Solo 401(k): The Complete Guide (2026)

Traditional and Roth contributions, the dual-role contribution structure, the 2026 catch-up changes, loan provisions, and why this plan quietly crushes the SEP IRA for most self-employed individuals.

What Is a Solo 401(k)?

A Solo 401(k) is a 401(k) plan designed for self-employed individuals and business owners with no employees other than themselves and their spouse. It's also called an Individual 401(k), a one-participant 401(k), or a uni-k.

It's not a special account type. It's a regular 401(k) under the tax code. The difference is that it covers one person (or one person and their spouse), which eliminates most of the compliance burden that makes traditional 401(k) plans expensive.

What makes the Solo 401(k) powerful is the dual-role contribution structure. You contribute as both the employee and the employer. Employee deferrals give you a flat dollar amount you can shelter. Employer profit-sharing contributions add a percentage of your compensation on top. Combined, these two buckets let you put away significantly more than a SEP IRA at most income levels.

And unlike a SEP IRA, the Solo 401(k) offers Roth contributions, catch-up contributions, loan provisions, and in-plan Roth conversions — all of which the SEP lacks.

Who Can Use a Solo 401(k)?

Two requirements:

You must have self-employment income. Sole proprietorships, single-member LLCs, partnerships, S corporations, C corporations. Any business structure qualifies. Freelance income, consulting, 1099 work, a side business on top of a W-2 job — all count.

You must have no employees other than yourself and your spouse. This is the critical limitation. If you have any common-law employee who works 1,000 or more hours per year, you can't use a Solo 401(k). You'd need a standard small business 401(k) with nondiscrimination testing and all the associated complexity.

Your spouse can participate in the plan if they earn income from the business. Each spouse gets their own employee deferral limit.

If you hire employees later, you'll need to either convert the Solo 401(k) to a standard 401(k) plan or terminate it and move to a different plan structure.

2026 Contribution Limits

This is where the Solo 401(k) separates itself from every other self-employed retirement plan.

Employee Deferrals

Age	2026 Employee Deferral Limit
Under 50	$24,500
50–59 or 64+	$32,500 (base $24,500 + $8,000 catch-up)
60–63	$35,750 (base $24,500 + $11,250 super catch-up)

These deferrals can be Traditional (pre-tax) or Roth (after-tax). You can split them however you want.

Employer Profit-Sharing Contributions

Up to 25% of W-2 compensation (for incorporated businesses) or approximately 20% of net self-employment income (for sole proprietors and partnerships, after the same circular deduction adjustment that applies to SEP IRAs). The maximum compensation that can be considered is $360,000 for 2026.

Combined Total

Age	2026 Combined Limit
Under 50	$72,000
50–59 or 64+	$80,000
60–63	$83,250

Important if you have a W-2 job: These limits apply per employer. If you have a W-2 job with a 401(k) and a side business with a Solo 401(k), the employee deferral limit ($24,500) is shared across both plans. The employer profit-sharing contribution limit is per plan.

Traditional vs. Roth: How to Choose

The Solo 401(k) gives you something a SEP IRA doesn't: the choice to contribute Traditional, Roth, or both.

Traditional (Pre-Tax) Contributions

You get a tax deduction now. The money grows tax-deferred. You pay ordinary income tax when you withdraw in retirement.

Best when: Your income (and tax rate) is higher now than you expect it to be in retirement. The deduction saves you more today than the tax you'll owe later.

Roth (After-Tax) Contributions

No tax deduction now. The money grows tax-free. Qualified withdrawals in retirement are completely tax-free.

Best when: You expect your tax rate to be the same or higher in retirement. You want tax-free income later. You're in a lower-income year and the deduction isn't as valuable.

You Can Do Both

Employee deferrals can be split between Traditional and Roth in any proportion — $15,000 Traditional and $9,500 Roth, all Roth, or all Traditional. Your choice each year.

Employer profit-sharing contributions have traditionally been pre-tax only. Starting in 2023, SECURE 2.0 allows employer contributions to be designated as Roth. Not all plan providers support this yet. Check with yours.

Use our free Roth vs. Traditional Comparison Tool to run the numbers for your situation.

The 5-Year Rule for Roth 401(k)

Roth 401(k) withdrawals are tax-free only if the account has been open for at least 5 tax years and you meet a qualifying event (age 59½, disability, or death). The 5-year clock starts January 1 of the year you first make a Roth contribution to the plan.

This is a separate clock from your Roth IRA. Rolling Roth 401(k) money into a Roth IRA uses the Roth IRA's 5-year clock, not the 401(k) clock. If your Roth IRA is already past the 5-year mark, rolling over simplifies things.

