Executive Summary

A Solo 401(k), which the IRS calls a one-participant 401(k), lets an owner-only business contribute in two different capacities: first as the employee through elective deferrals, and second as the employer through nonelective or profit-sharing contributions. For 2026, the core numbers are straightforward but the mechanics are not. The employee elective-deferral limit is $24,500, or 100% of compensation if compensation is lower. The overall annual-additions limit for defined contribution plans is $72,000 for 2026, not counting catch-up contributions, and the compensation cap used for plan calculations is $360,000. On top of that, catch-up rules now matter more than ever: the regular catch-up is $8,000 in 2026, while the enhanced catch-up for those who attain ages 60, 61, 62, or 63 during the year is $11,250. That means the practical Solo 401(k) ceiling is $72,000 if you are under 50, $80,000 if you are in the regular catch-up group, and as much as $83,250 if you are in the age-60-to-63 enhanced catch-up window, always subject to having enough compensation or earned income to support the contribution. (IRS Notice 2025-67; IRS Retirement Topics: Contributions; IRS Retirement Topics: 401(k) and Profit-Sharing Plan Contribution Limits; IRS Retirement Topics: Catch-Up Contributions.)

The analytical difficulty is not the dollar limits themselves. It is the compensation base. A Schedule C sole proprietor and a single-member LLC taxed as a disregarded entity do not use the same contribution math as an S corporation owner on payroll. Sole proprietors and disregarded single-member LLCs generally work from net earnings from self-employment after deducting one-half of self-employment tax and after accounting for the owner’s own contribution through the IRS worksheets. S corporation and C corporation owners, by contrast, generally use W-2 compensation actually paid by the corporation, and S corporation distributions do not count as retirement-plan compensation. That distinction often determines whether a business owner can approach the maximum or falls far short of it. (IRS Publication 560; IRS Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution and Deduction; IRS Retirement Plan FAQs Regarding Contributions — S Corporation; IRS One-Participant 401(k) Plans.)

The other major 2026 development is the Roth catch-up rule under SECURE 2.0. For catch-up-eligible participants whose prior-year wages from the employer sponsoring the plan exceeded $150,000 for 2026, catch-up contributions must be made as Roth contributions. The statute measures this threshold using wages under Internal Revenue Code section 3121(a), which is essentially a FICA wage concept tied to the plan sponsor. In practical terms, that means the rule primarily affects owners who pay themselves W-2 wages through an S corporation or C corporation. Pure Schedule C filers often do not have prior-year W-2 wages from the plan sponsor to trigger the rule, although that conclusion should be confirmed with a CPA when facts are unusual. The IRS also added an extra wrinkle: the statutory mandate took operational effect after the transition period ended on December 31, 2025, but the final regulations generally apply beginning in taxable years after December 31, 2026, with earlier years permitted to rely on a reasonable, good-faith interpretation of the statute. (IRS Notice 2023-62; IRS Retirement Topics: Catch-Up Contributions; IRS Notice 2025-67; Treasury/IRS News Release on Final Roth Catch-Up Regulations.)

The Contribution Architecture

The IRS treats a Solo 401(k) as a traditional 401(k) plan covering a business owner with no employees, or that owner and a spouse. In other words, it is not a separate species of retirement plan with special contribution laws; it is a regular 401(k) plan applied to an owner-only business. That is why the same Code limits that govern larger 401(k) plans also govern Solo 401(k) plans. The distinctive advantage is that the owner can contribute in both roles. The employee side is the elective deferral. The employer side is the nonelective or profit-sharing contribution. (IRS One-Participant 401(k) Plans.)

