Watch: Why a non-working spouse can’t piggyback on a Solo 401k — and what to do instead.
A married couple may share household income, expenses, and financial goals, but that doesn’t mean both spouses are automatically self-employed in the same business or eligible to contribute to the same Solo 401k. The IRS generally treats each spouse separately when it comes to 401k contributions — a rule that surprises many couples who assume 401k plans work the same way as a Roth IRA or traditional IRA.
Can a Non-Working Spouse Piggyback Off a 401k?
No. A spouse who does not work in the business and does not receive compensation cannot make contributions to a Solo 401k based on the other spouse’s earned income. This is one of the most common points of confusion, because it works differently for IRAs.
Account Type
Can a Non-Working Spouse Contribute Using the Other Spouse’s Income?
Traditional or Roth IRA (spousal IRA)
Yes — based on joint taxable compensation
Solo 401k
No — the spouse must have their own qualifying compensation
Full-time employer 401k
No — same rule applies; compensation must be the individual’s own
Important: The IRS confirms that although a person may contribute to a spousal IRA based on joint taxable compensation, that same rule does not extend to any 401k plan — whether pre-tax, Roth Solo 401k, or the Mega Backdoor Roth voluntary after-tax strategy.
A non-working spouse can instead contribute to a traditional or Roth IRA using the working spouse’s compensation — commonly called a spousal IRA. But that same “piggyback” approach simply does not exist for 401k contributions of any kind.
Why Compensation Is Required for 401k Contributions
A 401k — including a Solo 401k — is an employer-sponsored retirement plan, not an IRA. To participate, an individual must be an eligible employee of the business sponsoring the plan, and contributions are based on each employee’s own separate compensation.
What Doesn’t Qualify a Spouse to Contribute
Common Misconception
Why It Doesn’t Work
Filing a joint tax return
Doesn’t create 401k eligibility — compensation must be the spouse’s own
The other spouse earns substantial income
401k contributions cannot be based on a spouse’s income
Sharing a bank account
Shared finances do not establish plan eligibility
Helping occasionally without compensation
Uncompensated help does not count as qualifying earned income
Working spouse hasn’t maxed out their own limit
Unused contribution room cannot be transferred to a spouse
When Can Both Spouses Contribute to the Same Solo 401k?
A spouse who performs legitimate self-employment activity for a family business can participate in the Solo 401k sponsored by that business. The business’s entity type — S-corporation, sole proprietorship, or partnership — is not what determines eligibility. What matters is the underlying self-employment activity: the spouse must be performing material services and earning compensation subject to employment or self-employment tax.
Info Highlight: Investment income and capital gains income never qualify a spouse for Solo 401k contributions. Eligibility must be based on earned income from actual work performed in the business.
How Much Can Each Spouse Contribute?
When both spouses genuinely work in the same self-employed business, each contributes based on their own separate compensation, up to the overall 2026 limit.
Limit (Per Spouse)
2026 Amount
Overall limit (415(c))
$72,000
Normal catch-up (age 50+)
$8,000
Super catch-up (ages 60–63)
$11,250 (in place of the normal catch-up)
Example: A married couple both work in the same S-corporation, which sponsors their Solo 401k. Each spouse receives their own separate W-2, and each can contribute up to $72,000 for 2026 based on their respective wages — for a combined household total of $144,000. Each spouse can also make their own catch-up or super catch-up contribution if they qualify by age.
Separate Holding Accounts for Each Spouse
When both spouses participate in the same Solo 401k, it’s still considered one plan — not two. However, each spouse must have their own separate holding accounts: a pre-tax account, a Roth account, and a voluntary after-tax account, for a total of six holding accounts (participant accounts) between both spouses. Funds cannot be co-mingled — each source must be separately tracked.
Mixing Contribution Types
Each spouse can independently choose how to allocate their contributions — some as employee pre-tax, some as employer profit sharing (pre-tax or Roth), and some as voluntary after-tax contributions toward the Mega Backdoor Roth strategy. All contribution types are subject to that same $72,000 aggregate limit, per spouse, per year.
Important: If one spouse contributes the entire $72,000 solely as a voluntary after-tax contribution, no other contribution types can be made for that spouse that year — the overall limit still applies.
You’re Not Required to Contribute Every Year — or Equally
Spouses are not required to contribute the same amount each year, and one spouse can contribute significantly more than the other, or not contribute at all in a given year. Whether or not one spouse contributes has no bearing on the other spouse’s ability to contribute.
Each spouse working under the same business can also transfer IRAs and former employer plan funds into the Solo 401k, with those transfers deposited into their own respective holding accounts based on the source type — for example, a traditional IRA transfer or a former employer’s Roth or pre-tax 401k rollover.
Ready to Set Up a Solo 401k for You and Your Spouse?
Whether one spouse works in the business or both do, our team can help you structure the right Solo 401k plan, open the correct holding accounts, and understand exactly how much each of you can contribute.Next Steps: Get Started Today — or watch more videos and read more posts from My Solo 401k Financial to learn how to grow your retirement account tax-efficiently.
Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making investment decisions with your retirement funds.
Watch: How much of your 1099 income you can really contribute to a Solo 401k — and how the Mega Backdoor Roth fits in.
If you receive income reported on Form 1099-NEC, a Solo 401k can be one of the most powerful ways to save for retirement and reduce your current-year taxable income. But how much of that 1099 income can actually go into the plan isn’t a simple fixed percentage — it depends on your net self-employment income, how your business is taxed, whether you also contribute to another employer plan, your age, and which contribution types your Solo 401k plan allows.
What Counts as 1099 Income for Solo 401k Purposes?
Your gross Form 1099-NEC amount is only the starting point — it is not the figure used to calculate your Solo 401k contribution. As a sole proprietor, that income flows onto Schedule C, where business expenses are deducted first.
Step
What Happens
1. Start with gross 1099-NEC income
This is reported income from clients — not your final contribution base.
2. Report on Schedule C
Deduct business expenses to arrive at net self-employment income.
3. Identify Line 31
This is your net profit figure — the starting point for all Solo 401k contribution calculations.
4. Subtract ½ of self-employment tax
The resulting figure is what’s actually used to calculate employee, employer, and voluntary after-tax contributions.
Warning: A common misconception is calculating Solo 401k contributions directly off the gross 1099-NEC amount. My Solo 401k Financial stresses that you must first move that income to Schedule C, subtract expenses and one-half of self-employment tax, and use that final figure — not the gross 1099 number.
Info Highlight: The Solo 401k contribution calculator from My Solo 401k Financial performs this calculation for you — just plug in Line 31 of your Schedule C, and it will subtract one-half of self-employment tax automatically.
Employee, Employer, and Voluntary After-Tax Contributions
A Solo 401k plan offered by My Solo 401k Financial is drafted for maximum flexibility, allowing employee salary deferrals, employer profit sharing contributions, and voluntary after-tax contributions — whether pre-tax or Roth.
Contribution Type
2026 Limit / Calculation
Employee salary deferral
Up to $24,500 (dollar-for-dollar)
Employer profit sharing (sole proprietorship)
20% of net self-employment income (after Line 31 minus ½ SE tax)
Voluntary after-tax
Remaining room up to the $72,000 overall limit
Example: You can also choose to skip employee and employer contributions entirely and make the full $72,000 overall limit as a single voluntary after-tax contribution, then convert it to the Roth Solo 401k using the Mega Backdoor Roth strategy — as long as your net self-employment income supports it.
What If I Also Have a Daytime Job 401k?
Many 1099 contractors also hold a full-time job with its own employer 401k. Whether your Solo 401k contributions are limited by that daytime plan depends on the contribution type.
Contribution Type
Aggregated With Day-Job 401k?
Employee salary deferral
Yes — shared $24,500 limit across both plans
Employer profit sharing
No — calculated separately from net self-employment income
Voluntary after-tax (Mega Backdoor Roth)
No — calculated separately from net self-employment income
Example: You max out your $72,000 daytime employer 401k. As long as your 1099 side business has enough net self-employment income, you can still make a full $72,000 voluntary after-tax contribution to your Solo 401k and convert it to the Roth Solo 401k or Roth IRA — supercharging your total retirement savings across both plans.
2026 Catch-Up Contribution Rules
Age Range
2026 Catch-Up Amount
50–59, and 64+
$8,000 (normal catch-up)
60–63 (SECURE 2.0 super catch-up)
$11,250 (in place of the normal catch-up)
Important: Catch-up and super catch-up contributions can never be made as voluntary after-tax contributions. For a sole proprietorship, they can be made as either pre-tax or Roth Solo 401k contributions. Starting in 2026, a mandatory Roth catch-up rule under SECURE 2.0 requires higher-earning S-corp and C-corp owners to make catch-up contributions as Roth — but this rule does not apply to 1099-NEC contractors, sole proprietorships, or partnerships.
Is Your LLC Actually a Self-Employed Business?
Example: A couple asked whether their Solo 401k’s profit-and-loss allocation in a family-owned LLC holding rental real estate needs to match their capital contribution percentage. The more fundamental question comes first: is the LLC actually a self-employed business, or just a passive investment entity? Simply forming an LLC doesn’t make you self-employed — what matters is whether you’re performing material services (doing the actual work) and reporting it as earned income, rather than investment, passive, or distribution income.
Info Highlight: Solo 401k eligibility and contributions are based on true self-employment activity — earned income from work performed — not on rental income, capital gains, or other passive or investment income.
Common Mistakes to Avoid
Mistake
Why It’s Wrong
Using gross 1099-NEC income to calculate contributions
You must use net self-employment income from Schedule C, Line 31, minus ½ self-employment tax.
Contributing without earned income
No earned income from self-employment activity means no contributions of any type — employee, employer, or voluntary after-tax.
