The Solo 401k — also called an Individual 401k or Self-Employed 401k — is arguably the most powerful retirement account available to freelancers, sole proprietors, and small business owners with no employees. Unlike a SEP IRA, it lets you make both an employee contribution and an employer contribution in the same year, which means you can shelter significantly more income at lower income levels. Here is everything you need to know to use it in 2026.
What changed in 2026
- Contribution limits increased. The 2026 total contribution limit is approximately $70,000 ($77,500 for those 50 and older with catch-up contributions). The employee elective deferral is approximately $23,500. Always verify the current year's figures with the IRS.
- Roth Solo 401k became more mainstream. SECURE 2.0 eliminated the pre-2024 requirement that Roth 401k balances take required minimum distributions (RMDs) — making the Roth Solo 401k even more attractive.
- Digital plan providers simplified setup. Fidelity, Vanguard, Charles Schwab, and specialized providers like MySolo401k all offer Solo 401k plans with online enrollment and low or zero annual fees.
- Mega backdoor Roth became accessible. Some Solo 401k plans now allow after-tax contributions with in-plan Roth conversion — the so-called mega backdoor Roth — for extremely high savers.
How contributions work
The Solo 401k has two contribution buckets:
| Contribution type |
Who makes it |
2026 limit (approx) |
Based on |
| Employee elective deferral |
You as employee |
Up to ~$23,500 ($31,000 if 50+) |
Up to 100% of net self-employment income |
| Employer profit-sharing |
You as employer |
Up to 25% of compensation |
Net self-employment income |
| Combined total |
— |
Up to ~$70,000 ($77,500 if 50+) |
Subject to income and per-bucket limits |
Net self-employment income for contribution purposes = gross self-employment income minus half of self-employment tax minus business deductions.
Example: A freelancer with $80,000 net self-employment income could contribute ~$23,500 (employee) plus ~$14,800 (25% employer) = ~$38,300 total. A SEP IRA would allow only ~$20,000 (25% of the same income). The Solo 401k wins at this income level.
Employee vs employer contribution math
The employer contribution is limited to 25% of W-2 wages for a corporation, or approximately 20% of net self-employment earnings for a sole proprietor (after deducting half of SE tax). This distinction matters for the calculation.
| Net SE income |
Max employee |
Max employer |
Max total |
| $30,000 |
$23,500 |
~$5,600 |
~$29,100 |
| $60,000 |
$23,500 |
~$11,200 |
~$34,700 |
| $100,000 |
$23,500 |
~$18,600 |
~$42,100 |
| $200,000+ |
$23,500 |
~$46,500 |
~$70,000 (cap) |
Traditional vs Roth Solo 401k
| Feature |
Traditional Solo 401k |
Roth Solo 401k |
| Contributions |
Pre-tax — reduce income now |
After-tax — no current deduction |
| Growth |
Tax-deferred |
Tax-free |
| Withdrawals in retirement |
Taxed as ordinary income |
Tax-free (qualified) |
| RMDs |
Yes (starting at 73) |
No (per SECURE 2.0) |
| Income limits |
None |
None |
| Best when |
You expect lower tax rate in retirement |
You expect equal or higher rate in retirement |
Many plans allow you to split contributions between traditional and Roth in the same year.
How to open a Solo 401k
- Confirm eligibility. You must have self-employment income and no full-time employees other than your spouse.
- Choose a provider. Fidelity, Schwab, and Vanguard offer free plans with solid investment menus. Specialized providers (MySolo401k, Carry) offer more features including checkbook control and crypto if needed.
- Open the plan by December 31 of the tax year you want to contribute (to maximize the employee contribution). However, the plan can be opened as late as the tax filing deadline (including extensions) to make employer contributions only.
- Make contributions. Employee deferrals must be made by December 31. Employer contributions can be made up to your tax filing deadline.
- File Form 5500-EZ when assets exceed $250,000. Required annually once assets hit this threshold.
Common mistakes
Missing the plan establishment deadline. If you wait until January to set up the plan for last year, you lose the employee contribution entirely.
Confusing employee and employer contribution limits. The employee deferral ($23,500) is a per-person limit across all 401k plans — if you also have a W-2 job with a 401k, the combined employee deferrals cannot exceed $23,500.
Not accounting for the SE tax deduction. You deduct half of self-employment tax before calculating the employer contribution — don't skip this step.
Choosing a provider with limited investment options. Some small-business plan providers offer only insurance products. Use a brokerage-based provider for low-cost index funds.
What to skip
- A SIMPLE IRA over a Solo 401k — SIMPLEs have lower limits (~$16,500 employee) and no flexibility. Solo 401k dominates for a one-person shop.
- Opening a plan if you have employees — a Solo 401k requires no full-time non-spouse employees; once you hire one, switch to a full 401k or SIMPLE.
FAQ
Can I have a Solo 401k and a regular job?
Yes, but the employee elective deferral ($23,500) is combined across all 401k plans. You can still make employer contributions to the Solo 401k from self-employment income.
Can my spouse participate?
Yes, if your spouse earns income from the business. A spouse can have their own employee and employer contribution buckets, potentially doubling the total household contribution.
What investments can I hold?
At most brokerage providers: stocks, ETFs, mutual funds, bonds. Specialized self-directed plans allow real estate and alternative assets but require more administrative work.
Do I need an EIN to open a Solo 401k?
Yes — most providers require an Employer Identification Number. You can get one instantly for free at IRS.gov.
Where to go next