At a glance
- What it is
- A 401(k) for a business with no employees other than the owner and spouse, combining employee deferrals with an employer profit-sharing contribution.
- What it saves
- Federal and Oklahoma income tax on pre-tax contributions now, or tax-free growth if you choose Roth.
- Best fit
- Owners with no full-time employees. A spouse who works in the business can join.
- Main catch
- The employer piece depends on your W-2 pay or self-employment income, so a low salary limits it.
- 2026 limits
- $24,500 employee deferral; $72,000 combined, plus catch-up at 50 and older.
Key takeaways
- A Solo 401(k) lets an owner with no full-time employees other than a spouse contribute twice: as the employee and as the employer.
- For 2026, the limits are $24,500 of employee deferral and $72,000 combined, plus catch-up contributions at 50 and older.
- In the illustrative example, an S corp owner on a $100,000 salary contributes $49,500, saving about $11,880 federal and $2,228 Oklahoma income tax.
- The catch: the employer piece depends on W-2 pay or self-employment income, and S corp deferrals must run through payroll during the year.
Watch the story
A one-minute story about this strategy. Illustrative story; the people are fictional and are not clients. See all story videos.
The numbers
Picture an S corp owner, age 45, who pays herself a $100,000 W-2 salary and makes pre-tax contributions.
For illustration purposes. Tax law may change, which may change these calculations slightly.
| Employee deferral (2026 limit) | $24,500 |
| Employer profit share: 25% × $100,000 | $25,000 |
| Total contribution | $49,500 |
| Room left under the $72,000 cap | $22,500 |
To reach the full $72,000 at this age, the employer piece would need to be $47,500 ($72,000 − $24,500), which takes a W-2 salary of $190,000 ($47,500 ÷ 25%). That doesn’t mean you should raise your salary just to contribute more; salary carries payroll tax, so it’s a tradeoff to model.
Business tax (the S corp)
| Employer contribution deducted by the S corp | $25,000 |
| Payroll tax on the employer contribution | $0 |
Personal tax (federal and Oklahoma)
| Taxable income reduced by: $24,500 deferral + $25,000 lower S corp profit | $49,500 |
| Federal income tax saved (24% bracket) | about $11,880 |
| Oklahoma income tax saved (4.5%) | about $2,228 |
Sole proprietors figure the employer piece differently: about 20% of net self-employment income, after the deduction for half of self-employment tax. On $150,000 of profit, that is roughly $27,880 ($150,000 minus about $10,597 of half self-employment tax, times 20%), for a total of about $52,380 with the full deferral.
For S corp owners, the employee deferral has to come out of payroll. Once your last 2026 paycheck has run, the chance to defer for 2026 is gone.
Could this strategy work for your business?
In a free tax analysis, your tax strategist checks whether it fits and what it could save, using your real numbers.
How it works
- Open the plan. The business adopts a Solo 401(k) plan document with a provider. Choose one that allows Roth contributions if you want that option.
- Make the employee deferral. Up to $24,500 for 2026, pre-tax or Roth, withheld from your W-2 pay or, for a sole proprietor, elected from self-employment income.
- Add the employer contribution. Up to 25% of W-2 pay for an S corp owner, or about 20% of net self-employment income for a sole proprietor.
- Stay under the caps. The total can’t exceed $72,000 for 2026 or 100% of your compensation, whichever is less, plus any catch-up.
Who it fits
- Owners with no full-time employees, including S corp owners and sole proprietors.
- Couples who both work in the business. Each spouse can make their own deferral and receive an employer contribution.
- Owners who have outgrown a SEP IRA, which has no employee deferral.
When it doesn’t fit
- Businesses with eligible employees. They generally have to be covered, which means a standard 401(k) with testing and administration.
- Owners who already max out a 401(k) at another job. The $24,500 deferral limit is shared across every plan you participate in.
- Years with little profit or salary, when the employer piece is small.
The rules
- 2026 limits. $24,500 employee deferral and $72,000 total. Catch-up contributions of $8,000 at 50 and older, or $11,250 at ages 60 through 63, on top of the total.
- Timing. Employer contributions can generally be made until your tax return due date, including extensions. S corp deferrals must come from payroll during the year.
- Roth catch-up. Starting in 2026, higher earners whose prior-year wages from the employer exceed an IRS threshold must make catch-up contributions as Roth.
- Annual filing. Once plan assets top $250,000, the plan files Form 5500-EZ each year.
Risks to weigh
- Excess contributions. Going over a limit, often by contributing to another employer’s plan too, has to be corrected or it’s taxed twice.
- Hiring employees. Once someone qualifies for the plan, a “solo” plan may no longer work.
- Missed filings. Late Form 5500-EZ filings carry penalties.
- Cash flow. Money in the plan is generally locked up until 59½, with limited exceptions.
How we handle it for clients
With a Cannon & Brown tax plan, we figure your maximum contribution each year, model pre-tax against Roth, coordinate your deferral with payroll before year-end, and time the employer contribution around your tax return. Because our technology keeps your numbers current all year, we can test this strategy against your real numbers and adjust it as your business changes.
Illustrative example. The business owners and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes a $100,000 W-2 salary, no other 401(k) participation, pre-tax contributions, a 24% federal bracket, and a 4.5% Oklahoma rate. Savings are somewhat lower if you claim the QBI deduction. This page is educational and is not tax advice for your situation; tax rules and limits change.
Brooks leads Cannon & Brown Tax Advisors, a forward-thinking tax firm serving business owners in Oklahoma and beyond. He builds year-round tax strategies that help business owners keep more of what they earn and reach their goals. More about Brooks
Common questions about the Solo 401(k)
Is a Solo 401(k) worth it for an S corp owner?
It can be, because you contribute as both employee and employer, but the employer piece is up to 25% of your W-2 salary, not total profit. A low salary limits it, and raising salary just to contribute more carries payroll tax, so it’s a tradeoff to model.
Can my spouse join my Solo 401(k)?
Yes, if your spouse works in the business. Each spouse can make their own deferral and receive an employer contribution.
Is a Solo 401(k) better than a SEP IRA?
A SEP IRA has no employee deferral. A Solo 401(k) adds the employee deferral, up to $24,500 for 2026, on top of the employer contribution, which is why owners often outgrow a SEP IRA.
Can I have a Solo 401(k) if I also have a 401(k) at another job?
Yes, but the $24,500 deferral limit is shared across every plan you participate in. Going over a limit has to be corrected or it’s taxed twice.
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