Solo 401(k)
A retirement plan for self-employed individuals and small business owners with no full-time employees, allowing both employee deferral and employer profit-sharing contributions.
Detailed Explanation
The Solo 401(k) (also called One-Participant 401(k) or Individual 401(k)) is a qualified retirement plan designed for owner-only businesses, with the participant wearing two hats: employee and employer. Total 2026 contributions can reach $70,000 ($77,500 with age 50+ catch-up of $7,500, $81,250 with the SECURE 2.0 ages 60-63 catch-up of $11,250), combining: (1) employee elective deferral up to $24,000 (Roth or pre-tax), and (2) employer profit-sharing of up to 25% of W-2 compensation for an S-Corp/C-Corp owner OR roughly 20% of net self-employment earnings (after the half-SE-tax deduction) for sole props and partnerships. Roth contributions are available for the deferral portion and, in plans that permit it, for after-tax non-Roth contributions that can be in-plan converted (the Mega Backdoor Roth path). Eligible owners include self-employed individuals, single-member LLCs, partnerships of owners only, and S-Corp/C-Corp owner-only businesses (a "no full-time employees other than the owner and spouse" plan). When a spouse earns W-2 wages or self-employment income from the same business, the spouse can maintain their own Solo 401(k) account, effectively doubling household contribution potential. Plan adoption deadline is the entity's tax-filing deadline including extensions; SECURE 2.0 §317 lets a sole proprietor retroactively adopt a Solo 401(k) and make EMPLOYER contributions for the prior year, but employee deferrals must be elected by December 31. Annual administrative requirements: Form 5500-EZ filing once total plan assets exceed $250,000 (otherwise no annual filing).
Key Points
- 2026 total cap: $70,000 ($77,500 at 50+; $81,250 at 60-63 under SECURE 2.0).
- Employee deferral: up to $24,000 (Roth or pre-tax). Employer profit share: 25% of S-Corp W-2 / ~20% of SE net.
- Mega Backdoor Roth via after-tax + in-plan Roth conversion (if plan supports both).
- No full-time employees other than owner and spouse. Spouse can maintain own account, doubling household limit.
- Form 5500-EZ filing required only when total plan assets exceed $250,000.
- Plan adoption deadline: tax-filing deadline plus extensions. SECURE 2.0 §317 allows retroactive adoption for employer contributions only.
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Learn about Tax Planning & StrategyRelated Terms
SEP-IRA
A simplified employee pension IRA allowing self-employed individuals and small business owners to contribute up to 25 percent of net earnings to a traditional IRA structure.
Backdoor Roth IRA
A two-step strategy of contributing to a non-deductible traditional IRA and converting it to Roth, used by high-income earners who exceed direct Roth IRA contribution limits.
Self-Employment Tax
The Social Security and Medicare tax (15.3% combined) paid by self-employed taxpayers on their net earnings from self-employment.
S Corporation
A pass-through tax election under Subchapter S of the Internal Revenue Code that avoids corporate double taxation while allowing shareholder-employees to reduce self-employment tax.
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