Assuming employer profit sharing contributions don’t need earned income
Even though these are deducted on the business return, they still require sufficient earned income to justify them.
Assuming every Solo 401k plan allows the Mega Backdoor Roth
Not all providers allow voluntary after-tax contributions — confirm your plan supports it before relying on the strategy.
The Mega Backdoor Roth Solo 401k in Action
My Solo 401k Financial was the first provider in the industry to offer the Mega Backdoor Roth strategy for Solo 401k plans, going back to 2013. For a one-participant plan — say, a 1099-NEC contractor operating as a sole proprietorship — the plan is sponsored by the self-employed business itself, with three separate holding accounts (often at Fidelity or Schwab) for pre-tax, Roth, and voluntary after-tax funds. It’s one plan, not three.
Steps to Complete the Mega Backdoor Roth
Example: Contribute to the voluntary after-tax holding account, then convert those funds to the Roth Solo 401k (or Roth IRA) holding account. My Solo 401k Financial reports the conversion to the IRS via Form 1099-R once the online conversion form is timely submitted through the Forms tab. For a two-participant plan — such as spouses both self-employed in the same S-corp — each spouse maintains separate holding accounts and can independently perform the Mega Backdoor Roth strategy, each receiving their own Form 1099-R.
Ready to Maximize Your 1099 Income in a Solo 401k?
Whether you want to calculate your exact contribution limit, run the Mega Backdoor Roth strategy, or figure out if your side business truly qualifies, our team can help you set up the right Solo 401k structure.
Next Steps: Get Started Today — or watch more videos and read more posts from My Solo 401k Financial to learn how to grow your retirement account tax-efficiently.
Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making investment decisions with your retirement funds.
Can an Employer Contribute MORE than an Employee to a SOLO 401k?
Watch: How employer profit sharing contributions to a Solo 401k can exceed employee contributions — and how the Mega Backdoor Roth fits in.
Yes — an employer (profit sharing) contribution can absolutely be greater than an employee contribution in a Solo 401k plan. The two contribution types are governed by separate rules, and there is no IRS requirement that they be equal, or that you make both at all. Whether you’re self-employed as an S-corp, sole proprietorship, partnership, or 1099 contractor, understanding how these two “buckets” work is the key to maximizing what you can put into your Solo 401k — and to using strategies like the Mega Backdoor Roth to their fullest.
What Is a Solo 401k, and Who’s Eligible?
A Solo 401k — also called a Solo K, an Individual 401k, or a Self-Directed Solo 401k depending on the provider — is an owner-only 401k plan. To qualify, your business cannot employ any full-time, non-owner, common-law W-2 employees age 21 or older who work 1,000 hours or more per year. A spouse who works in the business can participate in the same plan without needing to be an owner.
Info Highlight: A Solo 401k can be sponsored by an S-corp, C-corp, partnership, sole proprietorship, or a Schedule F farm business. 1099 independent contractors who receive Form 1099-NEC also qualify.
Example: A business owner asks: “My spouse and I are both on payroll and contributing to our Solo 401k. If I add my kids to payroll, does the plan still work?” It can — as long as the kids are under age 21. Anyone under 21 can be excluded from the plan even if they’re W-2 employees working 1,000+ hours. Once a child turns 21, they’d need to be a 3%-or-more owner in the business to keep the plan intact; otherwise the plan would need to be closed.
Employee vs. Employer Contributions: Two Separate Buckets
With an owner-only Solo 401k, you wear two hats: employer and employee. Unlike a SEP IRA, which only allows employer profit sharing contributions, a Solo 401k allows both an employee contribution and an employer profit sharing contribution — and the employee amount does not have to equal the employer amount. You can make only an employer contribution, only an employee contribution, only a voluntary after-tax contribution, or any combination of the three, as long as you stay within the overall limit.
2026 Solo 401k Contribution Limits
Contribution Category
2026 Limit
Overall limit (under age 50)
$72,000
Normal catch-up (ages 50–59, and 64+)
+$8,000 (total $80,000)
Super catch-up (ages 60–63)
+$11,250 (total $83,250)
Maximum employee contribution
$24,500
Important: You can only use the normal catch-up or the super catch-up amount — not both. And every contribution type (employee, employer, catch-up, or voluntary after-tax) requires enough earned income from self-employment activity to justify it. No earned income means no contributions.
Because contribution limits apply per participant, spouses who are both self-employed in the same business — each with their own W-2 wages, for example under an LLC taxed as an S-corp — can each separately contribute up to the overall limit based on their own respective earned income. Spouses cannot combine or “piggyback” off each other’s self-employment income.
How Much Can the Employer Contribute? (By Entity Type)
Unlike the employee contribution, which is a dollar-for-dollar calculation, the employer profit sharing contribution is always a percentage calculation, and the percentage depends on how your self-employed business is taxed.
Entity Type
Employer Contribution Formula
S-corp / LLC taxed as S-corp
25% of gross W-2 wages (Box 1, plus applicable Box 12a amounts)
Sole proprietorship
20% of (Schedule C, Line 31 minus ½ of self-employment tax)
Partnership
20% of (Schedule K-1, Line 14 Code A minus ½ of self-employment tax)
Example: Say your LLC is taxed as an S-corp and you have $100,000 in gross W-2 wages. Your maximum employer profit sharing contribution is 25% of $100,000 = $25,000. You can then also make the maximum employee contribution of $24,500. That’s $49,500 toward the $72,000 overall 2026 limit — leaving $22,500 in room. That remaining $22,500 can be made as a voluntary after-tax Solo 401k contribution and converted to a Roth Solo 401k or Roth IRA using theMega Backdoor Roth strategy.
Important: The employer profit sharing contribution can never equal 100% of compensation — it’s always a percentage calculation, capped at 25% (S-corp) or 20% (sole proprietorship/partnership), and it requires sufficient reported earned income to support it.
The Mega Backdoor Roth Solo 401k Strategy
My Solo 401k Financial was the first provider in the industry to offer the Mega Backdoor Roth strategy for Solo 401k plans, allowing voluntary after-tax contributions as part of the plan design. Because voluntary after-tax contributions are a dollar-for-dollar calculation rather than a percentage calculation, it generally takes less self-employment earned income to reach the $72,000 overall limit through the Mega Backdoor Roth than through employer contributions alone. You can even skip employee and employer contributions entirely and make the full $72,000 solely as a voluntary after-tax contribution, then convert it to a Roth Solo 401k or Roth IRA — as long as you don’t exceed the overall limit.
2026 Roth Catch-Up Rule for Higher Earners
Starting in 2026, under SECURE 2.0, if your business is taxed as an S-corp, C-corp, or LLC taxed as an S-corp and your prior-year (2025) Social Security wages exceeded $150,000, any catch-up or super catch-up contribution must be made as a Roth Solo 401k contribution rather than pre-tax. Catch-up and super catch-up amounts are made on the employee side and are not part of the voluntary after-tax Mega Backdoor Roth calculation.
Can the Employer Contribution Be Made as Roth?
Yes — under SECURE 2.0, employer profit sharing contributions can be made directly as Roth Solo 401k contributions. However, doing so means treating the contribution as a taxable in-plan conversion on your personal tax return, even though the business still gets the deduction. This may make sense for an LLC taxed as an S-corp looking to save on payroll tax, but that’s typically the only advantage.
Info Highlight: If your real goal is maximizing Roth savings, the Mega Backdoor Roth voluntary after-tax strategy is generally more efficient than an employer Roth contribution, since it’s a dollar-for-dollar calculation rather than a percentage of compensation.
Contributing to a Day-Job 401k and a Solo 401k
Many My Solo 401k Financial clients contribute to a full-time employer’s 401k while also running a self-employed business on the side. Whether contributions must be combined (“aggregated”) across both plans depends on the contribution type.
Contribution Type
Subject to Aggregation Across Plans?
Employee (elective deferral) contribution
Yes — combined limit across all 401k plans
Employer profit sharing contribution
No — calculated separately based on self-employment earned income
No — calculated separately based on self-employment earned income
Example: You max out your day-job 401k with a large employer, then also run a self-employed business on the side with $100,000 in W-2 wages under an LLC taxed as an S-corp. You can still contribute 25% of that $100,000 ($25,000) as an employer profit sharing contribution to your Solo 401k — and, separately, you may still be able to make a full $72,000 voluntary after-tax contribution to your Solo 401k and convert it via the Mega Backdoor Roth, even though your day-job 401k is already maxed out.
The $1,500 Auto-Contribution Tax Credit
Under the SECURE Act, eligible small businesses that adopt a retirement plan with an auto-contribution feature can claim a $500 per year tax credit for three consecutive years — a total of $1,500 — filed using Form 8881 with the business tax return. My Solo 401k Financial was the first provider in the solo 401k industry to build this auto-contribution credit into its plan, and regularly helps clients restate existing Solo 401k plans from other institutions to take advantage of it.
Common Mistakes to Avoid
Mistake
Why It’s Wrong
Counting S-corp distributions as earned income
Only W-2 wages/compensation count — distributions don’t qualify for Solo 401k contribution calculations.
Calling the employer contribution a “match”
Matching only applies to traditional full-time employer 401k plans. A Solo 401k employer contribution is a profit sharing contribution — there’s no matching involved.
Assuming all contribution types are aggregated with a day job
Only employee elective deferrals are aggregated. Employer and voluntary after-tax contributions are calculated separately.
Mixing contribution sources in one account
Pre-tax, Roth, and voluntary after-tax funds must be tracked in separate holding accounts under the plan.
