Solo 401(k)
A Solo 401(k) is a retirement plan for a self-employed person with no employees other than a spouse, letting you contribute as both the employee and the employer—up to $72,000 in 2026, or $80,000 if you're 50 or older.
The reason a Solo 401(k) beats a SEP IRA for most one-person businesses is that you fund it from two sides. Wearing the employee hat, you can defer up to $24,500 of your own pay in 2026. Wearing the employer hat, you add a profit-sharing contribution—25% of your W-2 wages if you run an S-corp, or roughly 20% of net self-employment income if you're a sole proprietor. Stack the two and the combined ceiling is $72,000.
Turn 50 and the math gets better. You get an $8,000 catch-up on the employee side, pushing your personal total to $80,000. If you're between 60 and 63, SECURE 2.0's enhanced catch-up bumps that figure to $11,250 instead of $8,000—provided your plan document actually allows it, which not every off-the-shelf plan does. One wrinkle to watch: if your prior-year FICA wages topped $150,000 for 2026, the catch-up has to go in as Roth.
Roth is the other reason people open these. A Solo 401(k) can hold a Roth bucket for your employee deferrals, so you can pay tax now and pull the growth out tax-free later. SEP IRAs only recently gained that ability and few custodians support it cleanly. You can also borrow against the plan—up to $50,000 or half your vested balance, whichever is less—which is something no IRA permits.
The headcount rule is the catch. The plan only works while you have no full-time W-2 employees besides yourself and your spouse. Hire someone who clears the eligibility threshold and you're into a conventional 401(k) with all its testing and coverage rules. So this is a tool for solos, spousal partnerships, and freelancers who plan to stay lean.
OBBBA didn't touch any of these contribution numbers—they come from the IRS's annual cost-of-living adjustments, not the 2025 tax bill. What OBBBA did do is lock in the 10% through 37% rate brackets permanently, so the deduction you take today is sheltering income at rates that aren't snapping back to pre-2018 levels. Your contribution deadline still tracks your tax filing date, extensions included, for the employer piece.
Practical Example
Tom, 45, runs an S-corp and pays himself a $90,000 W-2 salary. He defers the full $24,500 as the employee, then the company kicks in 25% of his wages—$22,500—as the employer profit-sharing piece. That's $47,000 sheltered in one year, comfortably under the $72,000 cap. At a 32% marginal rate, the deferral and deduction save him about $15,040 in tax.