The 2026 Mandatory Roth Catch-Up Rule

Starting January 1, 2026, if you're age 50 or older and your prior-year FICA wages from the employer sponsoring the plan exceeded $150,000, your catch-up contributions must be made as Roth. Not optional. Mandatory.

This applies to participants who pay themselves W-2 wages from an S corporation or C corporation. For sole proprietors with Schedule C income, the rule does not apply because Schedule C income isn't FICA wages for this purpose.

The threshold is measured using 2025 Social Security wages (Box 3 on your W-2). If you paid yourself more than $150,000 in W-2 wages from the business in 2025, every dollar of your 2026 catch-up contribution must be Roth.

Critical detail: If your Solo 401(k) plan document doesn't allow Roth contributions, you cannot make catch-up contributions at all starting in 2026. Your plan must be Roth-ready. If it isn't, update the plan document before year-end.

Standard employee deferrals (up to $24,500) can still be Traditional or Roth regardless of income. Only the catch-up portion is affected by this rule.

The Self-Employment Contribution Calculation

The employer profit-sharing contribution for self-employed individuals uses the same adjusted rate as a SEP IRA. The effective maximum is approximately 20% of net self-employment income (not 25%), because the contribution itself reduces the income it's calculated on.

For a detailed walkthrough of this calculation, see our SEP IRA Guide — The Self-Employment Math Trap. The math is identical.

For S corporations and C corporations, the employer contribution is simply up to 25% of W-2 wages. No circular math.

Why the Solo 401(k) Beats the SEP at Lower Incomes

This is the key advantage most people miss.

With a SEP IRA, your only contribution is the employer profit-sharing contribution (approximately 20% of net income for the self-employed). At $60,000 of net income, your max SEP contribution is roughly $11,150.

With a Solo 401(k), you get the same employer profit-sharing contribution plus the employee deferral. At $60,000 of net income:

Employee deferral: $24,500
Employer profit-sharing: approximately $11,150 (20% of adjusted net income)
Total: approximately $35,650

That's more than triple the SEP contribution at the same income level. The employee deferral is the difference maker.

At very high incomes (above roughly $290,000 for a sole proprietor), both plans converge at the same $72,000 maximum. Below that, the Solo 401(k) wins. For a full comparison, see Solo 401(k) vs. SEP IRA: Why One Quietly Crushes the Other.

Loan Provisions

This is another advantage over the SEP IRA, which offers no loan option at all.

If your Solo 401(k) plan document allows loans, you can borrow up to the lesser of $50,000 or 50% of your vested account balance. The loan must be repaid within 5 years (unless used to purchase a primary residence, which allows a longer repayment period).

You pay interest on the loan, but the interest goes back into your own account. You're essentially paying yourself.

The catch: Not all plan providers offer loan provisions. The free Solo 401(k) plans from Schwab, Fidelity, and Vanguard generally do not include loans. If you want loan capability, you'll need a plan from a provider that supports it, which typically involves a TPA and annual fees.

If you borrow from the plan and don't repay on schedule, the outstanding balance is treated as a taxable distribution. If you're under 59½, the 10% early withdrawal penalty applies too.

In-Plan Roth Conversions

Some Solo 401(k) plans allow you to convert pre-tax (Traditional) balances to Roth within the plan. This is an in-plan Roth conversion.

The converted amount is taxable income in the year of conversion, just like a Traditional-to-Roth IRA conversion. But the money stays inside the 401(k). You don't need to move it to a separate Roth IRA.

This is a powerful planning tool. You can make pre-tax employer contributions (getting the deduction), then convert them to Roth inside the plan when your income is lower. It's particularly useful for self-employed individuals with variable income.

Not all plan providers support in-plan Roth conversions. The off-the-shelf plans from major custodians typically don't. Custom plans from specialty providers usually do.

The Mega Backdoor Roth

For self-employed individuals who want to maximize Roth savings beyond the standard limits, the Mega Backdoor Roth is the advanced play.

Here's how it works:

Your plan document must allow voluntary after-tax contributions (a separate bucket from Traditional and Roth deferrals).
You make after-tax contributions up to the remaining room under the $72,000 overall limit.
You immediately convert those after-tax contributions to Roth (either in-plan or by rolling to a Roth IRA).

The conversion of the after-tax contributions is generally tax-free (you already paid tax on the contribution). Only earnings between the contribution and conversion are taxable, which is why you convert immediately.

This can allow you to get the full $72,000 (or more with catch-up) into a Roth account.

Reality check: This requires a custom plan document from a provider that supports after-tax contributions and in-plan Roth conversions. Most off-the-shelf Solo 401(k) plans from Schwab, Fidelity, and Vanguard don't offer this. You'll need a specialty provider, and there are annual fees.

