Solo 401(k) Contribution Limits 2026: The Two-Hats Math

TL;DR: A solo 401(k) is a 401(k) for a business with no employees other than a spouse, and its edge is that you fund it wearing two hats. For 2026 you defer up to $24,500 as the employee and add an employer contribution worth 20% of your net earnings if you are a sole proprietor, or 25% of your W-2 wages if your business is an S corporation. The two pieces together cannot exceed the Section 415(c) cap of $72,000, or $80,000 if you are 50 or older. On $100,000 of Schedule C profit that reaches about $43,087, roughly $24,500 more than a SEP IRA allows at the same income.

What is the 2026 solo 401(k) contribution limit?

The IRS calls it a one-participant 401(k), and it "covers a business owner with no employees, or that person and his or her spouse." Because the plan covers only you, you contribute in both roles the tax code recognizes: the employee who defers part of their pay, and the employer who adds a profit-sharing contribution on top.

Both roles share one ceiling. The total of your deferral plus your employer contribution counts as "annual additions" under Section 415(c), and for 2026 Notice 2025-67 sets that limit at $72,000. Here are the numbers a one-person business works from this year.

The catch-up contributions sit outside the $72,000. As the IRS puts it, the overall limit "applies to the total of elective deferrals (but not catch-up contributions)," so a 55-year-old owner who hits $72,000 can still add the $8,000 catch-up for $80,000. The SECURE 2.0 Act raised the catch-up again for the years you turn 60, 61, 62, or 63, to $11,250 for 2026, which lifts the ceiling to $83,250 in that four-year window.

The two hats: employee deferral plus employer profit-sharing

Start with the employee hat. You can defer up to 100% of your compensation into the plan, capped at $24,500 for 2026. This piece is a flat dollar amount, not a percentage of profit, which is why a solo 401(k) beats a SEP IRA for most one-person businesses: the SEP has no employee side, so it lacks this layer entirely.

The employer hat is where the arithmetic bites for the self-employed. The plan can make a profit-sharing contribution of up to 25% of compensation, but a sole proprietor's "compensation" is not their Schedule C profit. The IRS self-employed calculation page warns that "your plan compensation and the amount of your own plan contribution/deduction depend on each other," a circular calculation the agency breaks with a rate table in Publication 560. For a plan written at 25%, that table returns a reduced rate of 20%, because 25% divided by 1.25 is 20%. And before you even apply the 20%, you subtract the deduction for one-half of your self-employment tax from net profit to reach net earnings.

So the employer contribution is 20% of net earnings, and net earnings are smaller than the line 31 profit on your Schedule C. The employee deferral, by contrast, is the same $24,500 whether you netted $40,000 or $400,000.

Worked example: a $100,000 sole proprietor

Take a freelancer whose 2026 Schedule C shows $100,000 of net profit, age 45, no employees.

1. Self-employment tax. It applies to 92.35% of net profit, so the base is $92,350. At 15.3% that is about $14,130 in self-employment tax.
2. The deductible half. Half of $14,130 is $7,065, which comes off net profit to reach net earnings: $100,000 minus $7,065 is $92,935.
3. Employer piece. 20% of $92,935 is $18,587.
4. Employee deferral. Add the flat $24,500.
5. Total. $18,587 plus $24,500 is $43,087, well under the $72,000 cap.

A SEP IRA for the same freelancer tops out at that $18,587 employer figure and stops, because it has no deferral. The solo 401(k)'s extra $24,500 is the whole reason to prefer it at modest income. The self-employment tax calculator runs step 1 if you would rather not do Schedule SE by hand, and the SEP versus solo comparison walks the dollar gap at several income levels.

Solo 401(k) for an S corporation owner

If your business is an S corporation, the math changes because you are a W-2 employee of your own company. Both contributions run off your salary, not your distributions. The IRS is direct about this in its S-corporation contributions FAQ: "your shareholder distributions aren't earned income for retirement plan purposes," so only the wages on your W-2 count.

Say you pay yourself a $60,000 salary and take the rest of the profit as a distribution. Your deferral is up to $24,500. Your employer profit-sharing is a straight 25% of the $60,000 wage, which is $15,000, with no self-employment-tax reduction because an S-corp owner does not pay self-employment tax on the salary. The total is $39,500.

Notice what a low salary does: because the employer piece is 25% of wages, cutting your salary to save on payroll tax also shrinks your retirement room. This is the same trade-off behind a reasonable S-corp salary, and the retirement plan is one more reason not to set the wage at the floor.

Roth or traditional: which side of the solo 401(k)

A solo 401(k) can offer a designated Roth account, and that choice sits on the employee-deferral side. The IRS Roth comparison chart confirms that "designated Roth employee elective contributions are made with after-tax dollars," and a qualified distribution later, held five years and taken after age 59½, comes out tax-free.

