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A solo 401(k) is a tax-advantaged retirement savings plan designed for business owners with no employees. If you're self-employed, a solo 401(k) plan, sometimes called a self-employed 401(k) or an individual 401(k), can be a powerful retirement savings tool, allowing you to contribute up to $72,000 total in 2026. But before signing up for a solo 401(k), it's important to understand eligibility requirements, contribution limits and other factors.
How a Solo 401(k) Works
A solo 401(k), also known as a one-participant 401(k), is a 401(k) that's only available to a self-employed business owner with no employees. But the spouse of the business owner may also be eligible to participate. A solo 401(k) works the same way as other 401(k) plans, but you contribute as both the employer and the employee since you're self-employed. This can help supercharge your savings.
Self-employed 401(k) plans also have the same tax implications as a traditional 401(k). The money you put in as an employee is tax deductible, and you won't owe taxes until you make withdrawals in retirement. But tapping funds prior to age 59½ usually triggers a 10% early withdrawal penalty. Once you reach age 73, required minimum distributions (RMDs) begin, which are taxable.
| What to Know About Solo 401(k)s | |
|---|---|
| Eligibility | Available to self-employed business owners without any employees (other than a spouse). The business must have an employer identification number. |
| 2026 contribution limits | As an employee, you can contribute up to $24,500. And if you're over 50, you can also make catch-up contributions:
As the employer, you can put in an extra 25% of earned income. Total contributions for 2026 cannot exceed $72,000. |
| Taxes on contributions | Funds grow tax-deferred, but you'll be taxed on distributions |
| Withdrawal rules | Withdrawing funds before age 59½ typically results in a 10% early withdrawal penalty, plus being taxed as regular income. Required minimum distributions begin at age 73. |
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Solo 401(k) Contribution Limits
Solo 401(k) contribution limits for 2026 are as follows:
- As the employee: You can contribute up to $24,500 of your earned income. Those who are 50 or older can kick in an extra $8,000, while people ages 60 to 63 can contribute an extra $11,250.
- As the employer: You can contribute up to 25% of your compensation. If you're self-employed and your business isn't structured as a corporation, you can calculate your earned income by taking your net earnings and subtracting half of your self-employment tax and contributions for yourself.
All together, total contributions can't exceed $72,000 in 2026 or 100% of your salary as an employee (excluding catch-up contributions from those who are 50 or older). That includes the elective deferrals you make as the employee and your contributions on the employer side, plus any contributions you make to a 401(k) from a second employer.
Tax Advantages of a Solo 401(k)
Solo 401(k)s can provide several tax advantages while also helping you build your nest egg.
- Employee contributions reduce taxable income. Most solo 401(k) plans use pretax dollars for contributions. You might also be able to deduct contributions on your personal income taxes, depending on your business structure.
- Employer contributions count as a business expense. The money you put in as an employer is considered a deductible business expense for businesses that are incorporated. If your business is structured differently, these contributions will likely qualify as a personal tax deduction.
- Your money grows on a tax-deferred basis. You won't owe taxes on solo 401(k) funds until you begin taking distributions. That means you'll avoid paying taxes on investment gains along the way.
- You can consider a solo Roth 401(k). A solo Roth 401(k) is funded with after-tax dollars and has the same tax benefits of a traditional Roth 401(k). Contributions are not tax deductible, but you can make tax-free withdrawals in retirement. Early withdrawal penalties also apply. Roth 401(k)s are also exempt from required minimum distributions.
Is a Solo 401(k) a Good Idea?
If you're self-employed and looking for a tax-friendly way to save for retirement, a solo 401(k) is worth considering—especially if your spouse also earns income from the business. If you both participate, it could help accelerate your family's nest egg. Participants are able to contribute more when compared to a traditional 401(k). The tax benefits offer another incentive.
But keep in mind, not all business owners can contribute to a solo 401(k) plan. If you have employees who aren't contract workers, you may need another way to save for the future.
How to Open a Solo 401(k)
Follow these steps to open a solo 401(k):
- Compare solo 401(k) providers. Many investment brokerages offer solo 401(k) plans. Shop around to see which provider feels like the right fit. Comparing fees, investment choices and investor support resources can help guide you.
- Decide on the right type of solo 401(k). Decide if you prefer the tax benefits of a traditional solo 401(k) or a Roth. The latter might make sense if you expect your tax bracket to be higher in retirement than it is now.
- Open your account and select your investments. You'll likely choose from a variety of mutual funds and exchange-traded funds (ETFs). If you aren't sure where to start, a financial advisor can provide personalized investment guidance. Some solo 401(k) providers also provide investment support.
- Comply with IRS rules. Be sure to stay within the annual contribution limits. Employee contributions generally must be made by December 31 of a given tax year. The deadline for employer contributions is usually the tax filing deadline, which is typically in mid-April of the following year. If your plan exceeds $250,000 in assets, you'll likely need to file Form 5500-EZ annually.
Learn more: Roth 401(k) vs. 401(k): Which Should I Choose?
Alternatives to a Solo 401(k)
Other retirement options for self-employed business owners and contractors may include:
- Traditional individual retirement account (IRA): Traditional IRAs share some of the same characteristics of 401(k)s, but contribution limits are lower. Contributions may also be tax deductible. Early withdrawal penalties and required minimum distributions apply.
- Roth IRA: With this type of retirement account, you'll enjoy tax-free distributions in retirement, and there are no required minimum distributions. You can withdraw your contributions at any time, as long as you've had the account for at least five years.
- SEP IRA: This type of IRA is designed for business owners and has higher contribution limits than traditional IRAs, but it can only be funded with employer contributions. And if you open a SEP IRA for yourself, you're required to open one for each of your employees with the same contribution rate.
- SIMPLE 401(k): SIMPLE is shorthand for Savings Incentive Match Plan for Employees. These 401(k)s are geared toward small businesses that have fewer than 100 employees.
Learn more: Retirement Planning Guide
Frequently Asked Questions
What Tax Form Shows Solo 401(k) Contributions?
Contributions to a solo 401(k) are generally reported on Form 1040, rather than Schedule C. A self-employed 401(k) plan with $250,000 or more in assets is also required to file Form 5500-EZ annually.
Do I Need an LLC to Open a Solo 401(k)?
No, you don't need an LLC to open a solo 401(k) for your business. All self-employed individuals with no employees (other than spouses) are eligible to open a solo 401(k).
Can You Have a Solo 401(k) and a Regular 401(k)?
Yes, you can have a solo 401(k) and a regular 401(k) with a second employer. But total contribution limits will be applied to both plans.
What Is the Difference Between a Solo 401(k) and a SEP IRA?
Both types of retirement accounts are designed for business owners, but only self-employed individuals with no employees can open a solo 401(k). A 401(k) is funded by both the employer and the employee, while SEP IRAs can only be funded with employer contributions.
Can You Have a Solo 401(k) and a SEP IRA?
Yes. You can have a solo 401(k) and a SEP IRA, but most businesses usually choose one or the other. A solo 401(k) is likely the better fit if you don't have any employees.
The Bottom Line
A solo 401(k) plan can help self-employed workers maximize their retirement savings. They offer several tax advantages and have generous contribution limits. It can be especially attractive if your spouse also earns income from the business.
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