The Solo 401(k): The Most Powerful RetirementPlan You're Probably Not Using
What Is a Solo 401(k)?
If you have any self-employment income — consulting fees, freelance work, a side business, even 1099s — and you don't have a Solo 401(k), you are likely leaving significant tax deductions on the table every single year. A Solo 401(k), also called an Individual 401(k), is a retirement plan designed for self-employed individuals with no full-time employees (other than a spouse). It works exactly like a corporate 401(k), but you play two roles: the employee and the employer. That means you get to make contributions in both capacities.
The Numbers Are Remarkable
For 2026, as an employee of your own business, you can contribute up to $24,500 (or $32,500 if you're 50–59 or 64+, and up to $35,750 if you're between ages 60–63 under SECURE 2.0's enhanced catch-up rules). As the employer, you can also contribute up to 25% of your net self-employment income on top of that. The total combined limit is $72,000 in 2026 — up from $70,000 in 2025. Compare that to a SEP-IRA, which only allows employer contributions (25% of comp, no employee contribution), or a SIMPLE IRA, which has much lower caps. For business owners who want to shelter the maximum amount of income, the Solo 401(k) typically wins. It Can Also Include a Roth Option Many Solo 401(k) providers allow you to designate some or all of your employee contributions as Roth — meaning you pay tax now, and the growth is tax-free forever. If you're in a lower income year or you're early in your business-building phase, this can be a powerful move. Note: beginning in 2026, participants with prior-year FICA wages over $150,000 must designate catch-up contributions as Roth rather than pre-tax. Check with your plan provider to confirm your plan is set up to accommodate this requirement.
The Catch
Once you hire a full-time employee (other than a spouse), you lose Solo 401(k) eligibility and need to transition to a different plan structure. Also, the plan must be established by December 31 of the tax year you want to take the deduction — this is not something you can set up on April 14. If you have self-employment income and no retirement plan, this is the first call you should make.
Disclosure
Raymond James and its advisors do not offer tax or legal advice. Please consult the appropriate professional. Alternative investments involve specific risks that may be greater than those associated with traditional investments. The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jim Maddux and not necessarily those of Raymond James.
