Quick guide · 3 min read
Solo 401(k)
A solo 401(k) lets you contribute twice: once as the employee and once as the employer. At most incomes, that allows more than a SEP IRA. It can also include a Roth option and does not count toward the backdoor Roth pro-rata rule.
- Who it fits
- Business owners with no employees other than a spouse.
- Usually not a fit
- Businesses with eligible employees; they need a standard 401(k).
- Figures
- 2026 tax year
The key rule
For 2026: an employee deferral of up to $24,500 (plus $8,000 at 50 or older, or $11,250 at ages 60 to 63), and an employer contribution of up to 25% of W-2 pay (about 20% of net self-employment income), all within $72,000 before catch-ups.
5 steps
Open the plan
Most large brokerages offer a solo 401(k) with a simple adoption agreement. Open it by December 31 if you want to make employee deferrals for that year.
Choose pre-tax or Roth
Employee deferrals can be pre-tax, Roth or a mix. Employer contributions are generally pre-tax.
Make the employee deferral
S corp owners defer through payroll, so it must happen by the last payroll of the year. Sole proprietors make the election by December 31 and can fund it by the filing deadline.
Add the employer contribution
This can be made up to the business's filing deadline, including extensions. We calculate the maximum.
File Form 5500-EZ when needed
Once plan assets are over $250,000 at year-end, a short annual return is due by July 31 of the following year.
Example
Solo 401(k) vs SEP
Your S corp pays you $100,000. A SEP IRA allows $25,000. A solo 401(k) allows $24,500 as employee plus $25,000 as employer, a total of $49,500.
Common mistakes
- Your employee deferral limit is shared with any other 401(k) you contribute to, including one at a day job.
- Missing the Form 5500-EZ filing once assets pass $250,000. Penalties are steep.
Key dates
- December 31
- Plan must exist to make employee deferrals for the year.
- Business filing deadline
- Employer contribution deadline.
- July 31
- Form 5500-EZ, if required.
Questions we hear
Can my spouse join the plan?
Yes, if your spouse works in the business and is paid. That can double the household's contributions.
Can I roll old 401(k)s or IRAs into it?
Most plans accept rollovers, which can clear pre-tax IRA money out of the way for a backdoor Roth.
General education for TaxSquad clients, not advice for your situation. Rules and figures change. Talk to us before acting on this guide.