Key Takeaways
Solo 401(k)s are a sub-set of 401(k) that only cover self-employed people or owners of companies (and spouses) without any employees that are eligible for the plan.
In 2026, the total contribution limit for a solo 401(k) ranges from $72,000 up to $83,250, depending on your age and compensation. This includes both employee and employer level contributions.
A solo 401(k) may allow you to use a mega backdoor Roth, unlocking even more tax advantages.1
Modern 401(k) providers like Gusto Retirement automate compliance requirements, making the Solo 401(k) even more attractive than other options like the SEP IRA.
When you open and fund your Solo 401(k) matters, especially if you want your contributions to count towards the previous tax year.
Introduction
Everyone can—and should—save for retirement. But how do you do so if you're self-employed or have a company with no employees eligible for the plan other than owners/business partners and their spouses? Let's look beyond the obvious solutions, like a SEP IRA or stuffing cash under your mattress, and explore an option that allows you to offset income taxes and save more money every year: the solo 401(k).
Although it isn't new, the solo 401(k) is emerging as a desirable option with the help of modern and affordable providers. We'll dive into an overview of solo 401(k)s and explore what can make them far more beneficial than other retirement options.
This ultimate guide will walk you through the essentials of solo 401(k)s, including eligibility, contribution limits, other applicable rules, and setup steps. By the time you're done reading this, you'll understand why a modern solo 401(k) may be a highly advantageous savings vehicle for solopreneurs.
What is a solo 401(k)?
First, let's start with the basics: What is a solo 401(k)?
A solo 401(k) — also known as an "individual 401(k)" or an "owner only 401(k)" — is a retirement plan where only owners or partners and their spouses are eligible to participate (based on the eligibility criteria specified in the plan). It has all of the same features and functionality of a standard 401(k), but the fact that only owners are participating means that much of the complexity will not apply.
Why is a solo 401(k) a great option for solopreneurs to consider?
For one, it has a high contribution limit ($72,000), which increases depending on your age. Compare that to the max contribution limit for a non-SEP IRA ($7,500 for people under 50).6
Another reason is that a solo 401(k) offers all of the same benefits of a traditional 401(k) plan, like loans, tax-deductible contributions, and the potential for tax-deferred growth on investments.⁸ That means self-employed people can access retirement benefits usually reserved for people employed by a traditional company, democratizing access to essential retirement benefits.
Solo 401(k) vs. SEP IRA
Although solo 401(k)s are a great option if you want to sock away more money than an IRA every year and defer income taxes4, there is one more option to consider as a self-employed person: the SEP IRA.
A SEP IRA — or Simplified Employee Pension Individual Retirement Account — is an IRA that allows employers to contribute directly to their employees' (in this instance you’re also considered an owner) retirement accounts.
While a SEP IRA also has a high contribution limit, they only allow employer contributions of up to 25% of your earnings. To reach the total contribution limit for a SEP IRA ($72,000 in 2026), you would need to earn at least $288,000. If you receive W2 compensation, you will be able to make employee level contributions regardless if you have earnings for the year. Whereas ,if you receive self-employment income, you will need earnings in order to make solo 401(k) contributions.
