Yes. A self-employed person can open a 401(k), and the version built for that situation is called a Solo 401(k), or in IRS language a one-participant plan. It works because you count as both the employee and the employer of your business, so you get to contribute in both capacities. In 2026, the combined ceiling is $72,000, rising to $80,000 at age 50 and up to $83,250 if you’re 60 through 63. That dual structure is what makes it a stronger savings vehicle than a SEP-IRA or SIMPLE IRA for most profitable freelancers, consultants, and small business owners.
Who Can Open One
A Solo 401(k) covers a business owner with no employees other than a spouse.1Internal Revenue Service. One-Participant 401k Plans The line the IRS draws is common-law employees working more than 1,000 hours in a year. Part-time help under that threshold is fine. Independent contractors are fine. Hire one full-time employee, though, and the plan has to convert to a regular 401(k) with nondiscrimination testing and the compliance work that goes with it.
The business itself can be almost anything: sole proprietorship, single-member LLC, partnership, S-corporation, or C-corporation. What you need is earned income from the business. Passive investment income doesn’t qualify you. There’s no minimum income to open the plan and no age ceiling. A 22-year-old freelancer in their first profitable year and a 70-year-old consultant still taking clients are equally eligible, as long as the business stays owner-only.
How Much You Can Contribute in 2026
The Solo 401(k)’s real advantage is that you contribute twice: once wearing the employee hat and again wearing the employer hat.
Employee Deferrals
As the employee, you can defer up to $24,500 of your compensation in 2026, or 100% of your earned income if that’s less.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 This is the same limit that applies to employees at any large company. You choose whether these deferrals go in pre-tax (traditional) or after-tax (Roth), and you can split them between the two. The plan document has to authorize Roth contributions specifically, so confirm that option when you set the plan up.
Employer Profit-Sharing
As the employer, you can add up to 25% of your compensation on top of the employee deferrals.1Internal Revenue Service. One-Participant 401k Plans For S-corp and C-corp owners, compensation is W-2 wages. For sole proprietors and single-member LLC owners, the math is more involved because you first have to reduce your net self-employment earnings. Under SECURE 2.0, a plan can now let you designate employer contributions as Roth, though those get reported differently at tax time.3Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2
The Combined Ceiling and Catch-Ups
The total from both roles cannot exceed $72,000 for 2026, before catch-up contributions.4Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs If you turn 50 or older by year-end, you can add another $8,000 in catch-up deferrals, bringing the ceiling to $80,000.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 SECURE 2.0 added a bigger catch-up for participants who turn 60, 61, 62, or 63 during the year: up to $11,250 in additional deferrals, for a possible total of $83,250. At 64 you drop back to the standard $8,000.
The Sole Proprietor Wrinkle
If you operate as a sole proprietor or single-member LLC, you can’t just take 25% of your Schedule C profit. The IRS requires you to first subtract the deductible portion of your self-employment tax, then reduce the result by the contribution itself, which creates a circular calculation where the contribution depends on the adjusted income and vice versa.5Internal Revenue Service. Calculating Your Own Retirement Plan Contribution and Deduction
The IRS solves this with a reduced contribution rate: instead of 25%, you effectively apply closer to 20% (roughly 18.587% after both reductions) to your net earnings. Publication 560 has a worksheet that walks it through step by step. S-corporation owners avoid the whole exercise because their employer contributions are based on W-2 wages, which is already a fixed number.
Setting Up the Plan
Get a Plan-Specific EIN
Even if your business already has an EIN, the IRS requires a separate Employer Identification Number for the retirement plan itself. Sole proprietors who normally file under their Social Security number still need one. You can get it directly through the IRS website at no cost.1Internal Revenue Service. One-Participant 401k Plans
Adopt the Documents
Two documents form the legal foundation. The adoption agreement is where you select plan features: whether to allow Roth contributions, whether to allow participant loans, which employer contribution types to use, the fiscal year-end, and the effective date.6Internal Revenue Service. Pre-Approved Retirement Plans – Adopting Employer The trust agreement establishes the plan as a separate legal entity that holds the assets and names you as trustee. Most brokerages that offer Solo 401(k)s provide pre-approved templates, so you’re checking boxes rather than drafting from scratch. If the business name or tax ID on those forms doesn’t match IRS records, you can create real problems for the plan’s qualified status, so verify both before signing. You’ll designate beneficiaries at this stage too.
