Solo 401(k)

A solo 401(k), formally a one-participant 401(k), is a standard 401(k) covering a business owner with no eligible employees, a spouse on payroll being the common exception. It carries both contribution channels: the employee deferral, $24,500 for 2026 per IRS Notice 2025-67, plus an employer profit-sharing contribution. The two are together capped by the $72,000 annual additions limit. Catch-up contributions add $8,000 from age 50, with a larger SECURE 2.0 catch-up from 60 to 63, and Roth deferrals are available, which the SEP IRA cannot offer.

The plan is the 401(k) rules applied to one person: no nondiscrimination testing, no annual Form 5500 until assets pass $250,000, and employer contributions deductible against business income. The trade is administration: an EIN, a plan document, and a December 31 deadline for employee deferrals that the SEP's extended deadline does not have.

The two channels compute separately. The employee deferral is up to 100% of compensation or $24,500 (2026), whichever comes first; for a self-employed owner the base is net earnings. The employer contribution is effectively 20% of adjusted net earnings after the deferral, which keeps the total inside the $72,000 annual additions limit. A freelancer with $150,000 of net profit defers $24,500 and adds roughly $23,000 of employer contribution, for roughly $47,500 total; a solo owner past 50 adds the $8,000 catch-up to the deferral channel, reaching $55,500.

The deadlines are asymmetric, and they are the part people miss. Employee deferrals must be elected and paid by December 31 of the tax year, because they are payroll-like; employer contributions can be funded until the tax-filing deadline including extensions, like the SEP. The plan must be established by December 31 for deferrals to count for that year, though the employer contribution itself can wait. Roth deferrals follow the same calendar and the same limits, and once plan assets pass $250,000, Form 5500-EZ becomes an annual filing. The asymmetry is a feature, but only if you know it exists.

For a freelancer or owner-only business, the solo 401(k) is the highest-capacity tax shelter available. At $150,000 of net profit it shelters roughly $47,500 against the SEP's roughly $27,900, and the gap widens as income climbs because the deferral channel stacks on top of the employer channel the SEP is capped at. Catch-ups add $8,000 from 50 and more from 60 to 63, which is why late starters with high 1099 income outgrow every alternative.

I watched a colleague named Brent (yes, that Brent) run a solo 401(k) for two years contributing only the employer slice, having never noticed the deferral channel existed. Two years of skipped $24,500 deferrals, compounded at 8%, left roughly $51,000 of forgone balance and a Roth option he never elected. The most expensive mistakes in this plan are the channels nobody opens.

The highest-leverage thing most solo earners can do is elect the deferral by December 31 and fund the employer slice by the tax deadline, checking the Roth box while the election is open. The self-employment tax calculator prices the formula, and the retirement savings calculator sizes the total against the ceiling.