Retirement · Self-employed · Notice 2024-80 / 2025-67
Solo 401(k): The Self-Employed Maximizer
One-participant 401(k) plans let you wear two hats — employee and employer — and stack contributions higher than a SEP-IRA at the same income. Here's the exact math.
The one-line summary
Sole-prop total = employee deferral + 20% × (net profit − ½ SE tax), capped at $70,000 (2025) / $72,000 (2026). Catch-ups ride above the cap. S-corp swaps the employer half for 25% × W-2 wages.
1. Eligibility
- Self-employment income (sole prop, single-member LLC, partnership) OR own an S-corp / C-corp with no non-owner employees.
- Spouse working in the business is OK (both can contribute).
- Any common-law employee (other than your spouse) age 21+ who works 1,000+ hours in a year, or, for plan years beginning in 2025 or later, 500+ hours in each of 2 consecutive years (the long-term part-time rule; SECURE 2.0 §125 cut the original SECURE Act's 3-year test to 2), must be allowed into the plan, which ends owner-only (solo) status. Switch to a SEP or a full 401(k) plan.
2. The two-hat math
Sole prop / single-member LLC
- Employee deferral: up to $23,500 (2025) / $24,500 (2026), capped at net earnings and reduced by anything you deferred to another employer's 401(k), 403(b), SIMPLE or SARSEP that year (the limit is per person).
- Employer profit-sharing: 20% × (Schedule C net profit − ½ SE tax).
- Total cap: §415(c) ceiling of $70,000 (2025) / $72,000 (2026), catch-up excluded.
Worked example — $100,000 net profit, age 40, 2025: SE tax = 14,129.55; ½ SE = 7,064.78; employer = 20% × 92,935.22 = 18,587.04; deferral = 23,500. Total = $42,087.04.
S-corp (owner-employee)
- Employee deferral: from W-2 wages, ran through payroll by December 31.
- Employer profit-sharing: 25% × W-2 wages (compensation-limit capped).
- Distributions do NOT count as compensation — the reasonable-comp trap.
Worked example — $80,000 W-2, age 40, 2025: deferral = 23,500; employer = 25% × 80,000 = 20,000. Total = $43,500.
3. Catch-ups at 50 and the 60-63 super catch-up
At age 50 the regular catch-up ($7,500 in 2025 / $8,000 in 2026) sits on top of the §415(c) cap. Under SECURE 2.0 §109, ages 60-63 get a higher "super" catch-up of $11,250 (2025 and 2026) that replaces the regular catch-up during those four years. At age 64 you revert to the regular catch-up.
4. Solo 401(k) vs SEP-IRA
A SEP-IRA has no employee deferral and no catch-up — it's just the employer half. At $100,000 sole-prop net profit the SEP puts away roughly $18,587 versus $42,087 in a Solo 401(k). The gap widens further at 50+. SEPs win only on simplicity: a one-page adoption form (IRS Form 5305-SEP, kept in your files, not filed) instead of a full plan document, and generally no annual Form 5500 filing at any balance, where a Solo 401(k) must file Form 5500-EZ once plan assets pass $250,000.
5. The Roth option
Most Solo 401(k) plans now offer a Roth designated account for the employee deferral — no income limit. SECURE 2.0 §604 also allows the employercontribution to be Roth (immediately vested and taxable to the participant in the year contributed). Not every provider has implemented this yet — confirm before relying on it.
6. Deadlines
- First plan year (sole prop / single-member LLC, no employees): adopt the plan and make the first year's employee deferrals up to the tax-filing deadline without extensions — April 15 (SECURE 2.0 §317, plan years after Dec 29, 2022).
- Ongoing years — employee deferral election: in place by December 31 of the plan year (sole prop); S-corp deferrals must run through payroll by year-end.
- Employer contribution (adoption + funding): up to the tax-filing deadline including extensions (retroactive plan adoption per the 2019 SECURE Act).
7. Form 5500-EZ trigger
$250,000 threshold
Once total plan assets (across all your one-participant 401(k) plans) exceed $250,000 at year-end, you must file Form 5500-EZeach July 31 (or the last day of the 7th month after plan year-end). The penalty for not filing is severe — up to $250/day. Also file a final 5500-EZ in the year you terminate the plan, regardless of balance.
Frequently asked questions
Can I contribute to a Solo 401(k) as an S-corp owner?
Yes. Your S-corp is the employer. Your elective deferral (up to $23,500 in 2025 / $24,500 in 2026) comes out of your W-2 wages, and the employer profit-sharing contribution is 25% of your W-2 wages — not distributions. Distributions do NOT count as compensation for this formula.
Why is the sole-prop employer rate 20% instead of 25%?
The 25% is the underlying statute, but for the self-employed it's 25% of net earnings AFTER subtracting the contribution itself, which algebraically resolves to 20% of net earnings BEFORE subtracting the contribution. IRS Pub 560 walks the derivation — the 20% figure is what you apply to (net profit − ½ SE tax).
Does the age 50 catch-up count against the §415(c) cap?
No. Catch-up contributions (both the regular $7,500 / $8,000 at age 50+ and the $11,250 super catch-up at ages 60-63) ride ABOVE the §415(c) total-contribution cap. That's why a 62-year-old sole prop at high income can hit $81,250 total in 2025 while the underlying cap is $70,000.
Solo 401(k) or SEP-IRA — which is bigger?
The Solo 401(k) is almost always bigger because you get the employee deferral on top of the employer profit-sharing (assuming you haven't used your elective-deferral limit in another employer's 401(k), 403(b) or SIMPLE plan that year). A SEP-IRA only has the employer side (20% for sole prop / 25% for S-corp). At $100,000 sole-prop net profit under age 50 the Solo 401(k) puts away about $42,000 vs about $18,600 for the SEP.
When do I have to open and fund a Solo 401(k)?
For your FIRST plan year, a sole proprietor (or single-member LLC) with no employees can adopt the plan AND make that first year's EMPLOYEE deferrals up to the tax-filing deadline WITHOUT extensions — April 15 (SECURE 2.0 §317, plan years after Dec 29, 2022). Employer profit-sharing can be funded up to the filing deadline INCLUDING extensions. In ongoing years the deferral election must be in place by December 31, and S-corp owners must run deferrals through payroll by year-end.
Related tools
Sources & References
Primary references used for this content
Retirement Plans for Small Business
One-participant 401(k), 20% derivation, SEP comparison
View on irs.gov
2025 Cost-of-Living Adjustments for Retirement Plans
2025 §402(g), §415(c), §414(v) catch-up figures
View on irs.gov
Retroactive First-Year Elective Deferrals for Sole Proprietors
Adoption deadline for the employer contribution
View on congress.gov
✓3 primary sources; links re-checked on a weekly rotation by the source watcher
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.