Deadlines

Plan Establishment

The Solo 401(k) plan must be established by December 31 of the year you want to make employee deferral contributions. This is a hard deadline. You cannot set up a Solo 401(k) at tax time and retroactively make employee deferrals for the prior year.

This is a major difference from the SEP IRA, which can be established as late as the tax filing deadline (including extensions). If you miss December 31, you've lost the ability to make employee deferrals for that year entirely.

Employee Deferral Contributions

Employee deferrals must be elected by December 31 of the contribution year. The actual deposit can be made later, but the election must be on record by year-end.

Employer Profit-Sharing Contributions

Employer contributions can be made up to the tax filing deadline, including extensions. Same deadline as SEP IRA employer contributions.

Form 5500-EZ

If the plan's total assets exceed $250,000 at the end of the year, you must file Form 5500-EZ annually. Below that threshold, no filing is required. This is the one ongoing compliance requirement. Penalties for failing to file can reach up to $250 per day, with a maximum of $150,000.

How Withdrawals Work

Solo 401(k) withdrawals follow standard 401(k) rules.

Before 59½: Distributions are subject to ordinary income tax (for Traditional contributions) and a 10% early withdrawal penalty, unless an exception applies. The 401(k) has the Rule of 55 (penalty-free withdrawals if you separate from service at age 55 or later), which doesn't apply to IRAs.

After 59½: No penalty. Traditional withdrawals are taxed as ordinary income. Roth withdrawals are tax-free (assuming the 5-year rule is met).

RMDs start at 73 (or 75 if born in 1960 or later). For those born in 1959, the RMD age is 73 per IRS clarification of the SECURE 2.0 drafting error. Under SECURE 2.0, Roth 401(k) balances are no longer subject to RMDs starting in 2024 — this aligns Roth 401(k) treatment with Roth IRAs.

Still-working exception: If you're still self-employed and the plan is active, you can delay RMDs from the Solo 401(k) until you actually retire. This exception applies to employer plans but not to IRAs.

Rollovers

Rolling Into a Solo 401(k)

You can roll money into a Solo 401(k) from a Traditional IRA, another 401(k), a 403(b), or a governmental 457(b). This is particularly useful for clearing out Traditional IRA balances before doing a Backdoor Roth IRA, since the pro-rata rule only looks at IRA balances — not 401(k) balances. See our Rollover IRA guide for the full rules on direct transfers and the 60-day rollover.

Rolling Out of a Solo 401(k)

When you close the business or terminate the plan, you can roll the Traditional balance to a Traditional IRA and the Roth balance to a Roth IRA. Or roll to a new employer's 401(k) if they accept incoming rollovers.

Off-the-Shelf vs. Custom Plans

This is the choice every Solo 401(k) owner faces.

Off-the-Shelf (Free Plans from Schwab, Fidelity, Vanguard)

No plan fees
Easy to set up online
Traditional and Roth employee deferrals
Employer profit-sharing contributions
No loans
No after-tax contributions
No in-plan Roth conversions
No Mega Backdoor Roth

Best for: People who want simplicity and don't need advanced features.

Custom Plans (From Specialty Providers or TPAs)

Annual fees (typically $100–$400+)
Loan provisions
After-tax contributions
In-plan Roth conversions
Mega Backdoor Roth capability
Self-directed investment options (real estate, private equity, etc.)
More complex setup and administration

Best for: People who want loan access, Mega Backdoor Roth, in-plan conversions, or alternative investments.

Common Mistakes

Missing the December 31 Deadline

Unlike a SEP IRA, the Solo 401(k) must be established by December 31 of the contribution year for employee deferrals. Set it up January 2 and you've missed the entire prior year. This catches freelancers and new business owners who don't think about retirement plans until tax time.

Not Knowing the Employee Deferral Limit Is Shared

If you contribute $24,500 to your day job's 401(k) and then try to contribute $24,500 to your Solo 401(k) from your side business, you've over-contributed. The $24,500 employee deferral limit is per person across all 401(k) plans, not per plan. Employer profit-sharing contributions are per plan.

Ignoring the 2026 Roth Catch-Up Requirement

If you're 50+ and your prior-year W-2 wages from the sponsoring business exceeded $150,000, your catch-up contributions must be Roth. If your plan doesn't offer Roth contributions, you can't make catch-up contributions at all. Update your plan document.

Over-Contributing as a Sole Proprietor

The employer profit-sharing calculation for sole proprietors uses the adjusted ~20% rate, not 25%. Same trap as the SEP IRA. Excess contributions are subject to a 10% excise tax.

