Solo 401(k) for the Self-Employed: Contribution Limits and Setup

$70,000 in One Account — Solo Operators Outpace W-2 Workers

A self-employed individual with strong income can contribute up to $70,000 to a solo 401(k) in 2025 — the same Section 415 ceiling that applies to employees at large corporations, but potentially accessible entirely through one person's own business. The solo 401(k), also called an individual 401(k) or i401(k), achieves this by allowing the owner to contribute in two separate capacities: as an employee making elective deferrals, and as an employer making profit-sharing contributions. No other retirement account structure offers this dual-contribution mechanism for single-person businesses.

Who Qualifies for a Solo 401(k)

Solo 401(k) eligibility has one primary constraint: the business cannot have any full-time employees other than the owner and the owner's spouse. Part-time employees who work fewer than 1,000 hours per year are generally excluded from this count, though SECURE 2.0's long-term part-time employee rules — which lower the threshold to 500 hours over three consecutive years starting in 2025 — are bringing more workers into coverage requirements and could disqualify some plans.

• Eligible business types: sole proprietorships, single-member LLCs, partnerships (each partner can open their own), S-corporations, C-corporations
• The business must have earned self-employment income (Schedule C, Schedule K-1, or W-2 wages from an S-corp)
• A spouse employed by the business can also contribute to the same plan, effectively doubling household contribution capacity
• Owners with a side business can establish a solo 401(k) for that business even if they participate in a 401(k) at their primary W-2 employer — but the employee elective deferral limit applies across all plans combined

2025 Contribution Limits: Dual-Role Structure

The solo 401(k) contribution ceiling is built from two parts added together, subject to the overall Section 415 cap.

The employer profit-sharing percentage differs based on business structure. For S-corporation owners, the employer contribution is 25% of W-2 wages paid by the corporation. For sole proprietors and single-member LLCs taxed as sole proprietorships, the calculation is approximately 20% of net self-employment income after deducting half of self-employment tax — effectively 18.6% of gross self-employment income at typical SE tax rates.

Solo 401(k) vs. SEP-IRA: Which Contributes More?

The SEP-IRA is the most common alternative to the solo 401(k). The comparison favors the solo 401(k) at lower income levels because SEP-IRAs only allow employer-side contributions.

At incomes below approximately $230,000, the solo 401(k) allows substantially higher contributions because the elective deferral component ($23,500) is a flat amount rather than a percentage of income. At higher incomes, both plans can reach the $70,000 ceiling through employer contributions alone.

Roth Solo 401(k): A Rarely Used Option

The elective deferral portion of a solo 401(k) can be designated as Roth contributions — a feature SEP-IRAs do not offer. Unlike a Roth IRA, there are no income limits restricting Roth solo 401(k) contributions. High-income self-employed individuals who are phased out of direct Roth IRA contributions can still make after-tax Roth contributions up to $23,500 through the solo 401(k).

Setting Up a Solo 401(k): Requirements and Deadlines

The plan document must be established by December 31 of the tax year for which you want to make contributions. This is a hard deadline — unlike SEP-IRAs, which can be opened until the tax filing deadline including extensions.

• Obtain an Employer Identification Number (EIN) for the business — a solo 401(k) requires an EIN even for a sole proprietor
• Adopt a plan document — most major brokerages (Fidelity, Vanguard, Charles Schwab) offer free prototype plan documents
• File Form 5500-EZ annually once plan assets exceed $250,000
• Employee deferrals must be deposited "as soon as administratively feasible" after payroll — employer profit-sharing contributions can be made up to the tax filing deadline including extensions

Fidelity allows both traditional and Roth elective deferrals in their self-employed 401(k) plan. Vanguard's solo 401(k) is traditional-only. Charles Schwab offers both options. Plan features vary significantly by provider, so verifying Roth availability before opening an account matters if after-tax contributions are the goal.

This article is for informational purposes only and does not constitute financial or tax advice.