A Solo 401(k) can be powerful for freelancers, consultants, creators, and small business owners with no employees other than a spouse. It becomes more complicated when you also have a W-2 job with its own 401(k).
The main rule: the employee deferral limit is shared across your jobs, but the employer contribution calculation is separate for your self-employed business.
For 2026, the employee deferral limit is $24,500 before catch-up contributions. The defined contribution annual additions limit is $72,000 per plan, but self-employed income and plan rules limit what you can actually contribute.
If you are choosing between plan types, read SEP IRA vs Solo 401(k) in 2026.
Solo 401(k) Contribution Pieces
A Solo 401(k) has two main contribution types:
- Employee deferral: up to the shared 401(k) limit across all 401(k), 403(b), and similar plans.
- Employer contribution: profit-sharing contribution from the business.
If you are self-employed, the employer contribution is not simply 25% of gross revenue. It is based on net earnings from self-employment after specific adjustments.
If You Also Have a W-2 401(k)
Suppose you contribute $20,000 to your employer’s 401(k) at your W-2 job in 2026. If you are under 50, you have only $4,500 of employee deferral room left for your Solo 401(k):
$24,500 - $20,000 = $4,500
But you may still be able to make an employer contribution from your self-employed business, even if your employee deferral room is used up.
Quick Calculator for Sole Proprietors
For a sole proprietor or single-member LLC taxed as a sole proprietorship, a rough employer contribution estimate is:
Net profit - one-half self-employment tax = adjusted net earnings
Then:
Adjusted net earnings x 20% = approximate employer contribution
The 20% shortcut is often used because the statutory 25% contribution rate is applied after accounting for the contribution itself. Tax software or a retirement plan calculator should do the final number.
Example 1: W-2 Job Plus $40,000 Freelance Profit
Taylor is under 50. Taylor contributes $24,500 to a W-2 employer 401(k), fully using the employee deferral limit. Taylor also has $40,000 of Schedule C net profit from consulting.
Taylor cannot make additional employee deferrals to the Solo 401(k), because the shared employee limit is already used.
But Taylor may still make an employer contribution from the business. After adjusting for one-half self-employment tax, the employer contribution might be roughly in the $7,000-$8,000 range. The exact amount depends on the self-employment tax calculation.
Example 2: No W-2 401(k) Contributions
Riley is under 50, has a W-2 job but does not contribute to the employer plan, and earns $30,000 of net self-employment profit.
Riley may be able to contribute employee deferrals to the Solo 401(k), but cannot contribute more than the business earnings allow. Solo 401(k) contributions cannot exceed eligible compensation from that business.
If Riley wants to defer nearly all freelance earnings, the employee deferral feature is what makes the Solo 401(k) more powerful than a SEP IRA at modest income levels.
Why Solo 401(k) Often Beats SEP IRA at Lower Income
A SEP IRA allows employer contributions only. It does not give a sole proprietor a separate employee deferral bucket. A Solo 401(k) can allow a large employee deferral even when business profit is relatively modest.
Example: A freelancer with $25,000 of adjusted self-employment earnings might be able to defer much more into a Solo 401(k) than into a SEP IRA, because the SEP IRA is limited to an employer-style percentage.
Watch the One-Participant Plan Filing Rule
Solo 401(k) plans may have filing obligations once plan assets exceed certain thresholds. For example, Form 5500-EZ can become relevant for one-participant plans. This is one reason to keep good records and use a reputable plan provider.
Roth Solo 401(k)
Some Solo 401(k) providers offer Roth employee deferrals. Roth employee contributions still count toward the same employee deferral limit. Employer contributions are generally pretax unless the plan has newer Roth employer contribution features and the provider supports them.
If you want very large Roth savings and your plan supports after-tax contributions, compare the idea with the mega backdoor Roth.
Bottom Line
For 2026, a Solo 401(k) can work especially well if you have freelance income and want more retirement contribution flexibility than a SEP IRA. If you also have a W-2 job, remember that the employee deferral limit is shared across plans, but the self-employed employer contribution may still be available.
Use the formulas for planning, then confirm the final number with tax software, a CPA, or your Solo 401(k) provider before funding.