Handbook / Retirement accounts

Solo 401(k) for the 2026 tax year: limits, the two contribution types and the paperwork

Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.

A solo 401(k), which the IRS calls a one-participant 401(k), lets a self-employed person save for retirement in two roles at once: as the employee who defers pay and as the employer who contributes on the employee's behalf. That is why it can allow more savings than other plans at modest profit levels. It also comes with a special calculation and some paperwork. This guide explains it for the 2026 tax year, using IRS pages and Publication 560 checked in November 2026.

Who can use one

The IRS says a one-participant 401(k) covers a business owner with no employees, or that person and their spouse. It follows the same rules as any other 401(k). If you plan to hire, read the section on employees below before choosing it.

The two hats

The IRS puts it this way: the owner wears two hats, employee and employer, and contributions can be made in both capacities.

As employee: elective deferrals. Up to 100% of compensation, which for self-employed people means earned income, up to the annual limit. For the 2026 tax year, the IRS sets:

• $24,500 elective deferral limit
• $8,000 catch-up for ages 50 and over
• $11,250 catch-up for ages 60 to 63, in place of the $8,000

As employer: nonelective contributions. Up to 25% of compensation as defined by the plan. For self-employed people, the IRS says a special computation is needed, described next.

Overall cap. For 2026, total contributions to your account, excluding catch-up, cannot exceed the lesser of 100% of compensation or $72,000. The IRS gives $80,000 including the age-50 catch-up, and up to $83,250 for ages 60 to 63.

The self-employed calculation

For self-employed people, the IRS says compensation is earned income: net earnings from self-employment after deducting both one-half of self-employment tax and the contributions you make for yourself. Because the contribution reduces the base it is calculated on, the employer rate has to be adjusted.

Publication 560 provides a rate table. For a plan contribution rate of 25%, the self-employed rate is 20% (0.200000). Publication 560 notes that the deduction for employer contributions to such plans cannot be more than 20% of net earnings figured without deducting contributions for yourself.

In practice:

1. Start with Schedule C net profit.
2. Subtract the deduction for half of self-employment tax from Schedule SE line 13.
3. Multiply by 20% for the maximum employer contribution at a 25% plan rate.
4. Add elective deferrals, up to the limit and up to remaining earned income.
5. Check the total against the overall cap.

Publication 560's deduction worksheet gives the exact figure.

Example (2026 tax year, approximate): A consultant aged 45 has $80,000 net profit and no wages. Self-employment tax is about $11,304, so half is about $5,652. Net earnings for the calculation: about $74,348. Employer contribution at 20%: about $14,870. Elective deferral: $24,500. Total: about $39,370, under the $72,000 cap. Her preparer confirms the final figure with the Publication 560 worksheet.

The guide on Schedule SE shows where the half-SE-tax figure comes from.

When you also have a job

The IRS says elective deferral limits apply per person, not per plan. If you defer $15,000 through an employer's 401(k) in 2026, only $9,500 of deferral room remains for your solo plan, before catch-up. The employer contribution to your own plan is figured separately.

Paperwork

Plan documents. A solo 401(k) is a formal plan. Providers supply the plan documents and set up accounts. Read the provider's deadlines for establishing the plan and making deferral elections.

Form 5500-EZ. The IRS says a one-participant plan generally must file an annual Form 5500-EZ if it has $250,000 or more in assets at year end. Smaller plans may be exempt. Late filers can face penalties, and the IRS runs a penalty relief program for delinquent filers.

Records. Keep a record of each contribution, whether it is an employee deferral or an employer contribution, and when it was made.

If you hire employees

The IRS says a business owner with no common-law employees does not need nondiscrimination testing, but that advantage vanishes once you hire. Eligible employees must be included, and their deferrals are tested unless the plan is a safe harbor plan or otherwise exempt. Plan ahead before your first hire; the guide on hiring your first employee covers the wider steps.

Solo 401(k) or SEP IRA

A SEP IRA is simpler: employer contributions only, with less paperwork. A solo 401(k) adds the employee deferral, which can let you save more at lower profit levels. The working-alone guide on retirement plan types compares the options.

For 2026: up to $24,500 as employee, plus catch-up if eligible, plus about 20% of adjusted net earnings as employer, capped at $72,000 before catch-up, with Form 5500-EZ once assets reach $250,000.