Fund It
Once the brokerage assigns an account number, you fund the plan from the business bank account. You can also roll in assets from a previous employer’s 401(k), a traditional IRA, or a SEP-IRA.7Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Rollovers don’t count against your annual contribution limit. Not every plan accepts rollovers, so confirm with the provider first.
Deadlines to Watch
- Plan adoption. The plan must exist by December 31 of the tax year you want to contribute for. Unlike a SEP-IRA, a Solo 401(k) can’t be created retroactively after year-end.
- Employee deferrals. Sole proprietors can technically make deferrals up to the tax filing deadline. S-corporation owners have to run deferrals through payroll during the calendar year, so those are effectively due by December 31.
- Employer contributions. Due by your business tax filing deadline, including extensions. For a sole proprietor on Schedule C, that’s April 15, or October 15 with an extension.
- Form 5500-EZ. Due the last day of the seventh month after the plan year ends, so July 31 for a calendar-year plan. If you’ve already extended your business tax return, the 5500-EZ extension is automatic.8Internal Revenue Service. Instructions for Form 5500-EZ
You don’t have to file the 5500-EZ until total plan assets across all one-participant plans exceed $250,000 at year-end. Once you cross that threshold, it’s annual, and you also file in the plan’s final year regardless of balance. Late filing runs $250 per day up to $150,000 per return.9Internal Revenue Service. Penalty Relief Program for Form 5500-EZ Late Filers
If You Contribute Too Much
Going over the elective deferral limit is easy to do if you also have wages from another job with its own 401(k). Excess deferrals have to be distributed back to you, with any earnings, by April 15 of the following year. Miss that date and the excess gets taxed twice: once in the year of the contribution and again when eventually withdrawn.10Internal Revenue Service. Consequences to a Participant Who Makes Excess Deferrals to a 401(k) Plan Extending your tax return does not extend the April 15 correction deadline.
Taking Money Out
Loans
If your plan document allows loans, you can borrow the lesser of $50,000 or 50% of your vested balance without triggering tax or penalty. If your vested balance is under $20,000, a plan may allow borrowing up to $10,000 regardless of the 50% rule, but plans aren’t required to include that exception.11Internal Revenue Service. Retirement Topics – Plan Loans Repayment runs five years with at least quarterly payments, longer if the loan is for a primary residence. Default and the outstanding balance becomes a taxable distribution, potentially with the 10% early-withdrawal penalty on top.
Early Withdrawals and RMDs
Withdrawals before age 59½ generally trigger a 10% additional tax on top of regular income tax on any pre-tax amounts.12Internal Revenue Service. Exceptions to Tax on Early Distributions A short list of situations, including total and permanent disability, exempt you from the 10%. Needing the money isn’t on the list.
On the other side, required minimum distributions start the year you turn 73.13Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Employees at large companies can sometimes defer RMDs until they actually retire, but that exception excludes anyone with a 5% or greater stake in the business. Every Solo 401(k) participant owns 100% of the business, so RMDs begin at 73 whether you’re still working or not.
Prohibited Transactions
Because you’re both the participant and the trustee, you have a fiduciary duty not to use plan assets for personal benefit. Cross that line and the IRS can disqualify the entire plan. Prohibited transactions include selling or leasing property between you and the plan, borrowing outside the formal loan provisions, using plan funds to buy property you’ll personally use, and any arrangement where you personally profit from a plan transaction.14Internal Revenue Service. Retirement Topics – Prohibited Transactions
This surfaces most often in self-directed Solo 401(k) plans that hold alternative investments like real estate. Owning a rental property through the plan is allowed. Spending a weekend there, or letting a family member use it, is not. Disqualification means immediate taxation of the entire account balance, so the cost of getting this wrong is out of proportion to the temptation.