One Plan, Separate Holding Accounts
A Solo 401k is a defined contribution plan, meaning each participant has separate holding accounts — pre-tax, Roth, and voluntary after-tax — rather than one pooled account. For a one-participant plan, that means three holding accounts under a single plan sponsored by the business. If a spouse also participates, it’s still one plan, but each spouse maintains their own set of three holding accounts to separately track their respective source of funds.
Why This Matters
Because contribution limits and calculations are based on each participant’s own earned income, keeping funds properly separated by source and by participant is essential for staying compliant and accurately tracking what’s been contributed under each rule.
Ready to Maximize Your Solo 401k Contributions?
Whether you want to maximize employer profit sharing contributions, employee contributions, or the Mega Backdoor Roth strategy, our team can help you structure the right Solo 401k plan for your business.Next Steps: Get Started Today — or watch more videos and read more posts from My Solo 401k Financial to learn how to grow your retirement account tax-efficiently.
Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making investment decisions with your retirement funds.
Are Democrats Moving to Ban Trump Accounts? The $10M Mega IRA Crackdown Explained
Watch: How the new Trump Accounts could eventually collide with a proposed $10 million retirement account cap
A newborn with a Trump Account could, decades from now, run straight into a proposed $10 million cap on retirement account balances. That is not a hypothetical — it is basic math. Below, we walk through what Trump Accounts (technically Section 530A accounts) actually allow, what the proposed mega IRA cap would do, and how the two policies may be headed for a collision that lawmakers may not have fully considered.
Educational purposes only. This article is provided for general information and should not be construed as tax, legal, or investment advice, or as a solicitation. Please consult your tax attorney and financial professional before making decisions about your retirement accounts.
What Are Trump Accounts (Section 530A)?
Trump Accounts are tax-advantaged starter accounts for minors under age 18, created under Section 530A. Unlike a traditional IRA, no earned income is required to contribute — which matters, since the account holders are newborns.
Key Features
Eligible for U.S. citizens born between 2025 and 2028
One-time $1,000 seed deposit, activated via Form 5471
Annual contribution maximum of $5,000, indexed to the Consumer Price Index (CPI)
Contributions may come from parents, grandparents, or even employers
No earned income requirement for the minor beneficiary
Investments limited to low-cost, broad-based U.S. index funds — no active trading, options, or private assets
Assets are locked until age 18 and generally cannot be distributed early without disqualifying the account
Example: A child born in 2026 receives the $1,000 seed contribution. Parents and grandparents contribute the full $5,000 annual maximum from birth through age 17. Growing at a historical 7–10% average annual return, that account could realistically be worth somewhere in the neighborhood of $200,000 by the time the child turns 18.
At age 18, the account automatically converts to a traditional IRA, with the option to convert further to a Roth IRA. At that point, the investment restrictions fall away entirely, and the now-adult beneficiary gains full self-direction capability — including the ability to roll the funds into a self-directed retirement account if they choose.
The Proposed $10 Million Mega IRA Cap
Separately — and not a new idea, having surfaced in Congress before — a proposal has re-emerged to cap aggregate retirement account balances for high earners. This is often referred to informally as the “mega IRA” or “mega retirement account” crackdown.
How the Proposed Cap Would Work
Applies an aggregate limit of $10 million across all of a high earner’s retirement accounts — not just IRAs
Once a filer’s aggregate balance exceeds the threshold, further contributions to those accounts would be prohibited
Balances above $10 million would be subject to a forced distribution of 50% of the excess
The $10 million threshold is a fixed dollar figure — it is not indexed for inflation
Important: Because the proposed cap does not adjust for inflation, it effectively gets stricter every year. At a modest inflation rate, $10 million six decades from now could have the purchasing power of roughly $1.6 million to $2 million in today’s dollars.
Public discussion around this proposal has frequently referenced large, headline-grabbing balances — accounts like Peter Thiel’s roughly $5 billion Roth IRA, or Mitt Romney’s outsized IRA balance — both of which reportedly grew through early access to private, pre-IPO investments rather than conventional index funds.
Trump Accounts vs. the Proposed Mega IRA Cap
Feature
Trump Accounts (Section 530A)
Proposed Mega IRA Cap
Status
In effect
Proposed, not yet law
Who it affects
Children born 2025–2028
High earners with $10M+ in retirement accounts
Annual limit
$5,000, indexed to inflation
$10,000,000 aggregate cap, not indexed
Allowed investments
Low-cost U.S. broad index funds only
N/A — restricts balance, not investment type
Consequence of exceeding limits
N/A
Contributions barred; forced 50% distribution of excess
The Math: Projecting a Collision Over a 65-Year Horizon
Here is where the two policies intersect. Assume a child is born in 2026, receives the $1,000 seed deposit, and gets the full $5,000 annual contribution every year from birth through age 17. At 18, the account converts to a traditional IRA, and the beneficiary continues contributing and investing for retirement, this time without the conservative investment restrictions.
Assumed Annual Return
Balance at Age 18
Approx. Age Balance Reaches $10M
7%
~$200,000
~Age 78
8%
~$200,000+
~Age 70
10%
~$200,000+
~Age 58
Example: Under a steady 10% historical market return, a child born today with a fully-funded Trump Account could see their retirement balance cross the proposed $10 million threshold by around age 58 — well before typical retirement age. Even at more conservative 7–8% returns, the $10 million mark could still be reached in their late 60s or 70s, squarely within a normal retirement horizon.
The Policy Tension
The Case for the Cap
Proponents of the proposed mega IRA cap argue that tax-advantaged retirement accounts should support retirement security, not serve as vehicles for multi-generational wealth sheltering. The proposal is generally framed as targeting the small number of ultra-high-balance accounts — often built through early access to private, pre-IPO investments unavailable to most savers — rather than everyday retirement savers.
The Unintended Consequence
Trump Accounts, by contrast, are restricted to conservative, low-cost U.S. index funds — a very different investment profile than the private equity and pre-IPO stakes typically cited in mega-balance examples like Peter Thiel’s or Mitt Romney’s accounts. Trump Accounts are also explicitly positioned as a tool to help middle-class families build a retirement savings head start, not a wealth-sheltering mechanism. Because the proposed cap is not indexed for inflation, its effective reach grows more restrictive every year, which means a policy aimed at ultra-wealthy outliers today could, decades from now, sweep in beneficiaries whose balances grew mainly through ordinary index-fund compounding and time in the market.
Whether or not the mega IRA cap becomes law, and in what form, is still uncertain. What is clear is that the two policies were not designed with each other in mind — and the long time horizon involved means today’s newborns could be the ones who eventually find out how that tension gets resolved.
If you are exploring related contribution strategies for your own retirement accounts, you may also be interested in our guide to the Mega Backdoor Roth using a Solo 401k, or our overview of Solo 401k plans generally.
Have questions about how proposed retirement account legislation could affect your plan?Our team can help you understand how your Solo 401k fits into the current retirement account landscape, and keep you updated as proposals like the mega IRA cap develop.
Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making decisions with your retirement funds.
One of the most common questions from self-employed investors is: can I invest my 401k in a private company? The short answer is yes — but only under the right conditions. Your plan must explicitly allow for alternative investments, the transaction must comply with IRS prohibited transaction regulations, and the investment must be structured to benefit the Solo 401k plan — not you personally.
This guide covers everything you need to know: what qualifies as a private company investment, how the self-directed Solo 401k makes it possible, what the rules are, and how to execute the investment correctly from start to finish.
Watch: My Solo 401k Financial explains how to invest Solo 401k funds in private companies and pre-IPO stock while staying IRS-compliant.
What Is a Private Company Investment?
A private company is a business whose ownership interests are not publicly traded on a securities exchange such as the NASDAQ or the Dow Jones. When your Solo 401k invests in a private company, the plan becomes a shareholder and owns shares of that company.
Private company investments through a Solo 401k may include:
Pre-IPO stock in companies preparing to go public (e.g., SpaceX, Anthropic, OpenAI’s ChatGPT)
Venture capital (VC) funds
Private equity (PE) funds
Syndications and pooled investment vehicles
Startup equity and angel investments
ⓘ Key Insight:
When your Solo 401k invests in a private company, the plan itself does not disappear. The private investment simply becomes an asset of the plan — just like publicly traded stocks such as Microsoft or NVIDIA. The cash has been exchanged for a private security that the plan now owns.
Does Your 401k Plan Allow Private Company Investments?
This is the first and most critical question. While the IRS regulations permit alternative investments including private stock, it ultimately comes down to whether your plan documents allow it. Most traditional employer-sponsored 401k plans do not.
⚠ Important:
If you have a 401k through a full-time employer, you must check with that employer first. Most workplace plans do not allow private stock investments. To invest in private companies through a retirement account, you generally need a self-directed Solo 401k — one whose plan documents explicitly authorize alternative investments.
Plan Type
Private Company Investments Allowed?
Notes
Employer-Sponsored 401k
Generally No
Confirm with your employer’s plan administrator
Standard Solo 401k
Depends on provider
Many basic providers do not include alternative investment language
Self-Directed Solo 401k (My Solo 401k Financial)
Yes
Plan documents explicitly authorize private stock, real estate, crypto, notes, and more
Required if you want to invest in your own business using retirement funds
A properly drafted self-directed Solo 401k — such as the plan offered by My Solo 401k Financial — provides broad investment options including private company stock. As the trustee of your own plan, you choose the investments you want to make, as long as the plan allows it and the transaction complies with IRS rules.
Who Is Eligible to Open a Self-Directed Solo 401k?
