Yes, a self-employed person can open their own 401(k). The IRS calls it a one-participant 401(k), and most providers market it as a solo 401(k) for self-employed workers and small business owners without employees. It carries the same tax advantages as the 401(k) at a large employer, and for 2026 you can put in up to $24,500 as the employee plus a profit-sharing contribution from the business, capped at a combined $72,000.1Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits Setup is straightforward. The rules that trip people up are the eligibility fine print, the self-employed contribution math, and one annual filing most people don’t learn about until it’s late.
Who Qualifies
Two things have to be true. You need self-employment income, and your business can’t have full-time common-law employees other than you and your spouse.2Internal Revenue Service. One-Participant 401(k) Plans
The income side is broad. It can come from a sole proprietorship, a single-member LLC, a partnership, an S-corporation, or a C-corporation. Freelancers receiving 1099-NEC forms, independent consultants, and side-business operators all qualify as long as they report self-employment earnings.
The employee rule is specific. A “full-time” employee for this purpose is one who works more than 1,000 hours in a year. You and your spouse don’t count toward that number, and part-time workers who stay under 1,000 hours annually don’t either. Hire one person who crosses the 1,000-hour line, and the plan no longer qualifies as a one-participant plan. You’d be looking at a standard 401(k) with nondiscrimination testing.
One boundary to flag if you own more than one business: under the IRS’s controlled group rules, employees of related companies get counted together for eligibility. If your consulting LLC has no employees but you also own a restaurant with five full-time staff, you likely can’t maintain a solo 401(k) on the consulting side.3Internal Revenue Service. Publication 560 (2025) – Retirement Plans for Small Business If that’s your situation, get specific advice before opening the account.
Why Not Just a SEP IRA
If you’ve looked at solo plans at all, you’ve seen the SEP IRA mentioned. Both allow an employer profit-sharing contribution of up to 25% of compensation, and both are easy to open. The solo 401(k) wins on four things the SEP IRA simply doesn’t offer: an employee deferral on top of the profit-sharing piece, Roth contributions, catch-up contributions at 50 and older, and the ability to borrow from the account.
The deferral is the big one. A SEP IRA is employer-side only. A solo 401(k) lets you contribute up to $24,500 as the employee for 2026 before any profit-sharing is calculated.4Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 For a freelancer earning $60,000 in net self-employment income, that deferral alone shelters thousands more per year than a SEP IRA allows. And borrowing even a dollar from a SEP IRA creates a prohibited transaction that blows up the whole account.
How to Open the Plan
Three steps, none of which require a lawyer or accountant.
Get an EIN for the Plan
The retirement trust is a separate entity from you and from your business, so it needs its own Employer Identification Number even if your business already has one. The IRS online application issues the EIN immediately.5Internal Revenue Service. Get an Employer Identification Number The session expires after 15 minutes of inactivity and can’t be saved, so pull your business details together before you start.
Sign the Adoption Agreement
The adoption agreement is the legal document that creates the plan. Your brokerage or custodian provides it as a fill-in-the-blank form.6Internal Revenue Service. Types of Pre-Approved Retirement Plans You’ll set the effective date (which fixes the first year you can contribute), name the plan (usually your business name plus “401(k) Plan”), choose the plan year (most people use the calendar year ending December 31), and decide whether to allow Roth contributions and plan loans. If you think you might ever want to borrow, say yes to loans now; not every provider offers them, and you’d rather not have to amend the plan later.
Make sure the information on the adoption agreement matches your EIN records exactly. Mismatches cause problems when IRS correspondence goes to the wrong entity.
Open the Account and Fund It
Submit the signed adoption agreement to the provider, usually through a secure portal. They’ll issue an account number for the trust. From there it behaves like a brokerage account for buying stocks, bonds, mutual funds, and ETFs, but it’s held in the plan’s name. Link your business bank account and contribute through the platform.
How Much You Can Contribute for 2026
The contribution has two sides because you play two roles.
On the employee side, you can defer up to $24,500 of your compensation. If you’re 50 or older, add an $8,000 catch-up for a $32,500 employee-side ceiling. If you’re between 60 and 63, SECURE 2.0 created a higher “super” catch-up of $11,250, raising that ceiling to $35,750.4Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
On the employer side, the business can contribute an additional profit-sharing amount of up to 25% of compensation. For S-corp and C-corp owners, “compensation” means the W-2 wages the corporation pays you. For sole proprietors and single-member LLC owners, it’s not your Schedule C net profit. The IRS defines it as your net self-employment earnings reduced by half your self-employment tax and by the contribution itself.2Internal Revenue Service. One-Participant 401(k) Plans Because the contribution reduces the base it’s calculated on, the effective top rate works out to roughly 20% of net profit, not 25%.
