Solo 401(k)

What a solo 401(k) is

A solo 401(k) is a regular 401(k) that covers only a business owner, or the owner and a spouse. It follows the same rules as any 401(k), but with no other employees there is no nondiscrimination testing.

The owner wears two hats:

• As the employee, they can defer up to $24,500 in 2026, plus $8,000 in catch-up contributions at age 50 or older ($11,250 at ages 60 to 63).

• As the employer, they can add a nonelective contribution of up to 25% of compensation. For a sole proprietor or partner the calculation uses net self-employment earnings, which works out to about 20%.

Total contributions other than catch-up cannot exceed $72,000 in 2026.

For 2027 the limits rise to $25,500 in deferrals and $75,000 in total contributions. (IRS Notice 2026-66)

Why it matters to employers

A solo 401(k) only works while you have no common-law employees. Once you hire someone who meets the plan’s eligibility rules, the plan must cover them and it becomes a standard 401(k) with testing, notices and a full Form 5500. Owners who expect to hire often start with a plan that can grow with them.

Example

An owner aged 45 pays herself $100,000 in W-2 wages from her S corporation. She can defer $24,500 and the company can contribute 25% of pay, or $25,000, for a total of $49,500 in 2026.

Common mistakes

• Forgetting that the deferral limit is per person, not per plan. Deferrals to a day-job 401(k) count against the same $24,500.

• Missing Form 5500-EZ. The IRS generally requires it once plan assets reach $250,000 at year end.

• Keeping the plan after hiring eligible employees without covering them.

• Ignoring controlled group rules when the owner has a second business with employees.