If you earn 1099 income with no employees, a solo 401(k) lets you contribute twice: once as the employee, once as the employer. For 2026, that is up to $24,500 in elective deferrals plus an employer contribution of up to 25% of compensation, capped at $72,000 in total annual additions.

What makes a solo 401(k) different from a regular 401(k)?

A solo 401(k), also called a one-participant 401(k), covers a business owner with no common-law employees, or the owner and a spouse. The plan follows the same rules as a large-company 401(k), but you wear both hats. As the employee, you make elective deferrals from your pay. As the employer, your business makes a separate profit-sharing style contribution on your behalf. That dual structure is what lets a self-employed person shelter far more than an IRA allows. The IRS describes the setup on its one-participant 401(k) page.

How do the two contribution buckets stack?

Think of the solo 401(k) as two buckets pouring into one account. Bucket one is your elective deferral: up to $24,500 for 2026, the same limit that applies to employees at big companies. If you are 50 or older, you can add a catch-up contribution of $8,000, or $11,250 if you are 60 through 63. Bucket two is the employer nonelective contribution: up to 25% of your compensation. Both buckets count toward one ceiling, the annual additions limit, which is the lesser of 100% of your compensation or $72,000 for 2026, not counting catch-up contributions. These figures come from the IRS 2026 limits announcement and the 401(k) contribution limits page.

One detail trips up a lot of people: the elective deferral limit is per person, not per plan. If you also participate in a W-2 employer's 401(k), your deferrals across every plan combined cannot exceed $24,500 (plus catch-up). The employer contribution, on the other hand, is calculated separately for each unrelated employer.

What are the 2026 limits at a glance?

These are the headline numbers from IRS Notice 2025-67, which sets the 2026 cost-of-living adjustments.

How do you calculate the employer contribution when you are self-employed?

Here is where sole proprietors need to slow down. For a W-2 employee, 25% of compensation is simple arithmetic. For a self-employed person, your "compensation" is your net earnings from self-employment, and the contribution itself shrinks the base it is calculated from. Publication 560 gives you a multi-step worksheet, and the practical result is that a 25% plan rate works out to roughly 20% of your net profit after subtracting half of your self-employment tax. The employer contribution is deductible to the business under IRC Section 404.

Illustrative example: say your Schedule C net profit is $200,000. After the worksheet adjustments, including half of self-employment tax, the maximum employer contribution lands near $37,000. Add the $24,500 elective deferral and you are sheltering about $61,500 for the year, still under the $72,000 ceiling. Run your own numbers through the Publication 560 worksheet (IRS Publication 560) or have your preparer do it, because guessing this calculation is one of the most common solo 401(k) errors we see.

What changes if your business is an S corporation?

If you operate as an S corporation, your solo 401(k) contributions are based on your W-2 wages, not your total business profit. The employer contribution is still up to 25%, but 25% of your salary. That makes your salary decision do double duty: a higher salary increases both payroll taxes and your allowable employer contribution. There is also a timing rule that matters: your elective deferral election must be in place by December 31 of the contribution year, since deferrals come out of wages actually paid. Employer contributions, by contrast, can be funded later, by the tax return due date.

Can you layer a defined benefit plan on top of a solo 401(k)?

Yes, and this is the move that changes the math for high earners in their 40s and 50s. A defined benefit plan, sometimes called a pension plan, promises a future benefit and funds it with actuarially determined annual contributions. Those deductible contributions are calculated from your age, compensation, the benefit target, and the plan design, and they sit on top of whatever your solo 401(k) allows. There is no shortcut formula we can give you here: the number comes from an actuary, the plan needs annual administration, and the commitment is real, since funding shortfalls carry forward. For a high-income consultant with steady earnings and no employees, though, the combined deduction often dwarfs what either plan allows alone. This is exactly the kind of structure we model for clients before anyone signs plan documents.

What deadlines and paperwork should you track?

Two administrative items deserve a spot on your calendar. First, a sole proprietor with no employees can adopt a solo 401(k) after year-end, as late as the tax filing deadline without extensions, per Publication 560. Second, once the combined assets of your one-participant plans reach $250,000 at year-end, you generally must file Form 5500-EZ annually. Miss that filing and the penalties are severe relative to how simple the form is.

Updated October 14, 2026.

This article is free educational content, not tax advice for your specific situation. If you want a plan built around your actual numbers, that is what our paid tax planning engagements do.