Before making any private company investment through a Solo 401k, confirm that you are eligible to open and maintain the plan. The requirements are straightforward:
You must have self-employment income (from a business you own or freelance/contractor work)
Your business must not employ any non-owner, full-time W-2 employees who are age 21 or older and work 1,000 hours or more per year
Your spouse may also participate if he or she works in the business — both participate in the same plan (not two separate plans)
ⓘ Two-Participant Plans:
If both spouses are self-employed in the same business, it is still considered one Solo 401k plan. However, each spouse maintains separate holding accounts for contributions, IRA rollovers, and investments. This doubles the plan’s annual contribution capacity without creating a second plan.
Understanding Prohibited Transactions
This is the most important compliance concept when investing a Solo 401k in a private company. Under the Internal Revenue Code, the IRS defines a prohibited transaction as any transaction between a retirement plan and a disqualified person.
Who Counts as a Disqualified Person?
Disqualified persons include:
You (the plan participant and trustee)
Your spouse
Your children and their spouses
Your parents
Any business in which you or the above family members are an owner, officer, director, or employee
⚠ Critical Rule:
You cannot invest your Solo 401k in a private company if you — or a disqualified family member — are an owner, officer, director, or employee of that company. To invest in your own business, you must use a ROBS 401k (Rollover for Business Startups) structure instead. My Solo 401k Financial also offers ROBS plans for this purpose.
The Core Principle
Your Solo 401k cannot be used as a source of capital to benefit you personally. Every investment must be made solely to benefit the plan — not to generate a personal gain, salary, commission, or referral fee for you or any disqualified person connected to the investment.
Scenario
Permitted?
Why
Invest in a startup where you have no role or ownership
✅ Yes
No disqualified person is involved
Invest in a friend’s company (friend is not a relative)
✅ Yes (with conditions)
Friend is not a disqualified person; you cannot control the company or receive compensation
Invest in pre-IPO stock (SpaceX, Anthropic, ChatGPT)
✅ Yes
Arm’s-length investment; plan is investor on same terms as others
Invest in a company where you are an officer or director
🚫 No
You are a disqualified person; prohibited transaction
Invest in your own business directly
🚫 No
Requires a ROBS 401k structure instead
Can I Also Invest My Personal Money in the Same Private Company?
Yes — co-investing alongside your Solo 401k is permitted. You can invest both your Solo 401k funds and your personal money in the same private company, subject to one important aggregate ownership rule.
⚠ The 50% Aggregate Ownership Rule:
When you co-invest personally alongside your Solo 401k, you must ensure that the combined ownership — your personal stake plus the plan’s stake — does not reach 50% or more of the private company. This aggregate calculation also includes the ownership interests of disqualified family members (spouse, children, parents) who invest in the same company. Breaching the 50% threshold triggers prohibited transaction rules.
▶ Example: Co-Investing with Correct Aggregation
Your Solo 401k purchases a 20% stake in a private startup. You personally invest in the same company for an additional 15% stake. Your spouse (a disqualified person) also purchases 10%. Combined ownership = 20% + 15% + 10% = 45% — below the 50% threshold. This is permissible. If the combined total had reached 50% or more, a prohibited transaction would result.
How to Make a Private Company Investment with Your Solo 401k
Once you have confirmed eligibility, plan authorization, and prohibited transaction compliance, executing a private company investment through your Solo 401k is straightforward. Here is the step-by-step process:
Step 1 — Confirm Your Plan Allows Alternative Investments
Before anything else, verify that your Solo 401k plan documents explicitly authorize private company investments. If you use My Solo 401k Financial, this authorization is built into your plan. If you use another provider, review your plan documents or ask your provider directly.
Step 2 — Confirm Solo 401k Eligibility
Make sure you are eligible to maintain a Solo 401k: self-employment income, no non-owner full-time W-2 employees (age 21+, 1,000+ hours per year).
Step 3 — Fund the Solo 401k
Ensure your plan has sufficient liquid funds to make the investment. This may involve making annual contributions, rolling over funds from an IRA or former employer plan, or liquidating other plan holdings to generate cash.
Step 4 — Title All Investment Documents in the Plan’s Name
The subscription agreement, offering memorandum, and all other investment documents must be titled in the name of the Solo 401k plan — not your personal name. As the trustee of the plan, you sign all documents in your trustee capacity.
▶ Example: Correct Titling
The subscription agreement for a private equity fund should read: “[Your Name] Solo 401k Plan, [Your Name], Trustee” — not simply your personal name. This establishes that the plan, not you personally, is the investor.
Step 5 — Wire Funds Directly from the Solo 401k Account
Funding must flow directly from the Solo 401k bank or brokerage account to the private company’s or fund’s bank account — never through your personal account. A wire transfer is the typical method. Funds that pass through your personal account — even temporarily — can constitute a prohibited transaction.
Step 6 — Return All Income and Proceeds to the Plan
All income generated by the investment — interest payments, dividends, distributions — must flow back directly to the Solo 401k. Likewise, when the investment is sold, all proceeds return to the plan. Those funds remain tax-sheltered within the plan and can be reinvested in equities or other alternative investments.
#
Step
Key Requirement
1
Confirm plan allows alternative investments
Must be in plan documents
2
Verify Solo 401k eligibility
Self-employment income; no non-owner FT employees
3
Fund the Solo 401k
Contributions, rollovers, or liquidate existing holdings
4
Title documents in plan’s name
Signed by you as trustee — not in personal name
5
Wire funds directly from Solo 401k account
Never through your personal bank account
6
All income and proceeds return to the plan
Tax-deferred (pre-tax) or tax-free (Roth) growth
Tax Treatment: Pre-Tax vs. Roth Solo 401k Investments
The tax treatment of returns from a private company investment depends on which bucket of your Solo 401k was used to fund the investment:
Contribution Source
Growth Treatment
Distribution Treatment
Pre-Tax Solo 401k funds
Tax-deferred
Taxable as ordinary income at distribution
Roth Solo 401k funds
Tax-free
Tax-free qualified distributions in retirement
Using Roth Solo 401k funds to invest in a high-growth private company — especially a pre-IPO investment with significant upside — can be a powerful strategy. If the company’s value increases substantially before going public, all of that appreciation is tax-free inside the Roth bucket.
ⓘ Mega Backdoor Roth & Private Investments:
My Solo 401k Financial was the first provider in the industry to offer the Mega Backdoor Roth Solo 401k, going back to tax year 2013. This strategy allows after-tax contributions up to the overall annual limit ($70,000 for 2025; $72,000 for 2026) to be converted to Roth — creating a large Roth balance that can then be deployed into private company investments for completely tax-free growth.
Due Diligence Before Investing
Because you are the trustee of your own Solo 401k, you bear responsibility for the investments your plan makes. Performing proper due diligence protects both your retirement savings and your plan’s tax-advantaged status.
Key Due Diligence Steps
Verify the company is legitimate — research the company’s background, leadership, and business model. Avoid Ponzi schemes and fraudulent investment vehicles
Review the offering documents — carefully read the private placement memorandum (PPM), subscription agreement, and any operating agreements before signing
Ensure you have sufficient liquidity — private investments are typically illiquid. Make sure your plan retains enough liquid assets to cover future expenses and required minimum distributions (RMDs) when applicable
Confirm prohibited transaction compliance — before committing, verify that neither you nor any disqualified family member has a role in the company that would create a prohibited transaction
Consult qualified professionals — a tax advisor and legal counsel familiar with ERISA and IRS retirement plan rules can help you evaluate the investment and its compliance implications
⚠ Liquidity Warning:
Private company investments are typically illiquid — you may not be able to sell your stake quickly or at all until a liquidity event (IPO, acquisition, etc.) occurs. Before committing your Solo 401k funds to a private investment, ensure the plan retains sufficient liquid assets for ongoing needs and potential future distributions.
Why My Solo 401k Financial for Private Company Investments?
My Solo 401k Financial is a leading provider of self-directed Solo 401k plans and has been helping self-employed investors access alternative investments — including private company stock — for over a decade. Here’s what sets the plan apart:
Feature
Detail
Broad investment authorization
Plan documents explicitly allow private stock, real estate, cryptocurrency, promissory notes, precious metals, and more
You choose where to hold funds
My Solo 401k Financial does not hold your funds or require you to use a specific institution — use Fidelity, Schwab, a local bank, or a specialized custodian
You are the trustee
As plan trustee, you have full checkbook control — no custodian approval required for each investment
Step-by-step investment guidance
My Solo 401k Financial provides a detailed procedure and video walkthrough on how to make private investments through the plan
Mega Backdoor Roth support
First provider to offer the Mega Backdoor Roth Solo 401k (since 2013); handles Form 1099-R reporting
ROBS 401k also available
For investing in your own business, My Solo 401k Financial also offers ROBS 401k plans
Ready to Invest Your Solo 401k in a Private Company?
Whether you’re eyeing a pre-IPO opportunity, a private equity fund, or a startup investment, My Solo 401k Financial can help you set up the right self-directed Solo 401k structure — with the plan documents, step-by-step guidance, and ongoing compliance support you need.
Disclaimer: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making investment decisions with your retirement funds.
Watch: Why Schwab’s basic plan blocks 401k participant loans — and how solopreneurs unlock them while keeping their accounts at Schwab
Quick Answer:
No. Schwab’s own basic Solo 401k plan document does not allow 401k participant loans. Like virtually every discount brokerage, Schwab has made the business decision not to offer loans under its in-house plan. The good news: Schwab will open accounts for solopreneurs who bring their own plan documents. By restating (upgrading) to a fully featured plan from My Solo 401k Financial, you can take a Solo 401k participant loan of up to 50% of your balance (not to exceed $50,000) while keeping your cash and investments right where they are — at Schwab.
Who Is Eligible for a Solo 401k?
Before we get to loans, let’s lay the foundation. To be eligible for a Solo 401k, you must satisfy two simple requirements.
