Solo 401(k) Maximum Contributions for 2026

The solo 401(k) is the default retirement plan for self-employed people and owner-only businesses, and it is consistently underfunded because the contribution calculation is more complicated than it looks. There are two separate contributions with two separate limits and two different bases, and the base differs depending on how your business is taxed.

The Two Contributions

The employee deferral. You contribute as an employee of your own business, limited by the elective deferral limit of IRC Sec. 402(g). For 2026 the limit is $24,500, with an additional catch-up contribution of $8,000 available at age 50 or older. Participants aged 60 through 63 are eligible for a higher catch-up amount of $11,250 under the SECURE 2.0 provisions.

The employer contribution. Your business contributes as the employer, up to 25% of compensation. What counts as compensation depends on your entity type, which is the part that trips people up.

Both together are capped by the annual additions limit of IRC Sec. 415(c), which is $72,000 for 2026, plus catch-up contributions on top of that limit. The compensation that can be taken into account is capped at $360,000 for 2026.

These figures are indexed annually and should be confirmed against the current-year IRS notice before you fund, since the inflation adjustments change each year.

S-Corp Calculation

For an S corporation, compensation means your W-2 wages from the business. Distributions do not count. Neither does K-1 income.

The employer contribution is 25% of W-2 wages. That single fact makes your salary decision a retirement plan decision.

Example. S-Corp owner, age 52, $180,000 W-2 salary, $220,000 in distributions.

• Employee deferral: $24,500
• Age 50+ catch-up: $8,000
• Employer contribution: 25% of $180,000 = $45,000
• Total: $77,500

The $69,500 of non-catch-up contributions sits under the $72,000 annual additions limit, and the catch-up is additional.

Now the same owner with a $90,000 salary and $310,000 in distributions:

• Employee deferral: $24,500
• Catch-up: $8,000
• Employer contribution: 25% of $90,000 = $22,500
• Total: $55,000

Same business, same profit, $22,500 less sheltered. The lower salary saved roughly $2,600 of Medicare tax on the shifted amount and cost $22,500 of deduction capacity. It may also have reduced the QBI deduction, which above the IRC Sec. 199A thresholds is limited to 50% of W-2 wages. See the S-Corp tax optimization guide.

Sole Proprietor and Single-Member LLC Calculation

Without an S election, compensation is net earnings from self-employment, and the arithmetic changes.

The employer contribution is 25% of net earnings after reducing them by the deductible portion of self-employment tax and by the contribution itself. That circularity produces an effective rate of 20% of net earnings after the self-employment tax adjustment.

Example. Sole proprietor, age 45, $200,000 of net profit.

• Deductible half of SE tax: roughly $10,900
• Adjusted net earnings: about $189,100
• Employer contribution at 20%: about $37,800
• Employee deferral: $24,500
• Total: about $62,300

Roth and After-Tax Options

Employee deferrals can generally be made as Roth contributions if the plan document permits, which most modern solo 401(k) documents do. Under SECURE 2.0, catch-up contributions must be made on a Roth basis for participants whose prior-year wages from the sponsoring employer exceed an indexed threshold.

Employer contributions may also be designated as Roth if the plan allows, though that treatment makes them currently taxable to the participant rather than deductible.

Plans with the right features may also permit after-tax contributions beyond the deferral limit, up to the annual additions limit, followed by an in-plan Roth conversion. That is the mega backdoor Roth, and it requires a plan document that specifically supports both features. See the mega backdoor Roth for business owners.

Deadlines

Plan adoption. Under the SECURE Act, a plan can generally be adopted as late as the due date of the return, including extensions, for the year in which it is to be effective. There is an important limitation: elective deferrals generally cannot be made retroactively for a year in which the plan did not exist, so an owner adopting a plan after year-end may be limited to the employer contribution. Adopting by December 31 avoids the issue entirely.

Employee deferrals. For an S-Corp owner, deferrals come out of payroll and must be elected and withheld during the year. Plan for this before your final payroll run.

Employer contributions. Due by the due date of the return, including extensions.

See setting up a plan after year-end.

The Employee Rule

A solo 401(k) is available only when the business has no eligible employees other than the owner and the owner's spouse. Certain employees can generally be excluded, including those working fewer than 1,000 hours per year, subject to the long-term part-time employee rules, and those under age 21.

Hiring a full-time employee converts the plan into a regular 401(k) subject to coverage testing, nondiscrimination rules, and Form 5500 filing. That is manageable, often with a safe harbor design, but it needs to be planned rather than discovered.

Controlled group and affiliated service group rules under IRC Sec. 414(b), (c), and (m) aggregate related businesses for this purpose. An owner with a solo 401(k) in one entity and employees in another commonly owned entity may have a coverage problem, and this is one of the more frequent errors in owner-only plans.

Solo 401(k) vs. SEP IRA

The solo 401(k) is better for most owners, and by a wide margin at moderate income levels.

A SEP has no employee deferral component, so the entire contribution is limited to the employer percentage. At $120,000 of S-Corp wages, a SEP allows $30,000 while a solo 401(k) allows $54,500 before catch-up. The SEP also offers no catch-up contribution, no Roth option, no loan feature, and pairs less effectively with a defined benefit plan.

The SEP's only real advantages are simplicity and the ability to be established and funded after year-end without the deferral limitation. See using a SEP and solo 401(k) together and how much you can contribute to a solo 401(k).

When to Go Beyond a Solo 401(k)

If you are over 45, earning $400,000 or more consistently, and the solo 401(k) limit is not sheltering enough, a cash balance plan layered on top raises total annual pre-tax contributions well past $300,000. See cash balance plans for S-Corp owners.

Frequently Asked Questions

What is the maximum solo 401(k) contribution for 2026?

The elective deferral limit is $24,500, with an $8,000 catch-up at age 50 or older and a higher $11,250 catch-up for participants aged 60 through 63. The combined annual additions limit under IRC Sec. 415(c) is $72,000, plus catch-up contributions on top, and compensation taken into account is capped at $360,000. These figures are indexed annually and should be confirmed against the current IRS notice before funding.

How is the employer contribution calculated for an S-Corp owner?

It is 25% of your W-2 wages from the business. Distributions and K-1 income do not count. This is why a salary set low to minimize payroll tax also caps retirement contribution capacity, and the lost deduction frequently exceeds the payroll tax saved.

Why is my contribution lower as a sole proprietor than as an S-Corp?

Because the base is different. A sole proprietor computes the employer contribution on net earnings from self-employment reduced by the deductible portion of self-employment tax and by the contribution itself, which produces an effective rate of about 20% rather than 25%. An S-Corp owner computes it as a straight 25% of W-2 wages.

Can I still set up a solo 401(k) after the year ends?

Under the SECURE Act a plan can generally be adopted by the due date of the return, including extensions. However, elective deferrals generally cannot be made retroactively for a year in which the plan did not exist, so a late adopter may be limited to the employer contribution. Adopting by December 31 avoids the limitation.

Can I have a solo 401(k) if I have employees?

Only if they are excludable, such as employees working fewer than 1,000 hours per year, subject to the long-term part-time rules, or those under age 21. A spouse can participate. Once you have an eligible employee the plan becomes a regular 401(k) subject to coverage testing and Form 5500 filing. Controlled group rules under IRC Sec. 414 also aggregate related businesses, which is a common source of error.

---