What is a Solo 401(k)?
A Solo 401(k) is the self-employed version of the 401(k) you'd get at a regular job. It's a retirement account for business owners with no full-time employees, and it's often the biggest tax-saving opportunity a self-employed person has.
Who can open a Solo 401(k)?
- Anyone with self-employment income, like coaches, consultants, contractors, and creators.
- No full-time employees, other than a spouse. Contractors don't count as employees.
- You don't need an LLC. Sole proprietors can open one too.
- Side income counts, even if you also have a full-time job.
Why a Solo 401(k) matters
It has a very high contribution ceiling. In 2026, you can put in up to $72,000, depending on how much you earn (people 50 and older can put in a bit more). That's a lot more than most self-employed people with a moderate income can put into other retirement accounts. And the more you put into a pre-tax account, the more you lower your taxable income.
There are a few other perks:
- Investment choices. You can invest in stocks and ETFs. With a self-directed provider, you can even invest in things like real estate, startups, and crypto.
- Loans. Some plans let you borrow up to 50% of your balance, with a max of $50,000, and pay yourself back with interest. If you pay it back on time, there's no penalty.
How a Solo 401(k) works: two buckets
With a 401(k) at a regular job, you contribute from your paycheck and your employer might add a match. But you can't make your employer add one, and most employers don't match the maximum. With a Solo 401(k), you contribute as both the employee and the employer, so you can fill both sides.
Bucket 1: You, the employee
You can contribute up to $24,500 in 2026, and you choose pre-tax or Roth:
- Pre-tax: you deduct what you contribute this year, then pay taxes when you take the money out in retirement.
- Roth: you pay taxes on the money now and get no deduction, but it grows tax-free and comes out tax-free in retirement.
Bucket 2: Your business, the employer
Your business can contribute roughly 20% of your profit. Technically, it's 20% of profit after subtracting half of your self-employment tax. If your business is taxed as an S corp, it's 25% of the salary you pay yourself. The employer bucket is usually pre-tax only, though a few providers now offer Roth.
2026 Solo 401(k) contribution limits
| Piece | 2026 limit |
|---|---|
| Employee contribution | $24,500 |
| Employer contribution | ~20% of profit (S corp: 25% of W-2 salary) |
| Total cap, under 50 | $72,000 |
| Catch-up, age 50+ | +$8,000 |
| Catch-up, ages 60 to 63 | +$11,250 |
The total cap applies no matter how much you earn. If your business made $1,000,000, 20% would be about $200,000, but you're still capped at $72,000. After $24,500 as the employee, you could add about $47,500 as the employer.
Example: what Jess can put in and save
Meet Jess. She's a self-employed graphic designer who made $100,000 in profit this year.
- As the employee, she can contribute up to $24,500.
- As the business, she can add 20% of her profit after subtracting half of her self-employment tax. On $100,000, that's about $18,600.
- That's about $43,000 total.
Here's what that does for her federal income tax (single filer, standard deduction):
| Jess contributes | Federal income tax |
|---|---|
| Nothing | About $8,200 |
| $43,000 pre-tax | About $3,000 |
| Savings this year | About $5,200 |
If Jess chooses Roth for her employee portion instead, she doesn't get that tax break today. But the money grows tax-free, and she keeps all of the growth in retirement. If $24,500 grows at 7% a year for 30 years, it could become about $186,000, with no tax owed on it.
The Mega Backdoor Roth
Even with both buckets, Jess can only put in about $43,000. She's still about $29,000 short of the $72,000 cap, because the employer bucket is tied to profit. She'd need roughly $250,000 in profit to reach the cap with just those two buckets. If her plan allows it, the Mega Backdoor Roth fills that leftover room with a third bucket: after-tax money.
- Fill the employee and employer buckets. For Jess, that's about $43,000.
- Put extra money in labeled as after-tax. Jess can put in up to the leftover $29,000.
- Convert it to Roth right away. Providers call this an in-plan Roth conversion. Any growth before the conversion gets taxed, so converting quickly leaves almost nothing to tax.
The big win is reaching the $72,000 ceiling at a much lower profit. Two caveats: not every Solo 401(k) plan allows this (if the contribution form has no after-tax option, that's a clue), and nobody has to max it out. At $100,000 in profit, putting in $72,000 would leave about $28,000 to live on before taxes.
Comparing Jess's three options
| Do nothing | Solo 401(k) | + Mega Backdoor Roth | |
|---|---|---|---|
| Employee (pre-tax) | $0 | $24,500 | $24,500 |
| Employer (pre-tax) | $0 | $18,600 | $18,600 |
| After-tax, converted to Roth | $0 | $0 | $29,000 |
| Total put away | $0 | ~$43,000 | $72,000 |
| Federal income tax this year | ~$8,200 | ~$3,000 | ~$3,000 |
The Mega Backdoor Roth doesn't lower this year's tax, because the after-tax money was already taxed. Its payoff is later: if that $29,000 grows at 7% a year for 30 years, it could become about $220,000, with no tax owed on it.
Pre-tax or Roth? A simple rule of thumb
- High-income year? Lean pre-tax. You're in a higher bracket, so a deduction now saves more.
- Low-income year? Lean Roth. Your tax rate is already low, so paying tax now is cheap, and the money grows tax-free.
Self-employed income changes a lot from year to year, and you can choose differently each year, or split between the two in the same year. Back to Jess:
- Slow year, $40,000 profit: $10,000 pre-tax saves her only about $900 in federal tax. Choosing Roth instead, that $10,000 could grow to about $76,000 in 30 years at 7%, tax-free.
- Big year, $200,000 profit: the same $10,000 pre-tax saves about $1,900, more than twice as much, because she's in a higher bracket. Pre-tax looks better here.
The basic idea is to pay taxes when your rate is lowest.
How to avoid overcontributing
Because the employer bucket depends on your profit, it's easy to put in too much in a year when income comes in lumpy. One approach: set aside a percentage of every deposit in a savings account earmarked for your Solo 401(k), then move it into the plan at the end of the month, once you know you won't go over. PrioritySave tracks that percentage on each deposit, so the earmarked money is easy to see.
Solo 401(k) deadlines
| Situation | Deadline |
|---|---|
| You already have a Solo 401(k) | Make your employee contribution election in writing by December 31. The money can go in later. |
| First Solo 401(k), sole proprietor or single-member LLC with no employees | You can open the plan and make your first-year election after the year ends, up to your tax filing deadline (not including extensions). |
| Business taxed as an S corp | December 31, no exceptions. |
How to choose a provider and get started
Before signing up, check the plan documents for two things:
- After-tax contributions and in-plan Roth conversions. That's what makes the Mega Backdoor Roth possible. Many low-cost providers don't support it, and it's rarely obvious from their marketing, so dig into the plan document or ask directly.
- What you can invest in. Some providers lock you into a small lineup of their own funds, while a mainstream brokerage lets you hold individual stocks, ETFs, bonds, and CDs.
Then the rest is straightforward:
- Get an EIN from the IRS if you don't already have one (it's free).
- Complete the plan adoption paperwork.
- Fund it by the deadline that applies to you.
A Solo 401(k) is one way to save on taxes. For more, read How to Save on Taxes as an Entrepreneur.