Requirement 1: Earned Self-Employment Income
You need to be self-employed, and you demonstrate that by reporting earned self-employment income on your tax return. Your business does not have to be taxed in any particular manner — you don’t even need a formal legal entity.
Business Tax Classification
Where Earned Self-Employment Income Is Reported
Sole proprietor (no entity)
Schedule C net earned income
Single-member LLC taxed as a disregarded entity
Schedule C net earned income
S-corporation
W-2 wages from your self-employed business
C-corporation
W-2 wages from your self-employed business
Partnership
Line 14 of the K-1 you receive from the partnership
Requirement 2: No Non-Owner, Non-Spouse Full-Time W-2 Employees
You cannot have non-owner, non-spouse full-time W-2 employees working for any business owned by you or your spouse.
Example: You run a marketing consultancy and use three 1099-NEC independent contractors. Because those individuals are not full-time W-2 employees, they do not prevent you from having a Solo 401k. Your spouse can also work in the business and participate in the plan.
Why Schwab’s Basic Solo 401k Plan Blocks 401k Loans
When you open a basic Solo 401k at Schwab, two things are true: (1) you are using Schwab’s plan documents to create the 401k plan, and (2) the account is held at Schwab.
A Solo 401k, like any 401k, is a legal entity. As with any legal entity, it’s the documents that create it — and it’s the documents that dictate what you can do with it. Schwab, like virtually all other discount brokerages, has made the business decision not to offer a Solo 401k plan that permits 401k participant loans.
Important: If you open the basic plan at Schwab, you are limited to Schwab’s documents. That means no Solo 401k participant loans, no ability to make Mega Backdoor Roth contributions, no ability to invest in alternative investments such as real estate or crypto, and no ability for the solopreneur to claim the available tax credits.
Feature Comparison: Schwab’s Basic Plan vs. a Restated My Solo 401k Financial Plan
Feature
Schwab Basic Solo 401k
My Solo 401k Financial Plan (Accounts Still at Schwab)
401k participant loans
Not permitted
Supported
Mega Backdoor Roth (voluntary after-tax) contributions
Not permitted
Supported
Alternative investments (real estate, crypto, notes)
Not permitted
Supported
$1,500 in Solo 401k startup tax credits
Not available
Available
Form 5500-EZ preparation and filing support
Not handled — directed to your tax advisor
Handled at no additional fee
Stocks, bonds, mutual funds, ETFs
Available
Available
The Solution: Bring Your Own Plan Documents to Schwab
Schwab — like the other discount brokerages our clients use — will open accounts for people who bring their own plan documents. If you already started with the basic Solo 401k plan at Schwab, you can restate (upgrade) your plan to our plan documents.
My Solo 401k Financial offers a fully featured 401k plan, but we do not hold or have access to our customers’ funds. Our IRS-approved plan documents allow for Solo 401k participant loans, Mega Backdoor Roth Solo 401k contributions, and alternative investments — while your accounts and investments stay at Schwab.
What Are Schwab Company Retirement Accounts (CRA Accounts)?
From Schwab’s perspective, the accounts you opened using their basic plan documents are governed by their plan. Once you have your own plan documents, Schwab needs to know that — so new accounts must be established. Schwab offers what it calls a Company Retirement Account (CRA) for third-party plans.
CRA accounts are essentially brokerage accounts for the restated plan.
Schwab charges nothing to open them and there is no maintenance fee.
Investment options are the same as any other retirement account — stocks, bonds, mutual funds, and more.
Schwab will even provide a free checkbook on those accounts.
As part of onboarding, My Solo 401k Financial pre-fills the paperwork Schwab requires to open the CRA accounts.
Info Highlight — The Transfer Is Not Taxable: Moving cash and assets from your pre-existing Schwab Solo 401k accounts to the corresponding new CRA accounts (pre-tax to pre-tax, Roth to Roth, and so on) is not reportable and not taxable. The funds never leave the Solo 401k — they simply move to new accounts for the same, but restated, plan.
The Dual-Entity Structure: Separating the Plan Provider from the Account Provider
The result is a clean separation of roles. You keep your accounts at Schwab, but the plan itself is provided by a third party — My Solo 401k Financial. We don’t hold or have access to customer funds. We focus on providing the fully featured plan document plus ongoing educational and compliance support, while giving you the freedom to hold accounts at the bank or brokerage of your choice.
What Upgrading Your Schwab Solo 401k Unlocks
Solo 401k participant loans — up to 50% of the plan value, not to exceed $50,000.
Alternative investments — real estate, crypto, private notes, and more.
Mega Backdoor Roth — voluntary after-tax contributions that can be converted to a Roth Solo 401k or a Roth IRA.
$1,500 in Solo 401k tax credits — $500 per year for three consecutive years under the SECURE Act.
Form 5500-EZ filing support — prepared and e-filed by us at no additional fee (as long as we are timely notified)
Example — The Tax Credits Outrun the Fees: Our fee structure is a flat $650 initial cost and $125 per year beginning 12 months later. It is totally flat — it does not increase as the value of the plan grows. Over the first seven years that totals less than the $1,500 in Solo 401k tax credits available under the SECURE Act, so the credits more than cover our fees for those first seven years.
Form 5500-EZ: The $250,000 Threshold
Once the value of your Solo 401k exceeds $250,000, the Form 5500-EZ filing requirement applies. When measuring that threshold, aggregate all plan accounts — multiple participants (such as a husband and wife), and different money types (pre-tax and Roth) — and include the value of any defined benefit plan you may have.
Important: Schwab does not handle Form 5500-EZ for its Solo 401k customers — it will direct you to your tax advisor. My Solo 401k Financial handles the Form 5500-EZ at no additional fee. Because we don’t have access to your accounts, clients and their advisors simply need to notify us once the value exceeds $250,000 so we can add them to the process, gather the financial information needed, and e-file through the EFAST system.
How to Fund and Take Your Solo 401k Loan at Schwab
Step
What Happens
1
Restate the plan. Upgrade your vanilla Schwab Solo 401k to our IRS-approved plan documents, which allow 401k participant loans.
2
Open new CRA accounts at Schwab. We pre-fill the paperwork for the restated plan’s accounts as part of onboarding.
3
Fund the restated plan. Three ways: transfer cash and assets from your pre-existing Schwab Solo 401k, roll over funds from a former employer plan or non-Roth IRA, or make new contributions.
4
Submit the loan form. Complete the form on our website to prompt us to prepare the required loan documents — drafted within one business day at no additional charge.
5
Transfer and repay. Move the loan proceeds from the Schwab brokerage account for the restated plan to your personal account, then repay the loan back to that same account.
Solo 401k Participant Loan Rules at a Glance
You may use the proceeds of a Solo 401k participant loan for any purpose — business or personal. The loan is not subject to taxes or penalties provided it is properly documented as a loan and stays within the required terms.
Loan Term
Rule
Maximum amount
50% of the plan value, not to exceed $50,000
Interest rate
Prime plus 1%, or a comparable CD rate plus 2%
Payment frequency
Monthly or quarterly — your choice — in equal payments of principal and interest
Loan term
Five years standard; may be extended if the proceeds are used to purchase your primary residence
Permitted use
Any purpose — business or personal
Repayment account
The same account the loan came from (pre-tax loan repaid to pre-tax; Roth loan repaid to Roth)
Document preparation
Prepared by My Solo 401k Financial within one business day at no additional charge
Example — Calculating the Maximum Loan:
You have $60,000 in your pre-tax Solo 401k account and $40,000 in your Roth Solo 401k account — $100,000 in total plan value. Because the 50% test looks at the entire value of the plan, you could take a $50,000 loan, draw the full amount from the pre-tax account, and then repay it to that same pre-tax account.
Info Highlight — Using the CD Rate Option: If you use the CD-rate method for a $50,000 loan, look for comparable $50,000 CD rates with a five-year term (checking a couple and averaging is a reasonable approach), provide us that rate, and we add the 2% when drafting the loan documents.
Ready to Unlock 401k Loans While Keeping Your Accounts at Schwab?
Whether you’re restating an existing Schwab Solo 401k or starting fresh, My Solo 401k Financial can set up the right Solo 401k structure so you can take participant loans, make Mega Backdoor Roth contributions, and invest in alternatives — with your accounts still at Schwab.
Next Steps:Get Started Today! Ten simple questions — and we prepare your documents within the same business day. You can also join our free community at mysolo401k.net/my-community or subscribe to our channels for daily live sessions.
Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making investment decisions with your retirement funds.
Watch: How pre-tax, Roth, and voluntary after-tax Solo 401k contributions each affect your taxes differently.
A Solo 401k is one of the most powerful retirement accounts available to the self-employed — but its tax
impact depends entirely on how your contributions are structured. Depending on the contribution type you choose, a Solo 401k can reduce your current taxable income, grow your savings completely tax-free, or both. This
guide breaks down exactly how each contribution type affects your taxes, how your business structure changes the math, and how the Mega Backdoor Roth strategy fits in.
Not All Solo 401k Contributions Are Tax-Deductible
A common misconception is that every Solo 401k contribution reduces your taxable income. It doesn’t. The tax
treatment depends entirely on which of the four contribution sources you use: a pre-tax employee contribution, a Roth employee contribution, an employer profit sharing contribution, or a voluntary after-tax contribution. If your goal is an immediate tax deduction, you would not make a Roth employee contribution or a voluntary after-tax contribution
— neither reduces your taxable income for the year they’re made.
Contribution Type
Reduces Taxable Income Now?