For the employee side, the 2026 elective-deferral limit is $24,500, or 100% of compensation if compensation is lower. The IRS states this limit in its general contribution guidance, in its 401(k) limit page, and specifically in its one-participant 401(k) guidance. For self-employed individuals, the IRS treats “compensation” for this purpose as earned income rather than W-2 wages. The employee elective deferral may be traditional pre-tax, designated Roth if the plan allows it, or split between the two in any proportion the plan permits. What matters is that the combined elective deferral across all plans for the year cannot exceed the personal dollar limit. (IRS Retirement Topics: Contributions; IRS Retirement Topics: 401(k) and Profit-Sharing Plan Contribution Limits; IRS One-Participant 401(k) Plans; IRS FAQs on Designated Roth Accounts.)

For the employer side, a one-participant 401(k) may allocate nonelective contributions of up to 25% of compensation as defined by the plan. The important caveat is that “25% of compensation” is mechanically simple for a corporation paying W-2 wages, but not for a self-employed sole proprietor. The IRS explicitly says self-employed individuals must make a special computation and use the worksheets in Publication 560 because plan compensation equals net earnings from self-employment reduced by one-half of self-employment tax and by the owner’s own contribution, creating a circular formula. In practice, a plan written with a 25% employer contribution rate becomes an effective 20% rate on adjusted self-employment earnings under the reduced-rate method. (IRS One-Participant 401(k) Plans; IRS Publication 560; IRS Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution and Deduction; Charles Schwab Individual 401(k) Contribution Limits.)

The combined ceiling is the next layer. The IRS says annual additions to defined contribution plans in 2026 cannot exceed the lesser of 100% of compensation or $72,000, with catch-up contributions sitting outside that $72,000 limit. The annual-additions concept covers elective deferrals, employer matching contributions, employer nonelective contributions, and forfeiture allocations, but not catch-ups. This is why a younger owner who puts in the full $24,500 employee deferral can generally add no more than $47,500 on the employer side before hitting the $72,000 ceiling. It is also why catch-up contributions increase the practical maximum without raising the underlying annual-additions limit itself. (IRS Notice 2025-67; IRS Retirement Topics: 401(k) and Profit-Sharing Plan Contribution Limits; IRS Publication 560.)

The compensation limit is the final structural cap. For 2026, the annual compensation limitation under Internal Revenue Code section 401(a)(17) rises to $360,000. That does not mean a Solo 401(k) owner can necessarily contribute 25% of $360,000 plus the full employee deferral; the $72,000 annual-additions maximum still cuts that off first. But the compensation cap matters for higher-earning owners because it defines how much compensation can be taken into account when applying the plan formula. (IRS Notice 2025-67; IRS Publication 560.)

How Business Structure Changes the Math

For a sole proprietor, or for a single-member LLC taxed as a disregarded entity, the starting point is not payroll. It is business profit. The IRS says a single-member LLC is disregarded for federal income tax purposes unless it elects corporate treatment, and its activity usually flows to the owner’s Schedule C, Schedule E, or Schedule F. Publication 560 then makes the retirement-plan consequence explicit: a sole proprietor includes a single-member LLC treated as a disregarded entity, and for retirement-plan purposes a sole proprietor is treated as both an employer and an employee. That means the owner is self-employed, not a W-2 employee of the business, and contribution calculations are based on earned income derived from net earnings from self-employment. (IRS Single-Member Limited Liability Companies; IRS Publication 560.)

The IRS’s self-employed calculation rules are more than a technical footnote. They materially lower the base on which employer contributions are calculated. To compute plan compensation, the IRS says you must reduce net earnings from self-employment by the deductible portion of self-employment tax and by your own contribution. Because plan compensation and the contribution depend on each other, the IRS directs self-employed filers to the reduced-rate worksheets in Publication 560. This is why practitioners often summarize the rule as “25% for corporations, about 20% for Schedule C owners,” but the deeper truth is that 20% is not a change in law; it is the mathematical result of the IRS reduced-rate computation. (IRS Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution and Deduction; IRS Publication 560; Charles Schwab Individual 401(k) Contribution Limits.)

For an S corporation, the center of gravity shifts from business profit to payroll. The IRS is clear that S corporation distributions are not earned income for retirement-plan purposes, so they cannot support either a self-employed retirement plan contribution or a 401(k) contribution. If the owner is a common-law employee of the S corporation, employee salary deferrals and employer contributions are based on Form W-2 compensation, not on shareholder distributions. The IRS’s separate S corporation guidance and its officer-compensation guidance both reinforce the same theme: officers who perform services are employees, wages are wages, and distributions are not a substitute for compensation. That makes reasonable W-2 salary a retirement-planning issue as well as a payroll-tax issue. (IRS Retirement Plan FAQs Regarding Contributions — S Corporation; IRS S Corporation Employees, Shareholders and Corporate Officers.)

A C corporation owner generally lands in the same computational lane as an S corporation owner for Solo 401(k) purposes. Publication 560 states that compensation for plan allocations is pay received for personal services and may generally be defined using wages and salaries, income-tax-withholding wages, Form W-2 box 1 wages, or Social Security wages including elective deferrals, depending on the plan definition. The IRS also states that corporate officers who perform services and receive or are entitled to compensation are employees whose payments are wages for employment-tax purposes. Put together, those rules mean a C corporation owner’s Solo 401(k) limit is generally tied to actual W-2 compensation paid by the corporation, not to retained earnings or dividends. (IRS Publication 560; IRS S Corporation Employees, Shareholders and Corporate Officers.)

A single-member LLC that has elected S corporation or C corporation tax treatment follows the corporate rules, not the Schedule C rules. The IRS says LLC classification depends on the entity’s tax election. So the practical sequence is simple: first identify how the entity is taxed for federal purposes; then apply the compensation rules for that tax regime. Owners often miss this and assume “LLC” is itself the contribution rule. It is not. For Solo 401(k) contribution math, the decisive question is whether the owner is using self-employment income or W-2 wages. (IRS Single-Member Limited Liability Companies; IRS Publication 560; IRS Retirement Plan FAQs Regarding Contributions — S Corporation.)

Catch-Up Contributions and the Roth Mandate

Catch-up contributions are still elective deferrals, but they live outside the normal annual-additions ceiling. For 2026, the regular catch-up amount for most non-SIMPLE 401(k) participants age 50 or older is $8,000. Under SECURE 2.0, the enhanced catch-up applies only to participants who attain age 60, 61, 62, or 63 during the year, and for 2026 that enhanced amount is $11,250. Because the employer-plus-employee annual-additions cap is $72,000 before catch-up, the practical totals become $80,000 for those in the regular catch-up group and as much as $83,250 for those in the enhanced group. The reason age 64 returns to the lower catch-up amount is that the enhanced rule is limited to the ages 60 through 63 window. (IRS Notice 2025-67; IRS Retirement Topics: Catch-Up Contributions; IRS Retirement Topics: 401(k) and Profit-Sharing Plan Contribution Limits; Charles Schwab Individual 401(k) Contribution Limits.)

Catch-up also has a compensation test. The IRS says a participant can make catch-up contributions up to the lesser of the catch-up dollar limit or the excess of compensation over non-catch-up elective deferrals. So even if someone is age 61 and the enhanced catch-up number is $11,250, the full amount is available only if compensation is high enough and the plan permits the contribution. Catch-up contributions must also be made before the end of the plan year. (IRS Retirement Topics: Catch-Up Contributions.)

The more disruptive rule is the Roth catch-up mandate. SECURE 2.0 added section 414(v)(7), which provides that when an eligible participant’s prior-year wages from the employer sponsoring the plan exceed the indexed threshold, catch-up contributions must be designated Roth contributions. Notice 2025-67 indexed that threshold from $145,000 to $150,000 for 2026. The IRS catch-up page then states the operational rule plainly: beginning in 2026, participants in plans with Roth features offering catch-up contributions must make catch-up contributions on a Roth basis if prior-year wages with the plan sponsor exceeded $150,000 for 2026. (IRS Notice 2023-62; IRS Notice 2025-67; IRS Retirement Topics: Catch-Up Contributions.)

There is an implementation nuance that careful plan owners should understand. Treasury and the IRS announced in 2025 that the final regulations generally apply to contributions in taxable years beginning after December 31, 2026, and that plans may rely on a reasonable, good-faith interpretation of the statute before 2027. At the same time, the IRS also said the transition relief in Notice 2023-62 ends on December 31, 2025. Read together, those statements mean that 2026 is the first real operational year for the Roth catch-up mandate, even though the final regulations themselves generally become applicable in 2027. For most business owners, the practical takeaway is simple: do not assume you can keep making pre-tax catch-ups in 2026 if your prior-year sponsor wages exceed the threshold. (Treasury/IRS News Release on Final Roth Catch-Up Regulations; IRS Notice 2023-62; IRS Retirement Topics: Catch-Up Contributions.)

This rule primarily hits S corporation and C corporation owner-employees because it is driven by prior-year FICA-type wages from the employer sponsoring the plan. That is a different concept from the general elective-deferral limit, which is aggregated across all plans by person. For a pure Schedule C sole proprietor or a disregarded single-member LLC owner with no W-2 wage history from the plan sponsor, the statutory wage trigger usually is not present. That is an inference from the Code’s use of section 3121(a) wages and from the IRS’s treatment of sole proprietors as self-employed rather than W-2 employees, but it is the standard practical reading and aligns with how retirement-plan practitioners have analyzed the rule. Even so, owners should confirm the result with a tax adviser when the business has multiple entities, common-paymaster rules, or midyear entity elections. (IRS Notice 2023-62; IRS Publication 560; IRS Single-Member Limited Liability Companies; Treasury/IRS News Release on Final Roth Catch-Up Regulations.)

Coordinating Other Plans, Rollovers, Loans, and Roth Features

The single most common coordination mistake is double-counting employee deferrals. The IRS says elective deferrals are aggregated across all plans in which you participate. Its one-participant 401(k) page says the limit is by person, not by plan, and its 401(k) contribution-limit page gives an example of a worker with a day-job 401(k) and a solo 401(k) who cannot make a second full employee deferral in the side-business plan after already using the personal deferral maximum at the regular employer. This is why a physician, consultant, executive, or teacher with a W-2 plan and a serious side business often has plenty of employer-contribution room in a Solo 401(k) but little or no remaining employee-deferral room. (IRS Retirement Topics: 401(k) and Profit-Sharing Plan Contribution Limits; IRS One-Participant 401(k) Plans; Fidelity Solo 401(k) Contribution Limits.)

The employer side is different. The IRS’s contribution-limit page says annual additions are limited for plans maintained by one employer and any related employer, which means unrelated-employer plans do not automatically collapse into one employer-contribution bucket. That is why an owner who has already maxed employee deferrals at a day job may still be able to make an employer contribution to an unrelated side-business Solo 401(k), assuming the side business has enough earned income or W-2 compensation to support it. This distinction—shared employee cap, separate employer formula—is the core coordination rule. (IRS Retirement Topics: 401(k) and Profit-Sharing Plan Contribution Limits; IRS One-Participant 401(k) Plans.)

Rollovers add another analytical layer, but they can be powerful if used correctly. The IRS says you can roll money into almost any type of retirement plan or IRA, subject to the rollover chart and to whether the receiving plan accepts rollovers. Just as important, the IRS also says a retirement plan is not required to accept rollover contributions, so the plan document or custodian platform matters. From the IRS rollover chart, pre-tax qualified plan money can generally roll into another qualified plan, and traditional IRA money can generally roll into a qualified plan as well. By contrast, a Roth IRA cannot roll into a qualified plan. Designated Roth account money may roll to another designated Roth account or to a Roth IRA, subject to the applicable direct-rollover rules. (IRS Rollovers of Retirement Plan and IRA Distributions; IRS Rollover Chart; IRS FAQs on Designated Roth Accounts.)

Rollovers do not use up your current-year contribution room. Publication 560 defines annual additions as contributions, employee contributions excluding rollovers, and forfeitures. That means consolidating an old 401(k) or a traditional IRA into a Solo 401(k), if the plan allows it, generally does not consume any part of the $72,000 annual-additions limit. That is one reason Solo 401(k) owners often use rollovers as an account-consolidation strategy while preserving their full current-year contribution capacity. (IRS Publication 560.)

Participant loans are another widely discussed Solo 401(k) feature, but they are optional, not mandatory. The IRS says a plan may permit loans, but it does not have to. If the plan allows them, the maximum amount is generally the lesser of 50% of the vested account balance or $50,000, with a possible $10,000 minimum-loan exception in small-balance cases. IRS loan-correction guidance adds the usual repayment architecture: level amortized payments at least quarterly, a term generally not longer than five years unless the loan is used to purchase a main home, and written documentation strong enough to show the loan truly satisfies Code section 72(p). (IRS Retirement Topics: Loans; IRS 401(k) Plan Fix-It Guide for Participant Loans.)

Roth features deserve separate attention because they are not the same as Roth IRAs. The IRS says designated Roth contributions are elective deferrals made after tax into a separate Roth account inside the 401(k), and there are no income limits on whether you can make them. A plan that offers designated Roth contributions must separately account for Roth contributions and their gains and losses, and it must also continue to offer pre-tax elective deferrals. A Solo 401(k) owner can therefore decide each year whether the employee deferral should be traditional, Roth, or split, assuming the plan document allows the Roth feature. That flexibility becomes especially important in 2026 because high-wage catch-up contributions may be forced into Roth format. (IRS Retirement Topics: Contributions; IRS FAQs on Designated Roth Accounts.)

Worked Contribution Examples

The examples below are illustrations of the mechanics, not individualized tax advice. They assume the plan document permits the contribution type in question and that the business otherwise qualifies for a Solo 401(k). The numerical walkthroughs are based on the IRS formulas and 2026 dollar limits already discussed. (IRS One-Participant 401(k) Plans; IRS Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution and Deduction; IRS Retirement Topics: 401(k) and Profit-Sharing Plan Contribution Limits.)

One. Sole proprietor, age 45, Schedule C net profit of $100,000. Start with Schedule C net profit of $100,000. Under the self-employed method, first reduce profit by one-half of self-employment tax. Using the standard IRS self-employment formula on that income level produces self-employment tax of about $14,130, so the deductible half is about $7,065. That leaves about $92,935 before accounting for the owner’s own retirement contribution. Using the reduced-rate method that corresponds to a 25% plan formula, the employer contribution is about 20% of that adjusted amount, or about $18,587. The owner may also make an employee elective deferral of $24,500 because compensation is high enough to support it. Total 2026 Solo 401(k) contribution: about $43,087. This is why Schedule C owners so often discover that their “25% employer contribution” is effectively closer to 20% after the IRS computations are applied. (IRS Self-Employed Individuals: Calculating Your Own Retirement Plan Contribution and Deduction; IRS Publication 560; IRS Retirement Topics: Contributions.)

Two. S corporation owner, age 45, $190,000 of W-2 wages and additional shareholder distributions. Because the business is an S corporation, the retirement-plan calculation is based on W-2 compensation, not on shareholder distributions. The owner may defer $24,500 as employee elective deferrals. The corporation may contribute 25% of W-2 compensation on the employer side, which on $190,000 of W-2 wages is $47,500. Added together, that reaches exactly $72,000, which is the under-50 annual-additions limit for 2026. The S corporation could distribute additional profits to the owner, but those shareholder distributions do not increase the Solo 401(k) limit. (IRS Retirement Plan FAQs Regarding Contributions — S Corporation; IRS One-Participant 401(k) Plans; IRS Notice 2025-67.)