For self-employed individuals and small business owners, a Solo 401(k) is a powerful tool to maximize retirement savings while enjoying significant tax advantages. Unlike workplace 401(k) plans, the Solo 401(k) allows you to contribute as both an employee and an employer, giving you the flexibility to set aside more money for the future. In the following, we’ll break down how Solo 401(k) contributions work, the latest limits you need to know, and how you can leverage this plan to secure your financial future.
- The Solo 401(k) Contribution Limits determine how much you may contribute to your retirement plan annually
- These limits are adjusted every year based on several factors including cost of living adjustments, and inflation concerns.
- Contributes consist of two parts – the employee salary deferral and the employer profit sharing contribution.
In short, the 2025 contribution limits for a Solo 401(k) retirement plan (also known as the self-employed or Individual 401(k) plan) has increased from the 2024 limits. Depending on your earnings, you may contribute up to $70,000 if you’re under age 50. You can contribute up to $77,500 if you’re age 50 and older.
Solo 401(k) Contribution Limits Explained
Your Solo 401(k) plan consists of two components. You can contribute money into your account as an employer and employee. Therefore, you technically have two Solo 401(k) contributions. The IRS sets the contributions limits every year.
Elective Deferral:
As an employee of a self-employed business or small business with no full-time employees (other than an owner or a spouse), you have the option to make the Employee Contribution. This is also known as the Elective Deferral. For 2025, the Solo 401(k) maximum contribution limit for the elective deferral is $23,500 if you’re under age 50. This is a $500 increase from the 2024 limit. Whereas the elective deferral contribution if you’re 50 and older is $31,000. Employee deferral contributions can be made in pretax or Roth.
New for 2025: In addition to the age 50+ catch-up, there is an increased total for those ages 60-63 of $11,250. That increases the amount you can save to $34,750.
Profit Sharing:
The Solo 401(k) Profit Sharing Contribution is also known as the Employer Contribution. For 2025, you can make an additional contribution of $39,000 whether you are under or over 50 years old. Unlike the employee deferral contribution, which is a dollar-for-dollar contribution, the Solo 401(k) plan employer contribution is based on a percentage of the income.
For example:
If your business is a corporation or multi-member LLC, your maximum profit-sharing contribution is up to or equal to 25% of your W-2 income or guaranteed payment amount in the case of a partnership.
If your business is a sole proprietor or single member LLC, your maximum profit-sharing contribution is up to or equal to 20% of your schedule C income.
As a result, the maximum contribution for a Solo 401(k) plan if you’re younger than 50 is $70,000. If you’re 50 and older, you can make a maximum contribution of $77,500. And if you are between the ages of 60 and 63, you may contribute up to $81,250.
Note: Another popular self-employed is the SEP IRA. However, because it does not have the employee deferral, you can reach the maximum contribution amount in a Solo 401(k) much quicker. Plus, a SEP does not include a catch-up consideration.
| Contribution Type | 2024 | 2025 | Catch-up | Deadline |
|---|---|---|---|---|
| Employee | $23,000 | $23,500 | $7,500 ($11,250 if age 60-63) | See Below |
| Employer – Sole Proprietorship or Single Member LLC | $46,000 | $46,500 | N/A | Tax Filing Deadline (plus extensions) |
| Employer – Partnership | $46,000 | $46,500 | N/A | Employee: Dec. 31 Employer: March 15 (plus extensions) |
| Employer – S Corporation | $46,000 | $46,500 | N/A | Employee: Dec. 31 Employer: March 15 (plus extensions) |
| Employer – C Corporation | $46,000 | $46,500 | N/A | Employee: Dec. 31 Employer: April 15 (plus extensions) |
Total Solo 401(k) Contribution Limit for Couples
Your spouse can participate in the plan if he/she earns compensation from the business. Remember, only a spouse or business partner can work full time to be eligible for a Solo K. If you have any other employees, you cannot utilize the Solo 401(k) plan. He or she can make separate and equal contributions.
This increases the annual contribution to $140,000 (under 50) or $155,000 (50+) that a couple can make for 2025 (plus a little bit more if you and/or your spouse are within the 60-63 age range).
Conclusion
Understanding the contribution limits for a Solo 401(k) is essential for maximizing your retirement savings as a self-employed individual or small business owner. By taking full advantage of both the employee deferral and employer profit contribution allowances, you can significantly boost your retirement nest egg while benefiting from valuable tax advantages. Keep in mind that contribution limits are subject to annual adjustments by the IRS, so staying informed and consulting with a financial advisor can help you make the most of your plan. With careful planning and adherence to the guidelines, the Solo 401(k) is a powerful tool to secure your financial future.
Quick FAQ
What is a Solo 401(k)?
A Solo 401(k), also known as a Self-Employed 401(k), is a retirement plan designed for self-employed individuals or small business owners with no employees (other than a spouse or other business partner(s)). It offers high contribution limits, tax advantages, and the ability to invest in alternative investments.
What is the difference between pretax and Roth contributions?
Pretax: Reduce your taxable income for the year, with taxes deferred until withdrawal.
Roth: Made with after-tax dollars but grow without tax, and qualified withdrawals in retirement are tax free.
Can I contribute to a Solo 401(k) and another employer-sponsored retirement plan?
Yes, but the employee contribution limit is shared across all 401(k) plans. However, employer contributions to your Solo 401(k) are independent of any employer match or contributions from another plan.
What is the deadline to contribute to a Solo 401(k)?
Employee Contributions: Must be made by December 31 of the tax year.
Employer Contributions: Can be made up until the tax filing deadline, including extensions.
What happens if I contribute more than the limit?
Excess contributions may be subject to penalties and taxes. You must notify the plan administrator and take corrective actions by the IRS deadline.
Are Solo 401(k) contributions tax-deductible?
Pretax Employee Contributions: Tax-deductible.
Employer Contributions: Deductible as a business expense.
Roth Contributions: Not tax-deductible but offer tax-free growth.
