Solo 401K Fundamentals for Self-Employment Earnings (For 2025 & 2026)

This Solo 401K overview has been up to date with info for the 2025 & 2026 tax years. That is the second of a multi-part collection on retirement accounts for self-employment income. I beforehand gave an summary of SEP IRAs. On this article, I’ll present an summary of Solo 401Ks. I’ve began and contributed to each a SEP IRA and a Solo 401K, which has given me expertise with every. In a separate article I’ll additionally cowl the SIMPLE IRA. Those that have or plan to have self-employment earnings (by way of 1099 earnings or in any other case) ought to hopefully discover these overviews informative.

What’s a Solo 401K (Particular person 401K)?

The Solo 401K has a ridiculous quantity of other names, however all of them seek advice from the identical kind of account. It’s also generally known as an Particular person 401K (or i401K), Solo-Ok, Self-Employed 401K, Uni-Ok, and One-Participant 401K, amongst others. The IRS formally refers to Solo 401Ks as “One-Participant 401Ks”, however I’ve by no means heard anybody use that terminology, so we’ll stick with Solo 401Ks for this text.

Regardless of the plethora of nicknames, all of them seek advice from the identical factor: a 401K plan overlaying a self-employed particular person (an earnings producing enterprise proprietor with no workers), or that individual and his or her partner.

There are a couple of key variations between the employer-sponsored 401Ks that almost all of us are used to and Solo 401Ks, which we’ll cowl in a bit. Exterior of these variations, Solo 401Ks very intently resemble Conventional 401Ks and Roth 401Ks we’re already conversant in.

What are the {Qualifications} to Create & Contribute to a Solo 401K?

In contrast to the SEP IRA, the Solo 401K has no age or earnings restrictions. So as to have the ability to contribute to at least one, your contributions should come from self-employment earnings in that yr.

As with the SEP IRA, you don’t want to be full-time self-employed with a view to be eligible. You may be part-time self-employed or earn a aspect earnings from a secondary job or aspect hustle. And having a Conventional 401K by way of one other employer doesn’t exclude you from having the ability to begin and keep a separate Solo 401K.

You additionally don’t must have a registered company (LLC, S-Corp, and many others.) with a view to be eligible.

The opposite qualifier is that you just can not make use of any full-time workers, outdoors of the exception of a partner. Full-time workers are thought-about to be those who work a median of no less than 30 hours per week for his/her employer.

Solo 401K Contributions: Employer & Worker

The defining distinction between normal employer 401K plans and Solo 401Ks is which you could contribute as an “worker” (just like normal 401Ks) and as an “employer” (just like SEP IRAs).

In consequence, you’ll be able to contribute far more of your self-employment earnings to a Solo 401K than you’ll be able to to a SEP IRA or SIMPLE IRA.

2025 & 2025 Solo 401K Most Contribution Limits

The beauty of Solo 401Ks is the power to contribute as each an employer and an worker and the way it can doubtlessly enhance your retirement financial savings to a different degree.

To recap, the maximum 401K contribution for an “worker” are as follows:

2025 Solo 401K Most Contribution (Worker-Solely):

• Customary Contribution: $23,500
• Customary Catch-Up Contribution (ages 50-59 or 64+): $7,500
• Complete with Customary Catch-Up Contribution (ages 50-59 or 64+): $31,000
• Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $11,250
• Complete with Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $34,750

2026 Solo 401K Most Contribution (Worker-Solely):

• Customary Contribution: $24,500
• Customary Catch-Up Contribution (ages 50-59 or 64+): $8,000
• Complete with Customary Catch-Up Contribution (ages 50-59 or 64+): $32,500
• Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $11,250
• Complete with Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $35,750

Contributions can’t exceed 100% of compensation. This most is a mixed most between every other employer 401K and your Solo 401K. For instance, if you’re underneath age 50 and contribute $10,000 to your day job employer-sponsored 401K in 2026, you’ll be able to then solely contribute $14,500 ($24,500 – $10,000) to your Solo 401K as an worker. Issues get a bit of extra attention-grabbing with maximum employer 401K contributions.

