Updated 19 April 2026. A Solo 401(k), also called a one-participant 401(k), is a retirement plan for a business owner with no employees other than a spouse. It is one of the highest-capacity retirement tools available to self-employed people.
For 2026, the employee elective deferral limit is USD 24,500. The overall defined-contribution limit is USD 72,000 before catch-up contributions. The exact amount you can contribute depends on compensation, age, business structure, and plan terms.
This guide updates the old article with current IRS limits, clearer eligibility rules, and a practical setup checklist.
A Solo 401(k) is a 401(k) plan for an owner-only business. It can be used by a sole proprietor, LLC owner, partnership, S corporation, or C corporation when the business has no eligible employees other than the owner and, if applicable, the owner's spouse.
It is powerful because the owner can contribute in two roles: employee and employer. That can make the Solo 401(k) more efficient than a SEP IRA for some self-employed people, especially at moderate to high income levels.
You need self-employment or business income and no eligible common-law employees other than a spouse. If you hire employees who meet plan eligibility rules, the plan may need to become a regular 401(k) with broader coverage, testing, and administration.
Part-time and long-term part-time worker rules can be complex, so do not assume that a worker is irrelevant just because they are not full-time. Review eligibility annually if your business is growing.
For 2026, the elective deferral limit for 401(k) plans is USD 24,500. The overall defined-contribution limit is USD 72,000 before catch-up contributions. Catch-up contributions may be available for older participants, and special age-based catch-up rules can apply depending on the year and plan design.
For corporations, employer contributions are generally based on W-2 wages. For sole proprietors and partners, the calculation uses net self-employment income after required adjustments. IRS Publication 560 is the key reference for calculations.
Solo 401(k) plans may allow traditional pre-tax deferrals, Roth deferrals, or both, depending on the plan document. Traditional contributions can reduce current taxable income, while Roth contributions are made after tax and may support tax-free qualified withdrawals later.
SECURE 2.0 expanded Roth flexibility for some employer contributions, but your provider and plan document must support the feature. Do not assume every off-the-shelf Solo 401(k) offers the same options.
If a spouse performs genuine work for the business and receives eligible compensation, they may be able to participate in the Solo 401(k). This can increase household retirement savings, but compensation must be reasonable and properly documented.
Some Solo 401(k) plans allow participant loans. A common rule allows borrowing up to 50% of the vested account balance, capped at USD 50,000, with repayment terms and interest requirements. Not every provider permits loans, and missed repayments can create taxable distributions.
Retirement funds should not be treated as routine working capital. Use loan features only after understanding tax, liquidity, and investment consequences.
A one-participant plan generally must file Form 5500-EZ when plan assets exceed USD 250,000 at the end of the plan year. A filing is also generally required for the final year when the plan is terminated.
Keep records of the plan document, adoption agreement, contributions, rollovers, investments, loans, and year-end balances. Administrative errors can be costly even when the plan is owner-only.
This guide is provided for general informational purposes only and does not constitute legal, tax, financial, immigration, or other professional advice from ALTERY LTD or its affiliates. Rules and fees can change after publication. Check the relevant government authority and speak with a qualified adviser before making decisions.
Altery makes no representations, warranties, or guarantees, whether express or implied, that the information in this guide is accurate, complete, or up to date.
