What is a solo 401(k)?

A solo 401(k) is a regular 401(k) plan established by a self-employed person or small business owner for themselves, and optionally their spouse, with no other eligible employees. The IRS calls it a “one-participant 401(k)” (IRS.gov/retirement-plans/one-participant-401k-plans).

The key advantage over other self-employment retirement accounts: you wear two hats. As the employee, you can contribute up to the employee elective deferral limit. As the employer, you can add a profit-sharing contribution on top of that. The combined total can be significantly higher than the SEP-IRA contribution ceiling at the same income level.

How contributions work

Solo 401(k) contributions come from two sources:

Employee elective deferrals, up to $23,500 in 2025 ($24,500 in 2026), regardless of business income. This is the same limit as an employee contributing to a workplace 401(k). If you’re 50 or older, the catch-up contribution applies: +$7,500 in 2025 (+$8,000 in 2026). Ages 60–63 get the SECURE 2.0 special catch-up: +$11,250.

Employer profit-sharing contributions, up to 25% of net self-employment income (after deducting the self-employment tax deduction).

The total from both sources cannot exceed the annual additions limit: $70,000 in 2025 ($71,000 in 2026), not counting catch-up contributions.

How contributions compare to SEP-IRA at the same income

At lower income levels, the solo 401(k) allows substantially higher contributions because of the employee deferral. The SEP-IRA is limited to 25% of net self-employment income with no employee deferral component.

(Illustrative examples based on 2025 limits; actual amounts depend on exact net SE income and applicable deductions. Consult a tax professional for your situation.)

At high income levels (roughly $200,000+ in net SE income), the SEP-IRA closes the gap because the 25% employer contribution dominates. But for most self-employed people earning under $150,000, the solo 401(k) allows meaningfully larger contributions.

Traditional vs Roth solo 401(k)

Many solo 401(k) providers offer both traditional (pre-tax) and Roth options. The employee deferral portion can be made as either traditional or Roth; employer profit-sharing contributions must be traditional (pre-tax), regardless.

This Roth option is not available in a SEP-IRA, giving the solo 401(k) additional flexibility for people who want tax-free growth on a portion of their retirement savings.

Who qualifies

You qualify for a solo 401(k) if you have self-employment income from any source, freelance work, consulting, a side business, and no full-time employees other than a spouse. Part-time employees who work fewer than 1,000 hours per year and meet certain age and service requirements may be excludable (plan-specific rules apply).

If you hire a full-time employee, you must either include them in the 401(k) or switch to a different plan type that covers employees.

Your spouse can participate if they earn income from the business, effectively doubling the contribution capacity of the household for that business.

Setting one up

Solo 401(k) plans are offered by major brokerages (Fidelity, Vanguard, Schwab, E*TRADE) with no annual fees. To make employee elective deferrals for a given tax year, the plan must be established by December 31 of that year. Employer profit-sharing contributions can be made up until the tax filing deadline (including extensions).

If your solo 401(k) plan assets exceed $250,000, you must file IRS Form 5500-EZ annually. Below that threshold, no separate annual filing is required.

When the SEP-IRA is simpler

For high earners who don’t need the Roth option and want simpler administration, the SEP-IRA is easier to set up and has no December 31 establishment deadline, it can be opened up to the tax filing deadline of the prior year. Many accountants recommend the solo 401(k) for its higher contribution ceiling at moderate incomes, and the SEP-IRA for simplicity when income is consistently high.

Key dates and limits