500 employee deferral and a separately calculated permitted $18,000 employer contribution in 2026. Combined contributions are $42,500. This arithmetic example is below the $72,000 2026 annual-additions ceiling but does not establish the employer contribution from a stated self-employment income.
A common misunderstanding
Opening one after adding an employee without checking how the rules change. Eligibility is specific to owner-only businesses, and the situation can change without anyone revisiting the plan.
Related measurements
A solo 401(k) is not a SEP IRA or an ordinary employer 401(k); a SEP IRA allows only employer-style contributions and can be simpler, but typically permits less for someone with modest income. A solo 401(k) allows both employee and employer contributions and may offer a Roth option and loans, depending on the plan; it is only available to businesses with no employees other than the owner and a spouse. Once you hire staff, the rules change.
It is also not an individual retirement account, which has lower limits.
Limits of the definition
For 2026 the base employee deferral limit is $24,500 and the annual-additions limit excluding catch-up is $72,000, subject to compensation and plan rules. Other plans, catch-up eligibility, eligible employees and the self-employed compensation adjustment require separate checks.
Understanding Solo 401(k)
One person contributes as both employee and employer, and that dual capacity is what lets a solo 401(k) exceed what some other self-employed plans allow at the same income. For an owner-only business it is often the deciding factor in which plan to open.
Using Solo 401(k)
Freelancers, consultants, small-business owners and side-hustlers with self-employment income use it to save more for retirement than an IRA allows and to reduce current taxable income; some pair it with a spouse who works in the business; a calculator estimates the maximum contribution from net earnings and the year's limits. Timing rules, deadlines for setting up and funding the plan, and filing requirements when assets grow vary, so plan ahead.
Solo 401(k): follow the example through
Assumed example: A self-employed consultant is the only employee. A solo 401(k) lets them contribute in two roles. As the employee they can defer part of their earnings, up to an annual limit.
As the employer they can add a profit-sharing contribution calculated as a percentage of compensation, and for a sole proprietor the effective percentage is lower than the headline rate because of how net earnings are figured. Together they must stay under a total annual cap. As an illustration only, if the employee limit were $20,000 and the employer portion worked out to $18,000, then $38,000 could go in for the year; the real limits, and the formulas, change every year.
Solo 401(k): calculation reference
Employee deferral (limit + age catch-up) plus 20% employer contribution on net earnings after half of self-employment tax, capped at the combined 2026 limit plus catch-up
| Quantity | Entered or calculated amount | Meaning |
|---|---|---|
| Net self-employment profit | $120,000 | |
| Your age | 45 | Determines the available catch-up contribution: none under 50, $8,000 at 50-59, and the SECURE 2.0 $11,250 "super catch-up" at 60-63. |
| Own Social Security wages in 2026 | $0.00 | |
| Employee deferrals used in other coordinated plans | $0.00 | |
| Maximum total solo 401(k) contribution | $46,804 | Result under the listed assumptions. |
| Employer profit-sharing contribution | $22,304 | Result under the listed assumptions. |
Solo 401(k) Contribution Calculator: change the inputs and compare the resulting cases
Who can open a solo 401(k)?
Self-employed people and owner-only businesses, sometimes with a spouse who works in the business. Once you hire employees other than a spouse, the plan generally no longer qualifies as solo.
Confirm current limits and eligibility rules with the IRS or a tax professional.