SEP IRAs have historically been attractive for solopreneurs because of their simplicity — no filing requirements and few rules. Solo 401(k)s come with annual filing requirements, additional fees, and other rules. However, SEP IRA users are often charged asset-under-management (AUM) fees that are a percentage of your investments. Depending on the size of the fee and your portfolio, a solo 401(k)'s monthly fees can be competitive with the actual fees you may be charged for a SEP-IRA (depending on your provider). Luckily, modern providers like Gusto Retirement can make solo 401(k)s easy to manage by handling the compliance complexity for you. This allows you to take advantage of the greater contribution and tax advantages of the solo 401(k) without having to deal with the extra rules.4
Here's a quick snapshot of differences between SEP IRAs and solo 401(k)s for self-employed folks:
Feature | Solo 401(k) | SEP IRA
|
Eligibility requirements | Self-employed people or business owners (and their spouses) with no employees who are eligible to participate in the plan. | Any business or self-employed person can open and fund a SEP IRA. |
Contribution limits | Employee: Up to 100% of compensation up to the contribution limit. Includes catch-up contributions for those over age 50. Employer: Up to 25% of compensation. Combined total (not including catch-up) cannot exceed the overall contribution limit ($72,000).1 | Employer contributions only. Up to 25% of compensation not to exceed $72,000.1 No catch-up contributions permitted. |
Contribution requirements | Allows both employee deferrals and employer contributions. More flexible contribution amounts. | Employers can contribute a percentage of the employee's (or self-employed individual's) compensation. |
Deadline for opening | Employee deferrals: Employer contributions: Generally, by the business's tax filing deadline (including extensions). | Generally, by the business's tax filing deadline (including extensions). |
Deadline for funding | Employer contributions: Tax filing deadline (including extensions). Employee deferrals: Varies depending on the type of compensation (self-employed income vs. W2 compensation). | Tax filing deadline (including extensions). |
Permissible eligibility requirements | Age: Maximum 21 Service: Deferrals-maximum 1 year; employer contributions-maximum 2 years (up to 1,000 per year allowed) Class exclusions: Permissible but may require additional testing (cannot be based on service or compensation amount) | Age: Maximum 21 Service: Worked 3 of the past 5 years (no specific hours can be required) Class exclusions: Union employees, nonresident aliens, Earns at least $800 (for 2026) |
Who is eligible for a solo 401(k)?
If a solo 401(k) seems like a good option for you, you need to make sure you're eligible. To qualify, you must be self-employed or an owner and cannot have any employees other than your spouse who are eligible for the plan. You can have any business structure.²
Here are a few more details that can help you decide whether or not a solo 401(k) is right for you:
Depending on your business structure, there may be no income restrictions for a solo 401(k).4 If you receive W2 compensation and have the cash flow to max out your solo 401(k), you can. However, if you receive self-employment income, you will need to show a profit on your K1/Schedule C in order to contribute either as an employee or an employer.
1099 contractors do not count as employees and will not impact your eligibility for a solo 401(k).
If you have part-time employees, you have to follow some specific guidelines to be and remain eligible. Part-time employees can only be excluded if they do not work more than 1,000 hours per year or 500 hours per year in two consecutive years. If they exceed either of those parameters, they're considered eligible employees for a retirement plan, meaning you cannot have a solo 401(k). These requirements must be specified in the 401(k) plan document.
2026 solo 401(k) contribution limits
One of the great benefits of a solo 401(k) is the high contribution limit that comes from acting as both employee and employer. In 2026, the overall contribution limit to a solo 401(k) is $72,000 for those under age 50. It is up to $80,000 if you are 50 to 59 or 64+. If you are in the age range for extended catchup (60-63), it is up to $83,250.³
Not all contributions are considered the same — solo 401(k)s have three different types of possible contributions. Here's a breakdown of each one:
Employee contributions: In 2026, the annual limit for employee contributions (aka elective deferrals) is $24,500.
Employee catch-up contributions: If you are aged 50+ you can defer additional catch-up contributions. If you are 59 or 64+, the catch-up limit is $8,000. If you are 60-63, the catch-up limit is $11,250.
Employer contributions: As an employer you are allowed to contribute up to 25% of eligible compensation for most business types (this limit is 20% if you receive self-employment income). If you are the only employee this 25% limit will be based solely on your compensation. Remember: If you're self-employed, you're considered to be both an employee and an employer. For more info on how to calculate your compensation, make sure to check out IRS guidelines.
There is one more limit to keep in mind, the annual additions, which looks at the total employee deferrals and employer contributions and limits how much each individual can get for the year (note this does not include catch-up contributions). For 2026 the annual additions limit is the lesser of $72,000 or 100% of the individual’s compensation.
Age attained in 2026 | Deferral limit + catch-up | Annual additions limit | Effective annual max contribution amount |
Under 50 | $24,500 | $72,000* | $72,000 |
50-59, 64+ | $24,500 + $8,000 | $72,000* | $80,000 |
60-63 | $24,500 + 11,250 | $72,000* | $83,250 |
*The annual limit is the lesser of the stated dollar amount or 100% of compensation.
