Compute your maximum Solo 401(k) contribution as a self-employed sole proprietor.
Maximum total Solo 401(k) contribution
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Employee deferral
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Employer profit-sharing (20% of net SE after half-SE tax)
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Federal tax savings (at 32% marginal)
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Combined limit (2026)
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Your breakdown
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Two hats, one person, much higher limits
The Solo 401(k) exists because the IRS lets a self-employed person wear two hats at once. You are the employee, so you can make an employee deferral, and you are also the employer, so you can make a profit-sharing contribution on top. For 2026 the employee deferral cap is $24,500. The standard age-50 catch-up is $8,000, while ages 60–63 may use an $11,250 catch-up. Employee and employer contributions are otherwise capped at $72,000 before catch-up. This calculator applies the age-specific limit.
The 20% rule that everyone gets wrong
The employer profit-sharing piece is where mistakes happen. The published limit is "25% of compensation," and people apply 25% straight to their net income. That overstates the contribution. For a sole proprietor, compensation is not your raw net earnings, it is net earnings after subtracting half of your self-employment tax. And once you work the circular math through, the effective rate against your net self-employment income lands at 20%, not 25%. The tool handles this for you, but seeing the steps explains why your employer contribution is smaller than you might expect.
A sole proprietor with $120,000 of net income, age 40
Start with $120,000 of net self-employment income. Self-employment tax is 15.3% on 92.35% of that, which comes to $16,955. Half of that, $8,478, is deductible, so your compensation base is $111,522. Multiply by 20% and the employer share is $22,304. Add the full $24,500 employee deferral and your total contribution is $46,804, comfortably under the $72,000 ceiling. At a 32% marginal rate, that contribution trims federal income tax by roughly $14,977.
The chart below shows how the deferral and the profit-sharing piece combine, and how far the total sits below the $72,000 cap.
Who should open one, and a deadline worth circling
The Solo 401(k) is for owner-only businesses: sole proprietors, single-member LLCs, S-corps, and partnerships with no employees other than a spouse. The moment you hire a non-spouse W-2 employee, the plan has to convert to a regular 401(k) or be shut down. One timing detail that catches new plan owners: to make employee deferrals for a tax year, the plan generally must be established by December 31 of that year, even though you can fund the employer profit-sharing portion as late as your filing deadline. If you are reading this in December thinking about a deferral, set up the account before the year closes.
Further questions
Can I make Roth contributions inside a Solo 401(k)?
Yes. Most Solo 401(k) providers allow the employee deferral to be designated as Roth, meaning you pay tax now and the growth comes out tax-free in retirement. The employer profit-sharing portion is traditional pre-tax money. Recent rules also opened the door to Roth treatment of employer contributions at some providers, so check what your plan document permits.
How does an S-corp owner's calculation differ from a sole proprietor's?
An S-corp owner is paid a W-2 salary, so the employer contribution is a clean 25% of that salary with no half-SE-tax adjustment, because payroll taxes are already handled separately. This calculator models the sole-proprietor path with the 20% effective rate. An S-corp owner with a modest salary can sometimes contribute less on the employer side, which is one reason the salary level matters in S-corp planning.
It is worth pressing on why the Solo 401(k) so often beats a SEP IRA, because the difference is largest at exactly the income levels most solo operators occupy. Both plans share the same roughly 20% employer-side rate against net self-employment earnings, so at modest income the SEP alone leaves a lot of unused room. The Solo 401(k) adds the employee deferral on top. A freelancer netting $60,000 may be able to defer up to $24,500 as the employee, then layer the employer share above it, subject to plan compensation. The catch is administration: once your plan balance crosses $250,000 you must file a short annual Form 5500-EZ with the IRS, a form a SEP never requires.