Solo 401k contribution limits for 2026: the self-employed math

The 2026 solo 401k contribution limits by age

The IRS does not treat a solo 401(k) as a separate plan type. Its one-participant 401(k) page describes it as an ordinary 401(k) covering an owner with no employees, or the owner and a spouse, subject to the same rules as any other 401(k). The 2026 numbers therefore come from the general cost-of-living notice, Notice 2025-67, announced in IR-2025-111 and summarised on the IRS 401(k) contribution limits page:

Three rules sit behind the table. The $24,500 deferral is the §402(g) limit. The $72,000 is the §415(c) limit on annual additions, which counts deferrals and employer contributions together but excludes catch-ups. And only $360,000 of compensation can be taken into account under §401(a)(17). The employer column shows $47,500 because that is the room left under $72,000 after a full deferral; whether you can use all of it depends on income, which is the subject of the rest of this page.

Annual additions are also capped at 100% of compensation. That rarely binds for a profitable owner, but a side business with $30,000 of earned income cannot shelter $72,000.

Two hats: employee deferral and employer contribution

The IRS puts it this way: the owner "wears two hats." As the employee, you can make elective deferrals of up to 100% of compensation, to the annual $24,500 limit. As the employer, the business can make nonelective, profit-sharing-style contributions of up to 25% of compensation as the plan defines it.

The two pieces respond differently to income. The deferral is a flat dollar amount: once compensation clears $24,500, you can defer all of it. The employer contribution is a percentage, so it scales with profit. That is why a solo 401(k) out-shelters a SEP IRA, which has only the employer piece, at every income level below the cap.

For a sole proprietor, single-member LLC or partner, "compensation" is earned income: net earnings from self-employment after subtracting the deductible half of self-employment tax and the contributions you make for yourself. That second subtraction makes the employer calculation circular, which is where most do-it-yourself estimates go wrong.

The self-employed formula, step by step

The IRS resolves the circularity in Publication 560 and on its self-employed calculation page with a reduced rate: divide the plan rate by one plus the plan rate. For a 25% plan, 0.25 ÷ 1.25 = 20%, applied to net earnings after the half-SE-tax deduction. Here is the full chain on $150,000 of Schedule C profit for an owner under 50 with no W-2 wages elsewhere, using the 2026 Social Security wage base of $184,500:

1. Earnings subject to SE tax: $150,000 × 92.35% = $138,525.
2. Social Security portion: $138,525 × 12.4% = $17,177 (the 12.4% stops at $184,500 of SE earnings).
3. Medicare portion: $138,525 × 2.9% = $4,017 (no cap).
4. Self-employment tax: $17,177 + $4,017 = $21,194; the deductible half is $10,597.
5. Net earnings for plan purposes: $150,000 − $10,597 = $139,403.
6. Employer contribution at the 20% reduced rate: $139,403 × 20% = $27,880.
7. Add the employee deferral: $27,880 + $24,500 = $52,380, which is under $72,000, so nothing is capped.

The $27,880 employer figure matches the result on our SEP IRA contribution limits page, because the employer formula is identical in both plans. If this owner were 50 or older the total would be $60,380; at 60 to 63, $63,630.

Two cautions on the arithmetic. The 0.9% Additional Medicare Tax is not part of self-employment tax for this purpose and is not deductible, so it does not enter the calculation. And contributions for yourself are deducted on Form 1040, Schedule 1, not on Schedule C; deducting them on Schedule C overstates the base and the contribution with it.

Contribution calculator: three income levels, two entity types

The two tables below run the same math at three income levels, first for a Schedule C filer and then for an S corporation owner whose compensation is W-2 wages. All figures assume an owner under 50, a 25% plan rate, no other employer plan and no other wages; dollar amounts are rounded down.

The deferral is the whole story at lower incomes and the $72,000 cap is the whole story at higher ones. At $300,000 of profit the formula would allow $56,908 of employer money, but only $47,500 fits beside the deferral, so the plan is full. The $360,000 compensation cap does not bind at any of these levels.

Where you hit the $72,000 ceiling

Working backward, a sole proprietor under 50 fills the plan once the employer piece reaches $47,500. That requires $237,500 of net earnings after the half-SE-tax deduction, which in 2026 takes roughly $252,300 of Schedule C profit. A SEP needs about $376,500 to reach the same cap. Those crossovers shift if you also earned W-2 wages elsewhere, because wages use up part of the Social Security wage base, so treat them as estimates rather than thresholds.