Tax Treatment of Growth
Pre-tax employee contribution
Yes
Tax-deferred; taxed at distribution
Employer profit sharing contribution
Yes (deducted on business return)
Tax-deferred; taxed at distribution
Roth employee contribution
No
Tax-free growth; tax-free qualified distributions
Voluntary after-tax contribution
No
Tax-free once converted (Mega Backdoor Roth)
Info Highlight: My Solo 401k Financial’s plan allows for all four contribution types — pre-tax employee,
Roth employee, employer profit sharing, and voluntary after-tax — giving you full flexibility to decide each year whether you want an immediate deduction or long-term tax-free growth.
Who Qualifies for a Solo 401k?
A Solo 401k is designed for owner-only businesses — meaning the business only employs owners, or owners and
their spouses. Your spouse can participate without being an owner, as long as she works in the business and reports earned income. If you employ a non-owner, non-spouse W-2 employee who is age 21 or older and works 1,000+ hours a year, you would not qualify for a Solo 401k — and this test applies across all businesses under your control, factoring in
controlled group and affiliated service group rules.
Contribution Deadlines: More Flexible Than a Traditional 401k
Important: Solo 401k contributions do not need to flow through payroll or be made periodically. All
contribution types — employee, employer, and voluntary after-tax — must be made by your business tax return due date, plus a timely filed extension. Don’t confuse this with a traditional employer 401k, which is subject to more stringent ERISA contribution rules. IRS Publication 560 includes a chart (generally page 3) confirming the Solo 401k deadline rules.
How Your Business Structure Determines Contributions and Reporting
Because a business owner effectively wears two hats — employee and employer — how you calculate and report each contribution type depends on how your self-employed business is taxed.
Sole Proprietorship (or LLC Taxed as a Sole Proprietorship)
The starting figure is Line 31 of Schedule C (net self-employment income). Subtract one-half of
self-employment tax, then multiply the result by 20% to determine your employer profit sharing contribution. Pre-tax employee
and employer contributions are reported on Schedule 1, Line 16 of Form 1040. Roth contributions are not
reported directly on your personal return — they’re indirectly reported via Form 1099-R when a Mega Backdoor
Roth conversion is processed.
S-Corporation (or LLC Taxed as an S-Corp)
All contribution types are based on Box 1 W-2 wages (plus any applicable Box 12 amount). Multiply W-2 wages
by 25% for the employer profit sharing contribution. Employee pre-tax contributions can be reported either in Box 12 of the
W-2 or on Schedule 1, Line 16 of your personal return — never both. Employer contributions are deducted on Form 1120-S, Line 17 (or Line 16, depending on contribution type). Roth employer profit sharing contributions
are treated as a taxable in-plan conversion, requiring a Form 1099-R.
Partnership (or LLC Taxed as a Partnership)
Review Schedule K-1, Line 14, Code A for self-employment income — that’s your starting figure. Subtract
one-half of self-employment tax, then multiply by 20% for the employer profit sharing contribution. Pre-tax employee and
employer contributions are reported in two places: Schedule 1, Line 16, and Schedule K-1, Line 13,
Code R.
Business Structure
Contribution Starting Point
Employer Profit Sharing Rate
Sole Proprietorship
Schedule C, Line 31 (minus ½ SE tax)
20%
S-Corporation
W-2, Box 1 gross wages
25%
Partnership
Schedule K-1, Line 14, Code A (minus ½ SE tax)
20%
Example: A self-employed business owner has $100,000 in eligible compensation and makes a $24,500 pre-tax
employee contribution for 2026. That contribution reduces the owner’s 2026 taxable self-employment income dollar for dollar, lowering the tax bill for that year.
The Mega Backdoor Roth Solo 401k Strategy
Info Highlight:Voluntary after-tax contributions don’t provide a current-year tax deduction, but once
inside the plan, they can be converted to a Roth Solo 401k or Roth IRA — this is the Mega Backdoor Roth strategy. Because voluntary after-tax contributions are calculated dollar-for-dollar
(not as a percentage), it takes less earned income to maximize your Roth contributions this way compared to a standard employee Roth deferral, which is capped at $24,500 for 2026.
Example: An S-Corp owner pays themselves $72,000 in Box 1 W-2 wages. They can contribute the entire
$72,000 to the voluntary after-tax Solo 401k bucket, then immediately convert it to the Roth Solo 401k or Roth IRA —maximizing the overall $72,000 annual limit (the 415(c) limit) for 2026 entirely through the Mega Backdoor Roth strategy.
Even better: voluntary after-tax contributions are not aggregated with contributions made to a day-job 401k.
So if you max out your employer’s 401k at your day job, you can still separately maximize your Mega Backdoor Solo 401k contributions — up to $72,000 — based on your self-employment income, which is a major reason high
income earners use this strategy.
Roth Solo 401k Distribution Rules
Important: For a Roth Solo 401k distribution to be qualified (tax-free), you must be age 59½ or older and have held funds in the Roth Solo 401k account for five years. Unlike Roth IRAs, you cannot aggregate this
five-year clock with a Roth account from a day-job 401k — it’s specific to the Roth Solo 401k account itself. Roth Solo 401k accounts are also no longer subject to required minimum distributions.
2026 Solo 401k Contribution Limits
Contribution Type
2026 Limit
Employee contribution (pre-tax or Roth)
$24,500
Overall annual limit (415(c) limit, under age 50)
$72,000
Normal catch-up (ages 50–59 and 64+)
+$8,000
Super catch-up under SECURE Act 2.0 (ages 60–63)
+$11,250
Important: Catch-up contributions cannot be made as voluntary after-tax contributions — they must be made
as Roth employee contributions instead. You also cannot combine the normal catch-up and super catch-up; if you qualify for the super catch-up, you use that amount only. Both employee deferral limits and catch-up contributions are aggregated across all 401k plans you participate in, including a day-job 401k.
Solo 401k Reporting: Form 1099-R and Form 5500-EZ
A Form 1099-R is issued whenever you process a distribution or a conversion — pre-tax or voluntary after-tax
— such as a Mega Backdoor Roth conversion. Form 5500-EZ applies once your Solo 401k’s market value exceeds
$250,000 at year-end. If you also participate in a self-employed defined benefit plan, its value is added to your Solo 401k balance when testing that $250,000 threshold, and two separate Form 5500-EZs would be required.
Example: My Solo 401k Financial prepares and files Form 5500-EZ and issues Form 1099-R for clients who
timely request these services — both are covered under the annual fee, with no extra charge.
Bottom Line
How a Solo 401k affects your taxes comes down to which contribution source you use. Pre-tax employee and
employer profit sharing contributions reduce your taxable income today; Roth and voluntary after-tax contributions don’t —but they set you up for tax-free growth, especially when paired with the Mega Backdoor Roth strategy.
Understanding your business structure, contribution deadlines, and reporting obligations helps you get the most tax valueout of your Solo 401k each year.
Ready to Put Your Solo 401k Tax Strategy to Work?
Whether you want an immediate tax deduction, tax-free Roth growth, or a Mega Backdoor Roth conversion, we can help you set up
the right Solo 401k structure for your goals. Next Steps: Get Started Today! You can also watch more
webinars on our YouTube channel or browse our blog for additional Solo 401k and Mega Backdoor Roth strategies.
Remember: This information is provided for educational purposes only. Always consult with qualified tax,
legal, and investment professionals before making decisions with your retirement funds.
Solo 401k Withdrawal Hack: How to Avoid the Mandatory 20% Withholding
Watch: How to legally sidestep the mandatory 20% federal withholding on a Solo 401k distribution
If you’ve ever needed a lump sum of cash from your Solo 401k — for a business opportunity, an emergency, or anything else — you’ve probably run into an unwelcome surprise: the mandatory 20% federal withholding on taxable distributions. This article breaks down exactly why that withholding happens, what it takes to comply with it as your own plan’s trustee, and two legitimate strategies to avoid it entirely.
The 80/20 Reality: A $50,000 Example
Picture this scenario: you need $50,000 from your Solo 401k for a business opportunity or an emergency. Before requesting a distribution, you first need to be eligible to take one — generally you must be 59½ or older, or otherwise meet a triggering event. One common triggering event: dollars that were rolled into your Solo 401k from a former employer plan or a non-Roth IRA can be withdrawn even if you haven’t reached 59½.Once you’re eligible to take a taxable distribution, the IRS requires 20% of the distributed amount to be withheld and sent to the federal government by the 15th of the month following the distribution. On a $50,000 distribution, that means $10,000 is withheld and you walk away with only $40,000 — 80% of what you requested.
Important: Unlike a corporate 401k — where the plan administrator handles withholding automatically — with a Solo 401k, you are the trustee. That means you’re personally responsible for compliance, which involves several manual steps.
What Trustee Responsibility Actually Involves
Enrolling in the Electronic Federal Tax Payment System (EFTPS)
Waiting to receive your government PIN by physical mail
Manually calculating and wiring the 20% withholding to the Treasury
Meeting the deadline: the 15th of the month following the distribution
Direct Distribution vs. the Two Withholding Hacks
Approach
20% Withholding?
Cash in Hand (on $50,000)
Direct Solo 401k distribution
Mandatory
$40,000
Hack #1: Rollover to an IRA, then withdraw
Optional (can elect none)
$50,000
Hack #2: Solo 401k participant loan
None — it’s a loan, not a distribution
Up to $50,000 (must be repaid)
Hack #1: The IRA Rollover Maneuver
If you’re eligible to take a taxable distribution, you’re also eligible to roll those same dollars into an IRA — for example, a pre-tax IRA if the funds are pre-tax money. That first step, the transfer to the IRA, is reportable but not taxable. My Solo 401k Financial prepares the required Form 1099-R showing a nontaxable direct rollover, as long as the client or advisor submits the request through our website in a timely fashion. Because it’s a direct rollover, there’s no 20% withholding.