Here’s the trap. On $100,000 of Schedule C net profit, people assume the employer piece is $25,000. The actual maximum is closer to $18,600 after the required adjustments. Use the IRS worksheet in the Form 5500-EZ instructions, or let tax software handle it.
Combining both sides, total contributions (ignoring catch-ups) can’t exceed $72,000 for 2026. With the standard catch-up the ceiling is $80,000. With the age 60-63 super catch-up it’s $83,250.1Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits
When the Plan and the Money Have to Be in Place
The deadlines depend on which part of the contribution you’re making and how the business is organized.
Employee deferrals: S-corp and C-corp owners must complete these by December 31 of the tax year. Sole proprietors and single-member LLC owners can make employee deferrals up to their tax filing deadline under SECURE 2.0, which is April 15 for most sole proprietors.
Employer profit-sharing: all business types have until the business’s tax filing deadline, including extensions. A sole proprietor on extension can fund the employer piece as late as October 15. An S-corp on extension has until September 15.2Internal Revenue Service. One-Participant 401(k) Plans
One deadline is non-negotiable. The plan itself must be established by December 31 of the tax year you want to claim contributions for. You can fund it later. But the adoption agreement has to be signed before the year ends. Miss December 31 and you’ve lost that tax year, regardless of extensions.
Adding Your Spouse
If your spouse actually works in the business and earns compensation for that work, they can participate in the same plan. The spouse gets a separate full set of limits: their own $24,500 deferral, their own catch-up if they’re old enough, and a profit-sharing allocation based on their compensation. For a two-person household, that effectively doubles the tax-advantaged savings running through one business.
The compensation has to be real. The spouse needs to perform legitimate work and receive reasonable pay for it. For sole proprietorships, that pay counts as earned income from the business. For corporations, the spouse should be on payroll with a W-2.2Internal Revenue Service. One-Participant 401(k) Plans
Loans, Rollovers, and What You Can’t Do
You can borrow from a solo 401(k) if your adoption agreement allows loans. The limit is the lesser of $50,000 or 50% of your vested balance, except that balances under $20,000 can support a loan up to $10,000.7Internal Revenue Service. Retirement Topics – Plan Loans Repay over five years in substantially level payments made at least quarterly. Loans used to buy a primary residence can run longer.8Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts You pay interest, but it goes back into your own account. Miss payments and the outstanding balance becomes a deemed distribution: income tax, plus a 10% early withdrawal penalty if you’re under 59½.
You can also roll in old retirement accounts if the adoption agreement accepts rollovers. Eligible sources include traditional IRAs, old employer 401(k) plans, 403(b) accounts, and most other pre-tax retirement accounts.9Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions A direct trustee-to-trustee transfer is cleanest: no withholding, no 60-day clock. If the old custodian cuts the check to you, they’ll withhold 20% on employer-plan distributions or 10% on IRAs, and you’d have to make up the withheld amount from other funds to complete the rollover within 60 days.
Then there are the hard lines. Plan assets exist for retirement, not current personal benefit. You can’t sell property to the plan, buy property from it, borrow outside the loan rules above, pledge plan assets as collateral, or pay yourself to manage the investments.10Internal Revenue Service. Retirement Topics – Prohibited Transactions These restrictions reach “disqualified persons” too: your spouse, parents, children and their spouses, and anyone providing services to the plan. If the plan holds a rental property, you can’t live in it, vacation in it, or do the maintenance yourself; expenses come from plan assets and rental income flows back to the plan. Violating these rules can disqualify the entire plan and make the full balance taxable in a single year.
The Filing Most People Miss
Solo 401(k) plans have one ongoing IRS filing: Form 5500-EZ. You must file it once the plan’s total assets exceed $250,000 at the end of the plan year, and you must file a final 5500-EZ when you terminate the plan regardless of balance.11Internal Revenue Service. 2025 Instructions for Form 5500-EZ For calendar-year plans the deadline is July 31 of the following year. The late-filing penalty is $250 per day, capped at $150,000 per return.12Internal Revenue Service. Penalty Relief Program for Form 5500-EZ Late Filers The IRS runs a penalty relief program for late filers, but it’s a repair, not a plan. Put a reminder in your calendar the year your balance approaches $250,000.