The practical decision rules for a one-person business:

• Below about $252,300 of profit, the solo 401(k) shelters $24,500 more than a SEP at every level, and the gap is proportionally widest at moderate incomes.
• Between about $252,300 and $376,500, the solo 401(k) is full and the SEP is not. Extra profit adds nothing to the solo 401(k) total.
• Above about $376,500, both plans reach $72,000. The solo 401(k) still wins on catch-ups, Roth deferrals and participant loans; the SEP wins on paperwork. The full comparison, including employees and admin cost, is in solo 401(k) vs SEP IRA.

One effect to price before funding: under Treas. Reg. §1.199A-3(b)(1)(vi), a self-employed owner's deduction for plan contributions is treated as attributable to the business and therefore reduces qualified business income. If you are claiming the full 20% §199A deduction, each $1,000 of pre-tax contribution removes $200 of that deduction, so the net saving is about 80% of your marginal rate times the contribution. On the $52,380 example at a 32% bracket, that is roughly $13,400 rather than $16,800. The same drag applies to an S corporation's employer contribution, which reduces the company's ordinary income. It is one reason high earners look hard at the Roth side, below.

Catch-up contributions at 50 and at 60 to 63

Catch-ups are employee deferrals, not employer money, and they sit outside the $72,000 cap. The IRS catch-up contributions page sets the 2026 figures:

• $8,000 if you are 50 or older by December 31, 2026;
• $11,250 instead, if you turn 60, 61, 62 or 63 during 2026, under the SECURE 2.0 higher catch-up. The window closes in the year you turn 64, when the regular $8,000 applies again.

Two limits still apply. A catch-up is capped at your compensation minus your regular deferrals, so it needs real earned income behind it. And the plan document has to permit catch-ups, which most pre-approved solo 401(k) documents do.

The Roth catch-up requirement of SECURE 2.0 section 603 is live for 2026, now that the transition relief in Notice 2023-62 has expired: if your 2025 FICA wages from the plan sponsor exceeded $150,000 (the IRS catch-up page states the 2026 threshold), any catch-up must be a Roth contribution, and a plan with no Roth feature cannot accept it. The final regulations published September 16, 2025 key the test to Social Security wages under §3121(a), Box 3 of Form W-2, and the preamble states that an individual with no FICA wages from the sponsor, giving a partner with only self-employment income as the example, is not subject to the requirement. A sole proprietor is in the same position, so those owners can still make pre-tax catch-ups. An S corporation owner paid more than $150,000 in 2025 Box 3 wages is inside the rule. The regulations apply to taxable years beginning after December 31, 2026; for 2026 they call for a reasonable, good-faith interpretation of the statute.

S corporation owners: W-2 wages only

If your business is taxed as an S corporation, you are a W-2 employee of your own company, and the self-employed formula does not apply. Compensation means your W-2 wages; shareholder distributions do not count. The employer contribution is a flat 25% of wages, with no 20% adjustment, because the contribution does not reduce W-2 pay.

Reaching the full $72,000 takes $190,000 of W-2 wages (25% × $190,000 = $47,500). That sets up the familiar tension: a higher salary unlocks plan room but costs payroll tax, while a lower salary saves payroll tax but caps the plan. Wages must still be reasonable for the work performed, so this is a range to optimise within, not a free variable.

Mechanics differ too. Deferrals come out of payroll and should be deposited as soon as the plan document requires, and the deferral election has to be in place before the wages are paid. You cannot decide in March to defer from last year's salary, and the first-year relief described under deadlines below is not available to corporations.

A day-job 401(k), a spouse, or a second business

The most common error among high earners with consulting income is double-counting the deferral. The $24,500 deferral limit is per person, not per plan. If you defer the full amount at your employer, your solo 401(k) can take no deferrals for 2026. The employer contribution is different: unrelated employers each carry their own §415(c) limit, so the solo plan can still take its employer contribution against a separate $72,000; the IRS limits page works a version of this example. At $150,000 of side-business profit, that is the $27,880 employer piece alone.

A spouse paid real compensation for real work can participate without breaking one-participant status, with a separate deferral, catch-up and $72,000 limit.