Example: Once the $50,000 is in the IRA, there’s no triggering event required to withdraw it, and withholding on IRA distributions is optional. You can elect out of withholding and take the full $50,000 — compared to the $40,000 you’d net from a direct Solo 401k withdrawal.
Hack #2: The Solo 401k Participant Loan
The second hack isn’t a distribution at all — it’s a loan. If your Solo 401k plan document allows for participant loans, such as the plan offered by My Solo 401k Financial, you can borrow up to 50% of your account balance, not to exceed $50,000. Because it’s a loan, it’s not subject to taxes, penalties, or withholding — provided you follow the rules:
Stay within the loan limits (50% of balance, capped at $50,000)
Have the loan properly documented before you take it — My Solo 401k Financial prepares these loan documents at no additional charge, typically within one business day, once requested
Repay the loan on the required schedule
Repayment Terms
Repayments are made monthly or quarterly (your choice), in equal payments of principal and interest, over a five-year term. The interest rate is either prime plus 1% or a CD rate plus 2%. Importantly, that interest isn’t paid to a bank or to us — it’s paid back into your own Solo 401k.
The Look-Back Rule
After a loan is fully repaid, you must wait 12 months before taking another loan of the same size. For example, if you took a loan in month one and fully repaid it by month six, you’d need to wait until month eighteen for another full loan. However, if you didn’t borrow the full amount — say you took $30,000 against a balance of at least $100,000 — you could still take the remaining $20,000 without waiting.
Warning: If you default on a Solo 401k loan, the unpaid balance becomes a “deemed distribution” — meaning you’ll owe both taxes and penalties on it.
The Brokerage Trap
Here’s the catch: standard, big-box brokerage Solo 401k plans — such as those offered directly by Fidelity or Schwab — generally do not allow participant loans, because their plan documents simply don’t provide for them. These are one-size-fits-all, vanilla plans limited mostly to mutual fund investing.
Info: The good news is those same brokerages (Fidelity, Schwab, and others) will custody accounts for a self-directed Solo 401k that uses your own custom plan document — like the plan offered by My Solo 401k Financial. Our plan supports participant loans, the Mega Backdoor Roth, in-plan Roth conversions, and true alternative investments such as real estate, cryptocurrency, private placements, and pre-IPO stock.
Upgrading a basic brokerage plan to our full-featured Solo 401k also makes the solopreneur eligible to claim the $1,500 Solo 401k tax credit under the SECURE Act — available not just for brand-new plans, but for existing vanilla plans that are upgraded to ours as well.
$500 for first 3 years (total $1,500) — more than covers fees for the first 7 years
Ready to Set Up a Solo 401k That Actually Works for You?Whether you need participant loan flexibility, Mega Backdoor Roth capability, or access to alternative investments, we can help you set up the right Solo 401k structure.
Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making investment decisions with your retirement funds.
Watch: Can your wife participate in your Solo 401k? Eligibility, contributions, and the Mega Backdoor Roth explained.
Yes — your wife may participate in your Solo 401k. But being married to a business owner is not enough on its own.
To qualify, your wife must perform legitimate work for the business that sponsors the plan and must receive compensation from that business. This guide walks through exactly how eligibility, contribution limits, the Mega Backdoor Roth strategy, and annual reporting all work when a spouse joins the plan.
How Your Business Structure Affects Your Wife’s Eligibility
Depending on how your self-employed business is taxed, your wife’s compensation — and how her Solo 401k contribution is calculated — will look different:
LLC Taxed as an S-Corporation
Compensation is typically reported as W-2 wages. Each spouse receives a separate W-2, and each spouse’s contribution is calculated from their own W-2 wage figure.
Sole Proprietorship
Your wife would file her own separate Schedule C, meaning the business would have two Schedule Cs total — one for you and one for her. Contributions are based on each spouse’s respective Line 31 net self-employment income.
LLC Taxed as a Partnership
Each spouse would receive their own Schedule K-1. Review Line 14, Code A of the K-1 for self-employment income — that figure is the starting point for the contribution calculation.
Business Structure
Compensation Source
Where to Look
LLC taxed as S-Corp
W-2 wages (one per spouse)
Each spouse’s Form W-2
Sole Proprietorship
Net self-employment income
Schedule C, Line 31 (separate Schedule C for each spouse)
LLC taxed as Partnership
Self-employment income
Schedule K-1, Line 14, Code A (separate K-1 for each spouse)
One Plan, Not Two: How Spousal Participation Actually Works
A common misconception is that you’d open a separate Solo 401k just for your wife. Generally, you do not.
A Solo 401k — also called a one-participant 401k — is sponsored by the business itself, and
both spouses participate as participants in that same plan, provided both are legitimately working in the business.
This is why it’s often nicknamed the “husband and wife 401k.”
Info Highlight: It’s one plan with separate participant accounts — think of them as individual
bank or brokerage sub-accounts — to hold each spouse’s pre-tax, Roth, and voluntary after-tax funds separately.
Example: A Two-Participant Plan
Example: Both spouses are self-employed in the same LLC taxed as an S-Corporation. The LLC sponsors one Solo 401k, and both spouses are participants. Each receives a separate W-2 for calculating contributions.
The plan itself — a retirement trust — has its own EIN, used to open each participant’s holding accounts. If each spouse
wants to make pre-tax, Roth, and voluntary after-tax contributions, that’s 3 accounts per spouse — 6 accounts total — all under that one plan.
How Much Can Your Wife Contribute?
Your wife is subject to the same annual Solo 401k contribution rules as you are. She can make contributions
as an employee, as an employer (profit sharing), and — if the plan allows — voluntary after-tax contributions. For tax year 2026,
the overall contribution limit is $72,000 for someone under age 50. That means a husband and wife who are both
self-employed in the same business could together contribute up to $144,000 to the household’s retirement savings.
2026 Contribution Type
Per-Spouse Limit
Overall annual limit (under age 50)
$72,000
Catch-up contribution (ages 50–59 and 64+)
+$8,000
Super catch-up contribution (ages 60–63)
+$11,250
Real-World Example: Husband-and-Wife S-Corp
Example: Both spouses work in the same S-Corporation, and each receives $100,000 in W-2 wages
(two separate W-2s issued). Neither spouse is required to contribute the same amount as the other — a Solo 401k is not subject to the nondiscrimination testing that applies to a common-law employer plan.
Contribution Type
Calculation
Amount (Each Spouse)
Employee contribution
Dollar-for-dollar election
$24,500
Employer profit sharing contribution
25% × $100,000 W-2 wages
$25,000
Voluntary after-tax contribution (optional)
Remainder up to the $72,000 overall limit
Up to $22,500
The Mega Backdoor Roth Solo 401k Strategy
Info Highlight: Instead of making employee and employer contributions, each spouse can choose to make voluntary after-tax Solo 401k contributions of up to $72,000 for 2026, then immediately convert those funds
to a Roth Solo 401k or Roth IRA. This is the Mega Backdoor Roth strategy,
and both spouses can each perform it — up to $144,000 combined converted to Roth in a single year.
Can Your Wife Work Part-Time? The Spousal Exception
Yes — your wife does not need to work full-time to participate in the Solo 401k. This is thanks to the spousal exception: a plan sponsor must generally avoid employing any non-owner, non-spouse, full-time
W-2 employee who works 1,000 hours or more per year and is age 21 or older. Your spouse is exempt from this restriction.
Important: If you employ a non-owner, non-spouse W-2 employee age 21+ who works 1,000+ hours a year,
you cannot maintain a Solo 401k. Also watch the long-term part-time employee rule: if a
part-time employee (500–999 hours) works two consecutive years and turns 21, you may need to convert to a full-time
employer plan or transfer assets to an IRA.
What if Your Wife Has a Full-Time Job Elsewhere?
Info Highlight: If your wife participates in a full-time employer’s 401k and works in your
business, she can still contribute to your Solo 401k. Aggregation rules that limit total employee
deferrals across multiple plans apply only to employee contributions — not to employer profit sharing
or voluntary after-tax contributions. So even if she maxes out her day-job 401k, she can still make voluntary after-tax Solo 401k contributions up to $72,000, as long as she has sufficient self-employment income from your
business. This is why many anesthesiologists, physicians, attorneys, and CPAs use this strategy alongside their W-2 jobs.
What if Your Wife Owns Her Own Business?
If your wife owns a separate business of her own, she would not participate in your Solo 401k. Instead,
she would establish her own separate Solo 401k sponsored by her own business — two separate plans, each
sponsored by a different self-employed business. As long as both spouses work in the same business, however, only
one Solo 401k is needed.
Reporting Requirements: Form 5500-EZ and Form 1099-R
Important: Form 5500-EZ applies at the plan level. If both spouses are self-employed in the same
business, you add up all participant account balances across the plan. If the combined total exceeds $250,000 in market value, the plan is subject to an annual Form 5500-EZ filing, typically due by
July each year.
If either or both spouses perform the Mega Backdoor Roth conversion, a Form 1099-R must be
issued to report each conversion — one per spouse, so up to two forms total if both convert.
Example: My Solo 401k Financial includes preparation and filing of Form 5500-EZ, and issuance of
Form 1099-R for voluntary after-tax conversions, as part of the $125 annual fee for clients who timely request these services.
Bottom Line
Your wife may absolutely be included in a Solo 401k — as long as she is legitimately performing
self-employment work and receiving compensation from the same business that sponsors the plan. That means one plan,
shared by both spouses, with separate participant accounts and the potential to combine contributions — including the Mega Backdoor Roth strategy — up to the overall annual limit for each spouse.
Ready to Add Your Spouse to Your Solo 401k?