2025 Solo 401K Most Contribution (Worker + Employer):

• Customary Contribution: $70,000
• Customary Catch-Up Contribution (ages 50-59 or 64+): $7,500
• Complete with Customary Catch-Up Contribution (ages 50-59 or 64+): $77,500
• Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $11,250
• Complete with Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $81,250

2026 Solo 401K Most Contribution (Worker + Employer):

• Customary Contribution: $72,000
• Customary Catch-Up Contribution (ages 50-59 or 64+): $8,000
• Complete with Customary Catch-Up Contribution (ages 50-59 or 64+): $80,000
• Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $11,250
• Complete with Enhanced SECURE 2.0 Catch-Up Contribution (ages 60-63): $83,250

And, once more, contributions can not exceed 100% of compensation. The utmost tax deductible contribution as an employer is 25% of post-contribution web earnings (similar because the SEP IRA). For extra on this, take a look at the IRS rate table for self-employed contributions and my earlier put up on SEP IRAs.

Solo 401K Contribution Deadlines

There are basically two totally different deadlines for Solo 401K contributions.

1. “Worker” contributions: have the identical finish of calendar yr deadline as different 401Ks (December 31 annually).
2. Non-corporation “employer” contributions: are typically due by the tax deadline for the earlier calendar yr (usually April 15 within the subsequent yr), although extensions are attainable.

If a contribution comes between January 1st and the tax deadline, you’ll be able to characterize it for the earlier or the current calendar yr. Contributions for a calendar yr should be made previous to submitting your taxes for that yr, or an amended tax return can be wanted.

Solo 401K Contribution Calculators

If you wish to double-check your math on how a lot you’ll be able to contribute to Solo 401Ks and evaluate to different retirement accounts, listed below are a couple of Solo 401K contribution calculators to play with:

Are you able to Contribute to Each an Employer 401K and a Solo 401K?

If in case you have employers, outdoors of your self, you’ll be able to contribute to each your employer sponsored 401Ks and contribute to your individual Solo 401K as an employer and an worker.

Are there Roth Solo 401Ks?

Sure. Contributions to Solo 401Ks may be pre (Conventional) or put up (Roth) tax. SEP and SIMPLE IRAs have been pre-tax solely till current modifications enabled by the SECURE 2.0 Act made Roth contributions attainable with these account sorts.

Are you able to Roll a Solo 401K Into an IRA?

Sure. You are able to do a 401K to IRA rollover with a pre-tax Solo 401K to a Traditional IRA, SEP IRA, or perhaps a Roth IRA (with tax implications) – simply as you’ll be able to a Conventional 401k. You can too roll over a Roth Solo 401K to a Roth IRA account.

You possibly can even roll a Conventional or Roth 401K in to a Solo 401K, or right into a Roth Solo 401K, however there could also be tax implications in doing so, so just be sure you are conscious of them.

As with all traditional-to-Roth retirement plan rollovers, any quantity you roll over is taken into account taxable earnings within the yr that you just roll it over. Be sure to perceive all the tax implications for doing in order nicely.

The place Are you able to Open a Solo 401K?

A few of the low cost brokers highlighted in my “how to start an online broker account” article have a Solo 401K choice, however they’re uncommon. Schwab and Fidelity provide Solo 401Ks. Vanguard, sadly, offered off their Solo 401K enterprise to Ascensus in 2024. At all times make sure you analysis minimal steadiness necessities and any related charges, together with account upkeep or inactivity charges earlier than creating your account.

Funding choices accessible for Solo 401Ks can range as nicely, per dealer. And a few might not provide a Roth contribution choice. Do your homework earlier than creating a brand new account.

Any Different Concerns to be Conscious of?

One notable draw back to Solo 401Ks is that they will require extra paperwork and administrative duties than IRAs. You’re typically required to file an annual report on IRS Form 5500-EZ in case your Solo 401K has $250,000 or extra in belongings on the finish of the yr.

Different Solo 401K Sources:

If in case you have any questions, undoubtedly seek the advice of with a tax skilled and/or a brokerage agency.

Exterior of the Solo 401K assets highlighted earlier, you must also take a look at the next articles:

Solo 401K Dialogue:

• Have you ever opened a Solo 401K? In that case, why?
• Who’s your dealer?
• What Solo 401K ideas do you have got?

Associated Posts: