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Retirement Planning

Solo 401(k) & Self-Employed Retirement Plans

Self-employed people can use a solo 401(k), SEP IRA, SIMPLE IRA, or defined benefit plan; in 2026 a solo 401(k) allows up to $72,000 plus catch-ups.

Solo 401(k) & Self-Employed Retirement Plans

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The short answer

  • Self-employed people without employees commonly choose among a solo 401(k), SEP IRA, SIMPLE IRA, or a defined benefit plan.
  • A solo 401(k) combines employee deferrals with employer profit-sharing, up to $72,000 total in 2026 before catch-ups.
  • A SEP IRA is simpler but has no employee deferral, so reaching the same total takes more self-employment income.
  • Defined benefit and cash balance plans can allow larger deductions for older, high-income owners, at higher cost.
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Full Guide

The short answer

  • Self-employed people without employees commonly choose among a solo 401(k), SEP IRA, SIMPLE IRA, or a defined benefit plan.
  • A solo 401(k) combines employee deferrals with employer profit-sharing, up to $72,000 total in 2026 before catch-ups.
  • A SEP IRA is simpler but has no employee deferral, so reaching the same total takes more self-employment income.
  • Defined benefit and cash balance plans can allow larger deductions for older, high-income owners, at higher cost.

How much can go into a solo 401(k) in 2026?

  • As the employee, you can defer up to $24,500, plus an $8,000 catch-up at 50+ or $11,250 at ages 60–63.
  • As the employer, a sole proprietor can add about 20% of net self-employment earnings; an S-corp can add 25% of W-2 pay.
  • Total additions, excluding catch-ups, are capped at $72,000, with pay above $360,000 ignored in the formula.
  • The deferral limit is per person across all 401(k)s, so a day-job 401(k) reduces your solo 401(k) deferral room.

Who can use a solo 401(k), and what paperwork applies?

  • It is for businesses with no common-law employees other than owners and their spouses; hiring eligible staff changes the rules.
  • Many providers offer a Roth option for deferrals, and SECURE 2.0 allows Roth employer contributions if the plan permits.
  • Once plan assets exceed $250,000 at year-end, an annual Form 5500-EZ filing is required.
  • A new plan can generally be established up to the tax-filing deadline, including extensions, for that year's employer contributions.

How do SEP and SIMPLE IRAs compare?

  • SEP IRA: employer-only contributions up to 25% of pay (about 20% of net self-employment earnings), capped at $72,000 in 2026.
  • If a SEP owner has eligible employees, the same contribution percentage must go to them too.
  • SIMPLE IRA: $17,000 of deferrals in 2026, plus a required employer match or contribution, for businesses with 100 or fewer employees.
  • SIMPLE withdrawals or rollovers to non-SIMPLE accounts in the first two years can face a 25% penalty instead of 10%.

When does a defined benefit plan make sense?

  • Defined benefit and cash balance plans are funded toward a benefit of up to $290,000 a year in 2026, set actuarially.
  • Because contributions rise with age, they tend to fit high earners in their late 40s or older with steady income.
  • They can be paired with a solo 401(k), though employer profit-sharing may be limited when both exist.
  • Contributions are required each year, and actuarial and administration fees run into the thousands annually.

Trade-offs across plan types

  • More capacity usually means more administration: SEPs are simplest, solo 401(k)s moderate, defined benefit plans most complex.
  • Pre-tax contributions lower taxes now but create ordinary income later; Roth options reverse that trade.
  • A plan that fits a solo business may not fit once you hire, so growth plans matter.
  • Contributions are invested, and account values can fall; tax savings do not offset investment losses.

Key takeaways

  • A solo 401(k) usually offers the most contribution room at a given income for owners without employees.
  • SEP IRAs trade some capacity for simplicity; SIMPLE IRAs suit modest contributions and small staffs.
  • Defined benefit plans can add large deductions for older, high-income owners, with mandatory funding.
  • Rubric Advisors does not prepare tax returns; confirm contribution math and deadlines with a CPA.
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