Not Filing Form 5500-EZ

Once plan assets exceed $250,000, you must file Form 5500-EZ annually. Failing to file can result in penalties up to $250 per day, with a maximum of $150,000. Late filing penalties can also apply.

Having Employees and Not Knowing It

If you hire a contractor who should be classified as an employee, or you have a part-time worker who hits 1,000 hours, you may no longer qualify for a Solo 401(k). The plan could be disqualified. Review your worker classifications regularly.

Not Updating the Plan for Roth Before 2026

Your plan document must explicitly allow Roth contributions. If it doesn't, you can't make Roth deferrals or Roth catch-up contributions. For 2026, this is no longer optional for high-income participants who want to make catch-up contributions.

Tools for Solo 401(k) Planning

Clearing out IRA balances for a Backdoor Roth? Projecting your RMDs? Deciding between Traditional and Roth contributions? These tools do the math.

Roth vs. Traditional (Free) RMD Calculator (Free) Pro-Rata Calculator

All tools include step-by-step explanations. Try free for 24 hours →

FAQ

Can I have a Solo 401(k) and a SEP IRA?

Yes, but there's rarely a reason to have both. The combined employer contribution limit across both plans can't exceed $72,000. The employee deferral in the Solo 401(k) is what gives it the advantage. Most people choose one or the other. For the full comparison, see Solo 401(k) vs. SEP IRA: Why One Quietly Crushes the Other.

Can I have a Solo 401(k) and contribute to a Roth IRA?

Yes. They're separate plans with separate limits. You can max out both. The Solo 401(k) has no income limit for contributions (including Roth contributions). The Roth IRA has income limits, but you can use the Backdoor Roth IRA strategy if you're over the threshold.

Can my spouse participate?

Yes, if your spouse earns income from the business. Each spouse gets their own employee deferral limit ($24,500 for 2026) and employer profit-sharing contribution. A married couple running a business together can shelter up to $144,000 (or more with catch-up contributions) in a single year.

What happens if I hire an employee?

You can no longer use a Solo 401(k). You'll need to either convert to a standard 401(k) plan (with nondiscrimination testing and full compliance requirements) or terminate the plan and switch to a different retirement plan structure like a SEP IRA or SIMPLE IRA.

Can I borrow from my Solo 401(k)?

Only if your plan document allows loans. Most free off-the-shelf plans from major custodians don't. Custom plans from specialty providers typically do. The maximum loan is the lesser of $50,000 or 50% of your vested balance.

Is the Solo 401(k) better than a Roth IRA?

They serve different purposes. The Solo 401(k) has much higher contribution limits and offers both Traditional and Roth options. The Roth IRA has lower limits but more withdrawal flexibility (contributions can be withdrawn anytime). Many self-employed individuals max out both.

Do I need a TPA for a Solo 401(k)?

Not for a basic plan. Off-the-shelf plans from Schwab, Fidelity, and Vanguard don't require a TPA. If you want advanced features like loans, after-tax contributions, or in-plan Roth conversions, you'll likely need a custom plan administered by a TPA or specialty provider.

What investments can I hold in a Solo 401(k)?

It depends on your custodian. Off-the-shelf plans at major brokerages limit you to stocks, bonds, mutual funds, and ETFs. Custom self-directed plans can hold alternative assets like real estate, precious metals, private equity, and more. The same prohibited transaction rules that apply to IRAs apply to 401(k) plans.

Can I contribute if I have no income this year?

No. Contributions are based on earned income from the business. No income, no contribution. But the plan can stay open for future years.

What's the difference between a Solo 401(k) and a regular 401(k)?

Functionally, they're the same plan under the tax code. The Solo 401(k) is simply a 401(k) that covers only the business owner (and spouse). Because there are no other employees, you skip nondiscrimination testing and most of the compliance overhead. The contribution rules, withdrawal rules, and tax treatment are identical.

Related Knowledge Blasts

Short, plain-English breakdowns of the rules behind this guide:

Catch-Up Contributions in 2025 — Ages 50+ and the New 60-63 Rule →

Mega Backdoor Roth Confusion →

Why Solo 401(k) Deadlines Depend on How Your Business Is Structured →

Form 5500-EZ Deadlines →

The Rule of 55 — The Most Misunderstood Early Withdrawal Exception →

Contribution Limits vs. Income Limits vs. Compensation Limits →

When a Backdoor Roth Works on Paper but Fails on the Tax Return →

The Pro Rata Rule in Roth and Traditional IRAs — Why It Ruins "Clean" Moves →

Education-only disclaimer

This guide is for general education and information only. It does not provide individualized investment, tax, or legal advice, and does not establish a client relationship with any firm or individual. Always consult your own tax professional, financial advisor, or legal counsel before making decisions about your accounts, investments, or retirement strategy.

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