Solo 401k Calculator: How Self-Employed People Can Save $70,000 Per Year

The Solo 401k — also called an Individual 401k or One-Participant 401k — is the most powerful retirement savings tool for self-employed individuals. The 2026 combined contribution limit is $70,000. A SEP-IRA caps at $70,000 but lacks the Roth option and loan provisions. The solo 401k does both.

How Solo 401k Contributions Work

There are two contribution components:

Employee contribution (elective deferral):

• Up to 100% of earned income, max $23,500 in 2026
• Age 50+: additional $7,500 catch-up ($31,000 total)
• Can be traditional (pre-tax) or Roth

Employer contribution (profit sharing):

• Up to 25% of W-2 wages (if your business pays you a W-2) or approximately 20% of net self-employment income for sole proprietors
• Must be traditional (pre-tax)
• Combined with employee contribution, cannot exceed $70,000 ($77,500 age 50+)

Contribution Limits by Income Level (2026)

Net self-employment income after SE tax deduction:

| Net SE Income | Employee Contribution | Employer (25% of SE) | Total Contribution | |--------------|----------------------|----------------------|-------------------| | $30,000 | $23,500 | $5,587 | $29,087 | | $50,000 | $23,500 | $9,311 | $32,811 | | $75,000 | $23,500 | $13,966 | $37,466 | | $100,000 | $23,500 | $18,622 | $42,122 | | $150,000 | $23,500 | $27,932 | $51,432 | | $200,000 | $23,500 | $37,243 | $60,743 | | $250,000+ | $23,500 | $46,500 | $70,000 |

The employer contribution formula for sole proprietors is: net SE income × 25/125 (approximately 20%).

Solo 401k vs. SEP-IRA vs. SIMPLE IRA

| Feature | Solo 401k | SEP-IRA | SIMPLE IRA | |---------|----------|---------|-----------| | 2026 max contribution | $70,000 | $70,000 | $16,500 + 3% match | | Roth option | Yes | No | No | | Loan allowed | Yes (up to $50k) | No | No | | Who qualifies | Self-employed with no employees (except spouse) | Self-employed, any size business | Up to 100 employees | | Catch-up age 50+ | Yes ($7,500) | No | Yes ($3,500) | | Administrative cost | Low-moderate | Very low | Low |

The solo 401k beats SEP-IRA at all income levels because:

1. At low income, the employee deferral component allows larger contributions
2. The Roth option is valuable for lower-income years
3. Loan provision provides emergency access without penalty

Lower Income Advantage: Solo 401k vs. SEP-IRA

$50,000 net SE income:

| Account | Max Contribution | |---------|----------------| | SEP-IRA | $9,311 (25% of ~$37,245 net) | | Solo 401k | $32,811 ($23,500 employee + $9,311 employer) |

At $50,000 income, the solo 401k allows $23,500 more in contributions — reducing taxable income by an extra $23,500.

Tax Savings Calculation

$100,000 net SE income, 22% bracket, solo 401k contributions:

| Contribution | Tax Savings (22% bracket + 15.3% SE) | |-------------|--------------------------------------| | $23,500 (employee only) | $5,170 income tax + SE reduction | | $42,122 (employee + employer) | $9,267 income tax savings |

Pre-tax solo 401k contributions reduce both income tax AND the deductible portion of SE tax, creating a combined savings rate of approximately 25-30% on each dollar contributed.

Roth Solo 401k Strategy

The employee deferral portion can be directed to Roth (after-tax). This works well in lower-income years when your current tax rate is lower than your expected retirement rate.

Income under $60,000: Contributing $23,500 to Roth solo 401k sacrifices a $5,170 tax deduction today but builds $23,500 in Roth assets that grow and distribute tax-free. Use Roth in lean years, traditional in high-income years.

Setting Up a Solo 401k

Requirements:

• No full-time employees (part-time employees working fewer than 1,000 hours/year may be excluded)
• Self-employment income from a business you own

Providers: Fidelity, Vanguard, Charles Schwab all offer free solo 401k plans. Plans with investment flexibility or Roth options may require a prototype plan document.

Deadline: The plan must be established by December 31 of the tax year. Contributions can be made up to the tax filing deadline (including extensions).

Frequently Asked Questions

Can my spouse contribute to a solo 401k?

Yes, if your spouse earns income from the business. A spouse employed by the business can make their own employee contributions up to $23,500. Combined spousal contributions can reach $140,000 per year for a couple on $250,000+ in combined SE income.

What happens to the solo 401k if I hire employees?

Once you hire a full-time employee (1,000+ hours per year), you must either terminate the solo 401k and roll it to an IRA/other plan, or convert it to a regular 401k with employer match requirements for eligible employees. The solo 401k is specifically designed for owner-only businesses.

Do I need to file anything with the IRS for a solo 401k?

A solo 401k with assets under $250,000 at year-end requires no annual filing. Once assets exceed $250,000, you must file Form 5500-EZ annually. Failure to file carries a $250/day penalty. Set a calendar reminder when your account approaches this threshold.