Solo 401(k): Retirement Option for the Self-Employed

January 7, 2026

Not everyone has access to a workplace retirement plan. If you are self-employed or run a business with no employees, that does not mean retirement savings are out of reach. One of the most flexible and generous options available is the solo 401(k), sometimes called an individual 401(k), self-employed 401(k), or one-participant 401(k)—the term favored by the IRS.

Designed for business owners with no employees other than a spouse who earns income from the business, the solo 401(k) is especially attractive for freelancers, consultants, gig workers, and owners of sole proprietorships, LLCs, S corporations, C corporations, and partnerships without staff. Its standout feature is the ability to contribute significantly more than many other retirement plans allow.

How Solo 401(k) Contributions Work

A solo 401(k) is unique because you contribute in two distinct roles: as the employee and as the employer. Each role comes with its own contribution limits, which together create a high overall savings potential.

Solo 401(k) Contribution Limits for 2026

Contribution limits rise modestly in 2026. Total contributions may reach up to $72,000 for individuals under age 50.

Catch-up contributions increase as follows:

●     Ages 50–59 and 64 or older: up to $8,000

●     Ages 60–63 (if the plan allows): up to $11,250

Employee Contributions (2026)

The employee deferral limit increases to $24,500. Including catch-up contributions:

●     Ages 50–59 or 64+: up to $32,500

●     Ages 60–63 (if permitted): up to $35,750

Employer Contributions (2026)

Employer profit-sharing contributions remain capped at 25% of compensation. The IRS compensation limit used to calculate contributions rises to $360,000 for 2026.

Important Coordination Rules

If you also participate in another employer-sponsored 401(k), your employee deferral limit applies across all plans combined—not separately for each plan. In that situation, you may still be able to make employer contributions to your solo 401(k), but employee deferrals may be limited or unavailable.

Contribution Deadlines and Tax Treatment

For self-employed individuals and owner-only businesses, both employee deferrals and employer profit-sharing contributions are generally due by the business’s tax filing deadline, including extensions. The first year a plan is established may have different timing rules, and salary deferral elections typically must be documented by year-end.

Tax treatment depends on your business structure:

●     Unincorporated business owners generally deduct contributions on their personal tax return

●     Incorporated businesses may deduct contributions as a business expense

Because rules vary, consulting a qualified tax professional is strongly recommended.

Roth Solo 401(k) Contributions

If your plan permits Roth contributions, the contribution limits are the same as for pre-tax deferrals. You may split contributions between Roth and traditional accounts, provided the combined total does not exceed annual limits.

Qualified Roth withdrawals are tax-free if you meet age or eligibility requirements and the five-year holding period has been satisfied. Recent legislation also allows certain employer contributions to be treated as Roth, though availability depends on plan design.

Beginning in 2026, individuals age 50 or older with prior-year W-2 income above a specified threshold will be required to make catch-up contributions on a Roth basis.

Correcting Excess Contributions

If you accidentally contribute more than allowed, the IRS requires that the excess deferral be removed. Typically, this correction must be made by April 15 of the year following the contribution year.

Correcting the error on time generally limits taxes to any earnings generated by the excess amount. Missing the deadline can result in additional taxation and potential early withdrawal penalties, making prompt correction essential.

Opening and Maintaining a Solo 401(k)

Solo 401(k) plans are offered by many financial institutions. When selecting a provider, consider:

●     Availability of traditional and Roth contributions

●     Investment choices

●     Fees and administrative support

●     Loan and rollover options

●     Ease of funding and electronic deposits

Once established, the plan administrator—often the business owner—is responsible for ensuring compliance with IRS rules and contribution limits.

Additional Considerations

If your solo 401(k) balance exceeds $250,000 at the end of the plan year, you are generally required to file IRS Form 5500-EZ annually. A final filing is also required when the plan is terminated.

Finally, while solo 401(k)s may offer some creditor protection, they typically do not receive the same level of ERISA protection as large employer-sponsored plans.

Bottom Line

For self-employed individuals with no employees, the solo 401(k) can be one of the most powerful retirement savings tools available. With high contribution limits, flexible tax treatment, and long-term growth potential, it offers an opportunity to build retirement security even without a traditional workplace plan. Consulting with your financial advisor is always a good idea before jumping into a Solo 401k.

Sources: https://www.fidelity.com/learning-center/smart-money/solo-401k-contribution-limits

Disclosure:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.