For 2026, a solo 401(k) allows an employee deferral of up to $24,500 — plus a catch-up of $8,000 at age 50 or older, or $11,250 at ages 60–63 — and an employer contribution of up to 25% of W-2 compensation for a corporation, or effectively 20% of adjusted net earnings for a sole proprietor. Combined contributions excluding catch-ups are capped at $72,000. The Solo 401(k) Calculator runs the worksheet for both business types; this guide explains why there are two employer rates and which cap binds when.
The 2026 limits at a glance
| Limit (2026) | Amount |
|---|---|
| Employee elective deferral | $24,500 |
| Catch-up, age 50+ | $8,000 (total deferral $32,500) |
| Catch-up, ages 60–63 only | $11,250 (total deferral $35,750) |
| Overall limit, excluding catch-ups — §415(c) | $72,000 |
| Combined ceiling with catch-up | $80,000 at 50+ · $83,250 at 60–63 |
| Compensation cap — §401(a)(17) | $360,000 |
These figures are per IRS Notice 2025-67. Two quieter rules ride along: annual additions excluding catch-ups also cannot exceed 100% of the participant's compensation, and catch-up dollars sit outside the $72,000 limit — which is how the combined ceiling reaches $83,250 at ages 60–63 even though the overall cap is $72,000.
One plan, two hats
A solo 401(k) — the IRS calls it a one-participant 401(k) — covers a business owner with no employees, or an owner and their spouse. Its power comes from the owner wearing two hats. As the employee, you make elective deferrals up to the annual deferral limit. As the employer, the business adds a profit-sharing contribution of up to 25% of compensation as the plan defines it. An IRA has only the first hat, which is why its limits are a fraction of these. The two-hat structure is also why the maximum is a worksheet rather than a single percentage — and why the business type changes the answer, as the next section shows.
Why sole proprietors use 20%, not 25%
This is the most-misstated figure in this corner of the internet. A corporation's 25% applies to W-2 wages — a number fixed before the contribution exists. A sole proprietor has no W-2; their plan compensation is earned income figured after deducting the employer contribution itself. That circularity is why IRS Publication 560 publishes a rate table for the self-employed: the self-employed rate is the plan rate divided by one plus the plan rate — 25% ÷ 125% = 20% — applied to net earnings figured without deducting the contribution. Same legal limit, two statements of it. Applying 25% directly to a sole proprietor's net earnings overstates the maximum; applying 20% to a corporation understates it. One more adjustment comes first for sole proprietors: "net earnings" for this worksheet means net profit minus half of the self-employment tax on it, because that half is treated as the employer-equivalent share. The Self-Employment Tax Estimator shows how that SE tax figure itself is built.
Worked example — sole proprietor, age 52, $85,000 net
Marcus is a sole proprietor who will be 52 at the end of 2026, with $85,000 of net self-employment earnings and no other plan contributions. (Assumptions: the earnings are his only self-employment income, with no W-2 wages using any of the Social Security wage base, and the 0.9% additional Medicare tax does not apply at this level — the same assumptions the linked tool states for its sole-proprietor path.)
- SE-tax base: $85,000 × 92.35% = $78,497.50
- SE tax: Social Security $78,497.50 × 12.4% = $9,733.69, plus Medicare $78,497.50 × 2.9% = $2,276.43 → $12,010.12; half = $6,005.06
- Adjusted net earnings: $85,000 − $6,005.06 = $78,994.94
- Employer contribution: 20% × $78,994.94 = $15,798.99
- Employee deferral: $24,500 + $8,000 age-52 catch-up = $32,500.00 (well within adjusted net earnings minus the employer part, $63,195.95, so income does not limit it)
- Total maximum: $32,500.00 + $15,798.99 = $48,298.99
- Cap check: non-catch-up additions are $48,298.99 − $8,000 = $40,298.99, under the $72,000 §415(c) limit — no cap binds
- Estimated income-tax savings if every dollar is pre-tax, at a 22% marginal rate: $48,298.99 × 22% = $10,625.78
Notice the order of operations: the SE tax is computed first, not because this worksheet is estimating his tax bill, but because half of it shrinks the earnings base the 20% applies to. Skip that step and the employer figure — and the maximum — come out too high.
When the $72,000 cap binds
At modest incomes, the binding limits are the deferral limit and the employer percentage, as in the worked example. At higher compensation the employer formula starts producing more room than §415(c) allows: once deferral (excluding catch-up) plus the employer contribution would pass $72,000, the employer part is trimmed to whatever room remains. The compensation cap binds in a different place — only the first $360,000 of compensation counts in any percentage formula. And at very high sole-proprietor incomes the compensation cap interacts circularly with the Publication 560 worksheet; that zone is confirm-against-Publication-560 territory rather than something to read off a summary. Which cap binds is not a detail: it decides whether earning more creates more contribution room or none at all.
What contributions do — and do not — reduce
Pre-tax solo 401(k) contributions reduce income tax. They do not reduce self-employment tax: SE tax is figured on net earnings before these contributions, which is precisely why the worksheet can use SE tax as an input without the contribution changing it. Roth elective deferrals reduce neither tax in the current year. The timing consequence is practical: a large pre-tax contribution lowers the income-tax part of a freelancer's quarterly estimates, but the SE-tax part of each payment is untouched — the Quarterly Estimated Tax Calculator shows how the two parts combine into the payment itself. Deadlines are the other trap: plan-adoption and contribution deadlines differ by entity type and by which hat the contribution wears, and a missed deadline is generally not fixable after the fact.
Estimates only — not tax, retirement, or financial advice. This guide explains the 2026 solo 401(k) limits and worksheet method for educational and planning purposes, using IRS Notice 2025-67 limits and the Publication 560 self-employed method. It is not professional tax or financial advice, and it assumes a one-participant plan with no other plan contributions. Verify your maximum, deadlines, and plan rules at irs.gov (Publication 560) or with a qualified tax professional or plan administrator before contributing.