Key Points
Overview
A Solo 401(k) — also known as an Individual(k), Self-Employed 401(k), or one-participant 401(k) — is a standard 401(k) plan adopted by a business that has no full-time employees other than the owner (and spouse, if employed by the business). The plan carries all the features of a regular 401(k) — elective deferrals, employer profit-sharing contributions, loans, Roth option, and catch-up provisions — but without the administrative burden of nondiscrimination testing, since there are no non-owner employees to compare against.
This combination makes the Solo 401(k) one of the most powerful retirement savings vehicles available to self-employed individuals and small business owners, often allowing significantly higher contributions than a SEP-IRA at the same income level.
Eligibility
A Solo 401(k) is available to any business entity — sole proprietorship, partnership, LLC, S corporation, or C corporation — provided the business meets one key requirement: no full-time employees other than the owner and the owner’s spouse.
Part-time employees working fewer than 1,000 hours per year (or fewer than 500 hours for two consecutive years under SECURE Act 2.0’s long-term part-time rule) may generally be excluded from participation, preserving the plan’s one-participant status.
If the business hires a non-family employee who becomes eligible to participate, the Solo 401(k) must be converted to a regular 401(k) plan subject to standard eligibility, coverage, and nondiscrimination rules.
Contribution Limits
The Solo 401(k) allows the owner to contribute in two separate capacities, which is the key advantage over a SEP-IRA:
As an employee, the owner may defer up to $24,500 (2026) of compensation — the same limit as any other 401(k) participant. This is a dollar-for-dollar reduction in taxable income and is not limited to a percentage of compensation. The catch-up contribution for those age 50–59 and 64+ is an additional $8,000 (total $32,500). The super catch-up for those age 60–63 under SECURE Act 2.0 is $11,250 (total $35,750).
As an employer, the business may contribute up to 25% of the owner’s W-2 compensation (for incorporated businesses) or approximately 20% of net self-employment income (for sole proprietors and partnerships, after the self-employment tax deduction).
The combined total of employee deferrals and employer profit-sharing contributions may not exceed the lesser of:
- 100% of compensation, or
- $72,000 (2026, inflation-adjusted).
Catch-up contributions are in addition to this limit.
| Contribution Type | 2026 Limit |
|---|---|
| Employee elective deferral (under age 50) | $24,500 |
| Catch-up deferral (age 50–59 and 64+) | $8,000 |
| Super catch-up deferral (age 60–63) | $11,250 |
| Employer profit-sharing contribution (incorporated) | Up to 25% of W-2 compensation |
| Employer profit-sharing (self-employed) | ~20% of net SE income |
| Combined annual additions limit (both capacities) | $72,000 (+ catch-up) |
| Compensation cap for contribution calculations | $360,000 |
Maria runs a consulting practice as a sole proprietor with net self-employment income of $120,000. After the self-employment tax deduction (~$8,479), her adjusted SE income is approximately $111,521.
Employee deferral: $24,500 (flat dollar limit, under age 50)
Employer profit-sharing: 20% × $111,521 = $22,304
Total Solo 401(k) contribution: $46,804
By comparison, a SEP-IRA would allow only $22,304 (25% of adjusted SE income — no elective deferral component). The Solo 401(k) allows Maria to contribute $24,500 more.
James is the sole owner of an S corporation that pays him a W-2 salary of $200,000. He is age 62.
Employee deferral (super catch-up, age 60–63): $24,500 + $11,250 = $35,750
Employer profit-sharing: 25% × $200,000 = $50,000
Total: $35,750 + $50,000 = $85,750
The $72,000 annual additions limit applies only to the base contributions ($72,000). The $11,250 super catch-up is in addition, so the total permitted is $83,250 ($72,000 + $11,250). James’ combined base contributions ($24,500 + $50,000 = $74,500) exceed $72,000 — so his employer contribution is effectively limited to $72,000 − $24,500 = $47,500. Total with super catch-up: $83,250.
Advantages of the Solo 401(k)
At lower income levels, the Solo 401(k) almost always allows higher contributions than a SEP-IRA because the flat-dollar elective deferral component ($24,500) is available in addition to the percentage-based profit-sharing component. The SEP-IRA is limited to 25% of compensation (or ~20% of net SE income), with no elective deferral component.
Because there are no non-owner employees, ADP and ACP testing is not required. This eliminates the most complex administrative burden of regular 401(k) plans.
Unlike SEP-IRAs, Solo 401(k) plans may include a loan provision, allowing the owner to borrow up to the lesser of $50,000 or 50% of the vested account balance — without tax consequences if repaid on schedule.
Solo 401(k) plans may include a designated Roth account, allowing after-tax elective deferrals that grow tax-free. This option is not available in a SEP-IRA. Beginning in 2024, Roth 401(k) accounts are not subject to required minimum distributions during the owner’s lifetime.
If the owner’s spouse is employed by the business, the spouse may also participate in the Solo 401(k) and make both elective deferrals and receive employer profit-sharing contributions, effectively doubling the household’s contribution capacity.
Plans with assets under $250,000 are generally not required to file Form 5500 with the IRS. Once assets exceed $250,000, an annual Form 5500-EZ (or 5500-SF) filing is required.
| Feature | Solo 401(k) | SEP-IRA |
|---|---|---|
| Elective deferral component | Yes — $24,500 (2026) | No |
| Profit-sharing component | Yes — up to 25% of W-2 / ~20% of SE income | Yes — up to 25% of compensation |
| Max annual additions (2026) | $72,000 (+ catch-up) | $72,000 |
| Catch-up contributions | Yes — $8,000 / $11,250 (age 60–63) | No standard catch-up |
| Roth option | Yes | No |
| Plan loans | Yes (if plan allows) | No |
| Nondiscrimination testing | Not required (no employees) | Not required |
| Form 5500 filing | Required if assets > $250,000 | Not required |
| Employees covered | Owner & spouse only | All eligible employees |