Are all these details making your head spin? Let's go over two examples of how this could play out:
Example one: Lydia is under 50. Her W2 compensation for the year was $20,000. The maximum employee contribution she can make is $20,000. The maximum employer contribution is $5,000 based on the 25% limit. However, because her annual additions limit is $20,000 she cannot contribute more than that. She will need to decide how she wants to allocate that $20,000 between deferrals and employer contributions.
Example two: Marcus is 62 years old. His net self-employed compensation for the year was $400,000. The maximum employee contribution he can make is $24,500, plus a catch-up contribution of $11,250. The maximum employer contribution he is allowed is $47,500, taking him right to the annual limit of $83,250.
These are hypothetical examples for illustrative purposes only and do not represent any current or past client accounts.
Pro-tip: Deferral limits apply to contributions made to ALL of your 401(k) or 403(b) accounts. So if you have more than one account (say, you have a day job and are self-employed on the side), you need to make sure you do not over-contribute.
Solo 401(k) contribution deadlines
Employer contributions to a solo 401(k) can be made up until the tax filing deadline plus extension. This date varies from March 15 to October 15 depending on entity type and extensions. For example, if you are a sole proprietor who requested an extended tax filing deadline you need to make your 2025 employer contributions no later than October 15, 2026 This flexibility is helpful for business owners who want to assess their business performance before deciding how much to contribute.
Employee contributions to a solo 401(k)'s deadline will depend on your type of compensation. If you receive W2 compensation, your employee contributions will need to be submitted each time you get paid. If you receive self-employment compensation, your employee deferral election must be in place by the last day of the year, but the actual contributions don't need to be funded until your tax return due date plus extensions (same as above).
Key considerations for solo 401(k)s
Ok, before we go over how to actually set up a solo 401(k), there are two more considerations you should be aware of.
Stay compliant
If you want to have a successful solo 401(k) plan, there are some important compliance considerations to keep in mind.4 Some key compliance tips include:
Stay on top of contribution requirements. Keep a record of all your contributions so you don't go over annual limits.
File Form 5500-EZ if the plan has assets exceeding $250,000 at year-end. This is a very important requirement, so be sure you are prepared to file or get help from your 401(k) provider or tax pro.
Be aware of required minimum distributions you must take if you are approaching retirement age. Generally these begin at age 73 for those born 1951–1959, and age 75 for those born in 1960 or later. Stay on top of IRS guidelines as requirements may change.
In the past the compliance requirements have been a deterrent for choosing a 401(k). But, if you work with a modern 401(k) provider like Gusto Retirement, all these compliance requirements can be managed for you.
Maximize savings
There are also some ways to potentially maximize your savings with a solo 401(k). These include:
Roll over funds into your solo 401(k).⁴ You can typically roll over funds from any other type of eligible retirement plan (e.g., 401(k), profit sharing plan) or IRA (except a Roth IRA) into a solo 401(k). By consolidating all of your funds into one account, not only will you have fewer accounts to manage, but you'll be able to minimize fees as well.
Take advantage of the auto-enrollment tax credit. With this credit, an eligible employer who adds an auto-enrollment feature to their plan can typically claim a tax credit of $500 per year for three years.⁵ (Plus, auto-enrollment is included in every Gusto Retirement plan!)
Consider a "mega backdoor Roth." Do you earn too much to contribute to a Roth IRA? Unhappy with the lower contribution limit ($7,500 in 20261)? Consider using a mega backdoor Roth to save even more.⁶
Pro-tip: A "mega backdoor Roth" is a process that involves contributing to a solo 401(k) after-tax employee contributions, which are different from your normal employee deferrals, then rolling them over to a Roth IRA. It can be a complicated process, and a lot depends on your plan details, so we definitely recommend talking to a tax expert if you have any questions.
How to set up a solo 401(k)
Ok, now to the brass tacks. Ready to set up your solo 401(k)? Doing so involves a few key steps:
Consider your personal needs. Determine your preferred investment options, whether you need payroll integration, and if you prefer a provider that offers a mobile app. This will help you decide which solo 401(k) provider to go with.
