Solo 401(k): the high-contribution retirement plan for owners with no employees

To build wealth, the order matters: you concentrate to create, then diversify to preserve. Right now your focus is your business, and that's right. But part of what it earns should go toward building other assets, the kind that pay you later without your daily involvement.

A retirement plan is one of those assets. And the U.S. tax code hands the self-employed one option in particular that's worth a serious look: the Solo 401(k).

Planning your retirement is the difference between freedom later and working forever. The trap is that it feels far away, so it's easy to push it off. That's the mistake. Your peace of mind today depends partly on knowing your future is taken care of. Here's everything you need to know: what it is, the benefits, the limits, and how to get the most out of it.

What is a Solo 401(k)?

Also called an Individual 401(k), it's a retirement plan built specifically for the self-employed, single-owner businesses, and their spouses.

It gives you the same tax advantages and features as a regular company 401(k), but it's designed for people who don't have full-time W-2 employees in the business. Your money grows inside a tax-advantaged account, and your contributions may or may not be deductible today depending on which version you choose: Traditional or Roth.

The benefits

• Higher contributions. You contribute as both employee and employer, which lets you put away far more than most other plans, up to $72,000 for 2026 (the IRS updates this each year). More on the split below.
• Flexibility. You adjust how much you contribute each year based on your income. You're never required to hit the maximum, just whatever your cash flow allows up to the legal limit.
• Traditional or Roth. You pick the tax treatment that fits your plan: deduct now (Traditional) or grow and withdraw tax-free later (Roth).
• Plan loans. You can borrow from the plan in a pinch. But being able to take a loan doesn't mean you should: pulling money out of your retirement account interrupts the compounding, and the cost lands on your future self. Weigh your other options first.

Who's eligible?

Two requirements:

• A business with no full-time W-2 employees. Only you (and your spouse) can be on the payroll.
• The business has to generate income.

There are no age limits and no income limits.

How to open a Solo 401(k)

It's a straightforward process:

1. Choose a provider that offers the features and fees that fit you.
2. Complete the paperwork to establish the plan.
3. Set your contributions as employee and as employer.
4. Invest the funds from the options available and start putting money in.

Contributions and limits for 2026

The Solo 401(k) allows contributions as both employee and employer, each with its own limit, which is what makes the total so high.

• Employee contribution: up to $24,500 for 2026. If you're 50 or older, you can add a catch-up of $8,000 (total $32,500). For ages 60 to 63, the special catch-up is $11,250 (total $35,750). One 2026 change to know: if your prior-year wages from the business were over $150,000, any catch-up has to go in as Roth.
• Employer contribution: a profit-sharing contribution of up to 25% of your compensation.
• Overall cap: combined, contributions can reach $72,000 for 2026 (not counting catch-ups), subject to the IRS compensation limit used in the employer calculation, which is $360,000 for 2026.

A quick example. A self-employed owner under 50 with $100,000 of net self-employment income could contribute $24,500 as the employee, plus about $20,000 as the employer (the employer share runs roughly 20% of net for a self-employed owner, the same adjustment as a SEP), for about $44,500 total.

A few rules that matter:

• If you also have another 401(k) (say, a W-2 job), the employee deferral limit applies across all your plans combined, per person.
• Employee contributions must generally be elected by December 31 (SECURE 2.0 added an exception that lets a first-year solo plan elect prior-year deferrals by the tax deadline); employer contributions can be made up to your business's tax-filing deadline, including extensions, and you can even establish the plan by that deadline.
• Employer contributions are tax-deductible, either as personal income or as a business expense depending on your structure. For an S-Corp, both pieces are calculated on your W-2 wages (not your pass-through profit); for a sole proprietor, the contribution is based on net self-employment income.

Traditional vs Roth

The choice between a Traditional and a Roth Solo 401(k) comes down to your current situation and what you expect tax rates to do.

Traditional 401(k):

• Deductible contributions. You contribute pre-tax, which lowers your taxable income this year and can meaningfully cut your current tax bill.
• Tax-deferred growth. You don't pay tax on the gains until you withdraw.
• Taxed on distribution. Qualified withdrawals in retirement are taxed at ordinary income rates. This wins if you expect to be in a lower bracket later.

Roth 401(k):

• After-tax contributions. No deduction today, so a slightly higher tax bill now.
• Tax-free growth. The gains aren't taxed over time.
• Tax-free distributions. Qualified withdrawals in retirement are completely tax-free. This wins if you expect to be in a higher bracket later.

How to get the most out of it

• Contribute as much as you reasonably can. Use the high limits to build capital faster, within what your cash flow allows.
• Diversify your investments. A Solo 401(k) is just a tax-advantaged container. The real growth depends on how you invest the funds inside it, so don't put everything in one basket.
• Review and adjust regularly. Check the plan and tune your contributions and investments to stay aligned with your long-term goals.
• Use plan loans carefully, if at all, so you don't undercut your own retirement.

The Solo 401(k) is one of the most powerful tools a self-employed owner has for retirement, with serious tax advantages. If you want a second set of eyes on whether it beats a SEP IRA for your situation, book a consultation.

Frequently asked questions

What is a Solo 401(k)?

A 401(k) for a business with no full-time employees other than the owner and spouse. Also called an Individual 401(k). You contribute as both employee and employer, in either a Traditional or Roth version.

How does a Solo 401(k) work?

You make an employee salary deferral and an employer profit-sharing contribution into the same account. The money grows tax-advantaged, and you choose Traditional (deduct now) or Roth (tax-free later).

How much can I contribute to a Solo 401(k) in 2026?

Up to $72,000, split between an employee deferral (up to $24,500) and an employer contribution (up to 25% of compensation), with catch-ups of $8,000 at 50+ or $11,250 at ages 60 to 63. The compensation cap for the employer calculation is $360,000 for 2026.

How do I open or set up a Solo 401(k)?

Choose a provider, complete the plan paperwork, set your employee and employer contributions, and invest the funds. Under current rules you can generally establish the plan up to your tax-filing deadline, including extensions.

Solo 401(k) vs SEP IRA, which is better?

A Solo 401(k) often lets you reach a high contribution at a lower income (thanks to the employee deferral) and usually offers a Roth option, but it's more paperwork. A SEP IRA is simpler but employer-funded only. The right one depends on your income and whether you want Roth.

Can a sole proprietor have a Solo 401(k)?

Yes. Sole proprietors, single-member LLCs, partnerships, and S-Corps can all use one, as long as there are no full-time employees besides the owner and spouse.

Can an S-Corp have a Solo 401(k)?

Yes. For an S-Corp, both the employee deferral and the 25% employer contribution are based on your W-2 wages, not your pass-through profit.

Are Solo 401(k) contributions tax-deductible?

Traditional contributions are. Employer contributions are deductible, and employee Traditional deferrals are pre-tax. Roth contributions are not deductible (the benefit comes later, tax-free).

Can I have a Solo 401(k) and a regular 401(k)?

Yes, but your employee deferral limit is shared across all 401(k) plans per person. The employer side is separate, subject to the overall $72,000 limit.