Hiring changes everything. Once a common-law employee meets the plan's eligibility terms, they must be covered and the plan becomes subject to nondiscrimination testing. A second business you control may be aggregated under the controlled-group rules. Both questions deserve review before you assume separate limits.

The Roth solo 401(k) and after-tax room

An "individual Roth 401(k)" is a solo 401(k) whose document includes a designated Roth account. Roth deferrals count against the same $24,500 limit but carry no income phase-out, which is the main reason high earners who are shut out of direct Roth IRA contributions use them. Since 2024, designated Roth accounts in 401(k) plans also have no lifetime RMDs.

SECURE 2.0 section 604 went further: a plan may let you designate employer contributions as Roth. Under Notice 2024-2, those contributions must be fully vested, are included in your income for the year they are allocated, and are reported on Form 1099-R. Plan support is uneven, so confirm the document provides for it before counting on it. The choice between pre-tax and Roth is the usual comparison of today's marginal rate, net of the §199A effect above, with your expected rate later; our pre-tax vs Roth guide works through it.

If your profit is too low to fill the plan with deferrals and employer money, there may be room for after-tax contributions, which are limited by §415(c) and plan terms rather than by the 20% formula. At $150,000 of profit, the gap is $72,000 − $52,380 = $19,620. Converted to Roth, that is the self-employed version of the mega backdoor Roth. Few brokerage-provided documents permit it; it generally requires a customised plan document.

Holding pre-tax money in a solo 401(k) rather than a SEP-IRA has a further benefit: plan balances are excluded from the pro-rata calculation that governs a backdoor Roth IRA.

Solo 401k contribution deadlines for 2026

Three different clocks run on a solo 401(k): when the plan must exist, when the deferral election must be made, and when money must land. They differ by contribution type and by entity.

The December 31 election rule comes from Treas. Reg. §1.401(k)-1(a)(6)(iii): a sole proprietor's compensation is deemed available on the last day of the tax year, so a deferral election for that compensation cannot be made after the year ends. The deposit itself can follow, because the regulation treats the contribution as allocated to the year it relates to if it is paid in within twelve months, and §404(a)(6) lets you deduct it for 2026 if it is in the plan by the return due date including extensions. Keep a dated election form in the plan file; it is the document an examiner asks for.

The first-year exception is narrower than it is often described. Section 401(b)(2), as amended by SECURE 2.0 section 317, lets "an individual who owns the entire interest in an unincorporated trade or business, and who is the only employee" treat deferrals "made ... before the time for filing the return ... (determined without regard to any extensions)" as made in the plan's first year. Read literally, that means the deferral must be deposited, not merely elected, by April 15, 2027, and the relief covers only the first plan year, only sole proprietors and disregarded single-member LLCs, and only when the owner is the sole employee. It does not reach S corporations, partnerships, or a business that employs the owner's spouse. Some providers also require earlier funding, so confirm with yours.

The practical rule for an owner reading this in late 2026: if a plan already exists, have the 2026 election documented before December 31. If no plan exists, a sole proprietor can still adopt one in early 2027 and defer for 2026 by April 15, but an S corporation owner who has not run deferrals through 2026 payroll is limited to the employer contribution.

Form 5500-EZ and the annual refresh

A one-participant plan has light compliance until it grows. Per the Form 5500-EZ instructions, no return is required for a year in which total plan assets do not exceed $250,000 at year-end, counting all of the employer's one-participant plans together; a final return is required in the year the plan ends, whatever the balance. The return is due by the last day of the seventh month after the plan year ends, July 31 for a calendar-year plan, and Form 5558 filed by that date adds up to 2½ months. The penalty under §6652(e) is $250 a day up to $150,000 per plan year, which is why the IRS runs a penalty relief program for late 5500-EZ filers. Put the $250,000 test on the year-end close checklist.

A solo 401(k) can also be self-directed into alternative assets, which brings the prohibited-transaction rules into play; the self-directed IRA guide covers those rules and solo 401(k) vs self-directed IRA covers the account choice for property. Alternative assets can be illiquid and can lose principal; none of the limits above change based on what the plan holds.

Limits change every year. The 2027 wage base is already set at $192,300, which will nudge the self-employment-tax step; the IRS usually publishes next year's plan limits in November, and the 2027 figures had not been released when this page was updated. We will revise the tables when they are.