A solo 401(k) is a full-featured 401(k) for a business owner with no employees other than a spouse. It allows two contribution streams: an employee deferral up to the annual limit ($23,500 for 2025, plus catch-up from age 50), and an employer contribution of up to 25% of W-2 compensation (or roughly 20% of net self-employment earnings), with a combined cap of $70,000 for 2025 before catch-ups. Because the deferral piece is not a percentage of income, a solo 401(k) beats a SEP-IRA at low and moderate income levels, and it supports Roth deferrals, participant loans up to $50,000, and, in many plan documents, the mega backdoor Roth via after-tax contributions. Owners with side income can run one alongside an employer 401(k), sharing one deferral limit but separate overall caps. The plan must exist by year-end for deferrals, and hiring a non-spouse employee eventually converts it into a regular 401(k) with testing.
Solo 401(k)
Primary authority: IRC §401(k); §415(c)
The authority behind it
IRC §401(k); §415(c)
Every entry in this glossary cites the statute, regulation, or IRS guidance behind it.
Worked example
An S corporation owner pays herself a $100,000 salary. She defers $23,500 and the corporation contributes 25% of salary ($25,000), sheltering $48,500 in one year, far above the $25,000 a SEP would have allowed on the same salary.
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