You can split the $24,500 between traditional and Roth however you like, but the combined deferral still cannot exceed $24,500. Roth deferrals count toward the same limit, they just change when you pay the tax. The employer profit-sharing piece is traditional pre-tax by default; SECURE 2.0 now lets a plan treat employer contributions as Roth too, if the document allows it, though many solo 401(k) providers have not added that feature yet, so check before you assume it.

The decision is the usual one. Pay tax now with Roth if you expect a higher bracket in retirement or your business income is low this year; take the deduction now with traditional if your bracket is high and you expect it to fall.

Deadlines: when to open and fund a 2026 solo 401(k)

Timing is where a solo 401(k) is fussier than a SEP. Two dates matter, and they are not the same date.

The plan generally has to exist by the end of your business tax year, December 31, 2026, for a calendar-year filer. The SECURE 2.0 Act relaxed this for one case: Section 317 lets a sole proprietor set up a brand-new solo 401(k) and make first-year employee deferrals as late as their tax-return due date without extensions, which is April 15, 2027, for a 2026 plan. That grace runs only for the plan's first year.

Funding splits by piece. The employer profit-sharing contribution can go in as late as your return due date including extensions, so up to October 2027 for a 2026 contribution. Ongoing employee deferrals, in any year after the first, generally have to be elected by December 31 and deposited shortly after year-end. When in doubt, treat December 31 as the hard date and fund early.

Common mistakes to avoid

Double-counting the deferral across two jobs. The $24,500 deferral limit is yours, not each plan's. The IRS says to "aggregate all elective deferrals you made to all plans in which you participate." If you defer $15,000 into a day-job 401(k), only $9,500 of deferral room is left for your solo 401(k). The employer profit-sharing side is separate and unaffected, but the deferral is one shared bucket.

Assuming 25% of profit. A sole proprietor's employer contribution is 20% of net earnings, not 25% of Schedule C profit. The 25% is the plan's stated rate for a common-law employee; your own rate is the reduced 20% from Publication 560, applied after the self-employment-tax adjustment.

Setting an S-corp salary too low to fund the plan. Distributions are not compensation, so a $20,000 salary caps your employer contribution at $5,000 no matter how profitable the company is. The salary has to support the contribution you want.

Missing the compensation cap at high income. Only the first $360,000 of 2026 compensation counts toward the employer piece. A very high earner still cannot push the combined contribution past $72,000, because 20% of the $360,000 cap is $72,000 and the deferral fits under that ceiling.

How SparkReceipt fits

Every figure above starts from one number: your net profit, which is your income minus your deductible expenses. The employer contribution is a percentage of it, so a deduction you failed to record inflates your profit, your self-employment tax, and the contribution you think you can afford. SparkReceipt captures receipts and sorts them into Schedule C categories as they happen, and its income and P&L reporting keeps the net-profit figure the 20% rate runs on current, so you can size a contribution in December instead of reconstructing the year in April. Keeping the books current also keeps your QBI deduction math honest, since a retirement contribution and your taxable income move together. See pricing to start.

Solo 401(k) FAQ

Can my spouse also contribute to our solo 401(k)? Yes. If your spouse earns compensation from the same business, each of you contributes as employee and employer under separate accounts in the plan, so a couple can roughly double the household total toward two $72,000 caps.

Is the 2026 employee deferral really $24,500? Yes. Notice 2025-67 raised the Section 402(g) elective-deferral limit to $24,500 for 2026, up from $23,500 in 2025. The age-50 catch-up rose to $8,000, and the ages-60-to-63 catch-up is $11,250.

Can I have both a SEP IRA and a solo 401(k)? You can, but for a one-person business it rarely helps, because both draw on the same $72,000 Section 415(c) limit across plans. Most self-employed people run one. The SEP IRA guide compares the two at several income levels.

Does a solo 401(k) reduce my self-employment tax? No. The contribution lowers your income tax and adjusted gross income, but self-employment tax is figured on net earnings before the retirement deduction, so it does not change. This is the same point that trips up independent contractors on their first plan.

What happens if I hire an employee later? A one-participant 401(k) only works while the business has no eligible common-law employees other than a spouse. Once you have staff who qualify, the plan has to cover them, and you move to a regular 401(k) with its coverage and testing rules.

Key takeaways

• A solo 401(k) lets a one-person business contribute as both employee and employer, which is why it usually beats a SEP IRA at the same income.
• For 2026 you defer up to $24,500 as the employee and add 20% of net earnings (sole proprietor) or 25% of W-2 wages (S corp) as the employer, capped together at $72,000.
• The age-50 catch-up of $8,000 sits on top of the $72,000 for an $80,000 ceiling, rising to $83,250 at ages 60 to 63.
• On $100,000 of sole-proprietor profit the total reaches about $43,087, roughly $24,500 more than a SEP IRA allows.
• The $24,500 deferral is a per-person limit shared across every 401(k) you join, and an S-corp owner's low salary caps the employer piece.