Choose a provider. Once you know what your personal needs are and what features you'd like in a provider, it's time to select a solo 401(k) offering that meets your needs.
Open your plan. Complete and submit all necessary paperwork to your provider.
Fund your plan. The deadline to set up and fund a new plan depends on your business structure. If you are a sole proprietor you have until your tax filing deadline to both set up and fund a plan for the prior year. This includes both employee and employer contributions. If you are not a sole proprietor, you can still set up and fund a new plan through your tax filing deadline, but you will be limited to employer contributions only for the prior year. Additional deadlines may apply; check with Gusto Retirement for their contribution deadlines.
Manage your plan. Maintain compliance while building your retirement savings. Have more questions or want to chat about your unique situation? Schedule a consultation with the team at Gusto Retirement.
You did it! Now you know all about how solo 401(k)s can be a great way for self-employed people to save for retirement. They offer tax advantages, plus a high contribution limit that can really boost your savings over time.
It's never too early (or too late!) to start saving more for retirement. If you are a business owner with no employees who is looking to start saving with a solo 401(k), check out Gusto Retirement and get started today.⁷
This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
FAQs
Who qualifies for a solo 401(k)?
To be eligible for a solo 401(k), you must be self-employed or a business owner with no employees other than yourself and your spouse who would be eligible for the plan. 1099 contractors working for you don't count as employees, but if you have part-time employees who work more than 1,000 hours per year (or 500 hours for two consecutive years), they become eligible for a retirement plan and you'd lose solo 401(k) eligibility.
How much can I contribute to a solo 401(k) in 2026?
In 2026, the overall solo 401(k) contribution limit is $72,000 for those under 50. You can contribute up to $80,000 if you're 50–59 or 64+, and up to $83,250 if you qualify for the extended catch-up age range (60-63). These totals combine your employee deferrals (up to $24,500) and employer contributions (generally up to 25% of compensation).
What's the difference between a solo 401(k) and a SEP IRA?
The biggest difference is how contributions work: a solo 401(k) lets you contribute as both employee and employer, which means you can reach the annual limit at a much lower income level. A SEP IRA only allows employer contributions of up to 25% of earnings, so you'd need to earn at least $288,000 to hit the same annual cap. Solo 401(k)s also offer the possibility of a mega backdoor Roth, which SEP IRAs don't.
What happens to my solo 401(k) if I hire employees?
If you hire an employee who meets the eligibility threshold (generally 1,000+ hours per year, or 500+ hours in two consecutive years), your plan no longer qualifies as a solo 401(k) and must start operating as a standard 401(k) plan that covers eligible employees. Monitor employee hours and work with your plan provider to make the transition if needed.
Can I use a solo 401(k) to do a mega backdoor Roth?
Yes — if your solo 401(k) plan allows after-tax contributions (not all do), you can make after-tax employee contributions beyond your normal deferral limit and then roll them over into a Roth IRA. This "mega backdoor Roth" strategy can significantly boost your tax-free retirement savings, especially if you earn too much to contribute directly to a Roth IRA. Consult a tax professional before attempting this, as the rules are complex.
Disclosures
¹ Roth contributions are always distributed tax-free. Earnings on Roth contributions are distributed tax-free if the following conditions are met: (a) you're either over age 59 ½, disabled, or have died AND (b) it has been 5 years since your first Roth contribution under the current plan. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.
² Business structure flexibility applies to sole proprietorships, partnerships, S-corporations, and C-corporations.
³ Varies by age and may be adjusted annually to account for IRS cost-of-living adjustments.
⁴ This content is for informational purposes only and is not intended to be construed as tax or investment advice. You should consult a tax professional or financial advisor to consider all alternative options to rolling your money into a 401(k). Investing involves risk, and investments may lose value, including loss of principal.
⁵ You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.
⁶ IRA contribution limits referenced as of 2026; limits may increase annually.
⁷ For informational purposes only. This should not be considered financial, tax, or legal advice. Contact a financial professional to evaluate what retirement plan is best suited for your situation.
⁸ This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