Whether your wife receives W-2 wages, files her own Schedule C, or reports income on a Schedule K-1, our team can help you
set up the right Solo 401k structure for your household. Next Steps: Get Started Today! You can also explore more
webinars on our YouTube channel or browse our blog for additional Solo 401k and Mega Backdoor Roth strategies.
Remember: This information is provided for educational purposes only. Always consult with qualified tax,
legal, and investment professionals before making decisions with your retirement funds.
Watch: A full breakdown of employee, employer, and voluntary after-tax Solo 401k contribution rules for 2026.
A common question from self-employed savers is whether they can put 100% of their paycheck into their Solo 401k. The short answer: sometimes, but only up to the applicable IRS limit, and only if you have enough qualifying compensation to support it. Below, we break down the 2026 contribution rules for employee deferrals, employer profit sharing, and the Mega Backdoor Roth strategy using voluntary after-tax contributions.
What “100% of Compensation” Actually Means
The phrase “100% of compensation” is only one half of the contribution formula — it does not override the IRS’s annual dollar limit. For 2026, the employee (salary deferral) contribution limit to a 401k, including a Solo 401k, is the lesser of 100% of your eligible compensation or $24,500. That means someone earning $20,000 could potentially defer the entire amount, while someone earning $100,000 is still capped at $24,500 as an employee contribution.
Example: Jack is self-employed through an LLC taxed as an S-corporation and receives $18,000 of W-2 wages (Box 1) for 2026. Because $18,000 is below the $24,500 employee deferral limit, Jack can elect to contribute the entire $18,000 to his Solo 401k as an employee contribution — he simply doesn’t have enough compensation to reach the full $24,500.
Important: If Jack instead earned $80,000 of W-2 wages from that same S-corporation, he still cannot contribute more than $24,500 as an employee contribution. The $24,500 figure is an IRS ceiling on employee deferrals, not a percentage of an unlimited salary.
2026 Solo 401k Contribution Limits by Age
Catch-up contributions increase what you can defer as an employee if you meet the age requirements. Here is a summary of the 2026 figures:
Age Group
Employee Deferral Limit
Catch-Up Amount
Total Employee Limit
Overall 415(c) Limit*
Under 50
$24,500
$0
$24,500
$72,000
50–59, or 64+
$24,500
$8,000
$32,500
$80,000
60–63 (super catch-up)
$24,500
$11,250
$35,750
$83,250
*The overall Section 415(c) limit for 2026 is $72,000 (100% of eligible compensation, if lower), plus any applicable catch-up amount.
Catch-Up Contributions Are a Dollar-for-Dollar Requirement
To make the full catch-up amount, you need matching gross wages. A participant age 50–59 (or 64+) needs at least $32,500 of gross W-2 wages (Box 1) from the self-employed business to support the full $24,500 plus $8,000 catch-up. A participant age 60–63 needs at least $35,750 of gross wages to support the full $24,500 plus $11,250 super catch-up.
Aggregation Rules: Daytime Job Plus Solo 401k
If you work a full-time job that offers a 401k and run a self-employed business with its own Solo 401k, your employee contributions are aggregated across both plans — you cannot contribute $24,500 to each plan separately.
Example: Jack earns $18,000 of W-2 wages from his own S-corp and also works for Walmart, which offers a 401k. Jack contributes the full $18,000 as an employee contribution to his Solo 401k. He can then contribute the remaining $6,500 (to reach the $24,500 aggregate limit) to the Walmart 401k, as long as his Walmart W-2 wages support it.
Info: Employer profit sharing contributions and voluntary after-tax contributions are not subject to this aggregation rule. That means you can max out your daytime employer’s 401k and still contribute up to the full $72,000 overall limit to your Solo 401kthrough employer profit sharing or voluntary after-tax contributions.
S-Corp Shareholder Distributions Don’t Count
Warning: The IRS has confirmed that S-corporation shareholder distributions are not earned income for retirement plan contribution purposes — this applies to Solo 401k, SEP IRA, SIMPLE IRA, and defined benefit plans alike. Only gross W-2 wages (Box 1) count.
For example, if Jack receives $25,000 of W-2 wages and $75,000 of shareholder distributions ($100,000 total eligible compensation on paper), he can only use the $25,000 of W-2 wages to calculate his Solo 401k contributions — the $75,000 in distributions is off-limits.
Sole Proprietors and Partnerships: Adjusting Your Income Figure
Business structure changes the starting figure for your contribution calculation:
Business Structure
Starting Figure
Reduce by 1/2 SE Tax?
S-Corporation
Box 1 W-2 gross wages
No
Sole Proprietorship
Schedule C, Line 31
Yes
Partnership (LLC taxed as)
Schedule K-1, Line 14, Code A
Yes
For sole proprietors and partners, that starting figure must be reduced by one-half of self-employment tax (Social Security and Medicare) before calculating any Solo 401k contribution — employee, employer, or voluntary after-tax. This reduction does not apply to S-corporations, where the full W-2 Box 1 wages are used directly.
Contributions Don’t Reduce Payroll Taxes
Important: Employee contributions reduce taxable wages for federal income tax purposes (when made pre-tax), but they do not reduce Social Security or Medicare tax. For an LLC taxed as an S-corporation, FICA tax still applies to employee contributions, though it does not apply to employer profit sharing contributions.
Pre-Tax vs. Roth Employee Contributions
Pre-tax and Roth employee contributions share the same $24,500 limit for 2026 — it is not a separate limit for each. You can split the $24,500 however you like between the two. For example, you could contribute $14,500 pre-tax (reducing your taxable income) and $10,000 as a Roth employee contribution, totaling $24,500.
Voluntary After-Tax Contributions and the Mega Backdoor Roth
Beyond employee deferrals, many Solo 401k plans — including ours — allow voluntary after-tax contributions. These are the engine behind the Mega Backdoor Roth strategy: making voluntary after-tax contributions and immediately converting them to your Roth Solo 401k (or a Roth IRA) so the earnings grow tax-free going forward.
Contribution Type
Counts Toward
Aggregated Across Plans?
Catch-Up Eligible?
Employee (Pre-Tax or Roth)
$24,500 deferral limit
Yes
Yes
Employer Profit Sharing
$72,000 (415(c)) limit
No
No
Voluntary After-Tax (Mega Backdoor Roth)
$72,000 (415(c)) limit
No
No
Example: Jack maximizes his contributions to the Walmart 401k at $72,000 for 2026. Because voluntary after-tax contributions are not subject to aggregation rules, Jack can also contribute the full $72,000 to his Solo 401k as a voluntary after-tax contribution, as long as he reports at least $72,000 of W-2 wages from his own S-corporation.
Important: If voluntary after-tax funds are not converted right away, only the basis is tax-free when distributed — the earnings that accrued are taxable. This defeats the purpose of the strategy, so always convert voluntary after-tax funds to your Roth Solo 401k or Roth IRA promptly. Catch-up contributions can never be made as voluntary after-tax contributions.
Tracking Separate Holding Accounts
A plan that supports the Mega Backdoor Roth needs to separately track each source of funds, so you’ll typically open three holding accounts: pre-tax, Roth, and voluntary after-tax. If your spouse also participates in the plan, that’s three more accounts for a total of six — still just one Solo 401k plan overall.
Employer Roth Solo 401k Contributions
Employer Roth contributions are allowed but less commonly used, since they’re calculated as a percentage of compensation rather than dollar-for-dollar — meaning it takes more earned income to max out your Roth Solo 401k this way compared to the Mega Backdoor Roth. Employer Roth contributions are deductible on the business side but treated as a taxable in-plan conversion on the personal side, requiring a Form 1099-R. For an S-corporation, this contribution is reported on Form 1120-S, line 17.
Employer Profit Sharing Contributions
Profit sharing contributions are employer contributions, separate from employee deferrals and voluntary after-tax contributions. For an LLC taxed as an S-corporation, the employer can contribute up to 25% of W-2 wages. Without W-2 wages (or qualifying self-employment income for a sole proprietorship or partnership), no profit sharing contribution can be made — you must have earned income from self-employment activity to justify any contribution to your Solo 401k.
Choosing Where to Hold Your Funds
Info: With My Solo 401k Financial, you choose where your funds are held — a local bank, credit union, or brokerage firm such as Fidelity, Schwab, or Interactive Brokers. We never take custody of your funds.
Warning: Account-opening times vary significantly by custodian. Fidelity and Schwab typically take four to eight business days. E-Trade has taken as long as eight months in our experience since its merger with Morgan Stanley, so plan accordingly if you choose that route.
Key Takeaways
You can contribute 100% of your compensation to a 401k, including a Solo 401k, only when your compensation is below the applicable employee deferral limit. For 2026: the regular employee deferral limit is $24,500, the standard catch-up is $8,000 (age 50+), and the super catch-up is $11,250 (ages 60–63). The overall Solo 401k contribution limit is $72,000, excluding catch-up amounts, and total contributions can never exceed 100% of eligible compensation.
Employee contributions are aggregated across every 401k plan you participate in, but employer profit sharing and voluntary after-tax contributions are not. If you’re self-employed as a sole proprietor or partnership, remember to subtract one-half of self-employment tax from your earned income before calculating any contribution.
Ready to Maximize Your Solo 401k Contributions?
Whether you’re weighing employee deferrals, employer profit sharing, or the Mega Backdoor Roth, our team at My Solo 401k Financial can help you structure your Solo 401k the right way. Next Steps: Watch more videos on our YouTube channel, read more posts on our blog, or reach out to our team directly.Get Started Today!
Remember: This information is provided for educational purposes only. Always consult with qualified tax, legal, and investment professionals before making contribution decisions with your retirement funds.
We help our clients take control of their retirement money. Our products and services provide our clients the freedom to invest their retirement savings in their own business as well as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities. Learn more
