What is a Solo 401(k)?
A Solo 401(k), which the IRS calls a one participant 401(k), is a retirement plan for a business owner with no employees, or the owner and a spouse. You contribute in two roles: as the employee, through elective deferrals, and as the employer, through contributions of up to 25 percent of compensation.
Because there are no other employees, the plan skips the nondiscrimination testing that larger plans deal with. That changes the moment you hire someone who meets the plan's eligibility rules, so keep that in mind before your first hire.
Can I open a Solo 401(k) after December 31?
Yes, if you are a sole proprietor with no employees. Starting with 2023, SECURE 2.0 lets you adopt a new 401(k) after the tax year ends and still make employee deferrals for that first year. The plan must be adopted and the deferrals paid in by your tax return due date, without extensions.
For a calendar year sole proprietor, that usually means mid April. So the plan for the year just ended can be set up while you are pulling together your tax documents, which is a lot more convenient than a frantic December 30.
This is Section 317 of SECURE 2.0. It only applies to the plan's first year. After that, the normal timing rules for elective deferrals apply.
Does filing an extension give me more time?
Not for the first year employee deferrals. Those must be made by the original due date of your return. An extension can still help with employer contributions, which are generally due by your return due date including extensions, and a plan can generally be set up by that extended date for employer contributions.
In practice, that splits the decision in two. If you want the employee deferral for the first year, April is your deadline. If you only need the employer side, an extension can buy time to fund it.
Why do S corp owners still need to act by December 31?
The Section 317 rule is written for sole proprietors. An S corp owner is an employee of the corporation, and elective deferrals come out of W-2 wages through payroll. You cannot defer pay that has already been paid to you, so the plan and your deferral election need to be in place before the last payroll of the year.
The employer contribution is more flexible. The corporation can generally make it by its own return due date, including extensions. But the employee deferral, often the larger piece for owners with modest salaries, has to flow through a paycheck.
So if you run an S corp and are thinking about a Solo 401(k) for this year, the conversation belongs in the fall, not in tax season. This is also where your salary matters, because employer contributions are based on W-2 wages. See our post on reasonable S corp salary.
How much can I contribute to a Solo 401(k) for 2026?
For 2026, the IRS employee deferral limit is $24,500. Owners age 50 and over can add an $8,000 catch up, or $11,250 instead for ages 60 through 63. Total contributions to your account, not counting catch ups, cannot exceed $72,000. Employer contributions are limited to 25 percent of compensation.
Two details trip people up. First, the deferral limit is per person, not per plan. If you also defer at a day job, those dollars count against the same $24,500.
Second, compensation means something specific for the self employed. It is your net earnings from self employment after subtracting half of your self employment tax and your own contributions. That circular math means the employer piece works out to less than 25 percent of your profit. IRS Publication 560 has the worksheets.
What else should I watch for?
Watch for three things: hiring employees, asset size and the provider's paperwork. Hiring eligible employees can end Solo status. A one participant plan generally must file Form 5500-EZ once assets reach $250,000 at year end. And your provider needs to support the plan type and contribution timing you are planning to use.
None of this is hard, but it is easy to forget once the account is open. A short checklist each year keeps it clean. We build retirement contributions into tax planning for business owners and self employed clients, so the deadline is on the calendar before it sneaks up.
Next step
Retirement contributions are one of the year end moves we build into quarterly tax planning, so the deadline is on the calendar before it sneaks up. See our tax planning services, or book a free intro call to talk through your situation.
Frequently asked questions
What is the deadline to open a Solo 401(k) for 2026 as a sole proprietor?
If you want employee deferrals for 2026 under the SECURE 2.0 first year rule, the plan must be adopted and the deferrals made by the due date of your 2026 return, without extensions. For most calendar year filers that is in April 2027.
Does the new rule apply to a single member LLC?
A single member LLC that is taxed as a sole proprietorship reports its income on your personal return, so it generally falls under the sole proprietor rule. An LLC taxed as an S corp follows the S corp rules instead. Confirm your setup before relying on it.
Can my spouse be in my Solo 401(k)?
Yes. A one participant plan can cover the business owner and a spouse. Your spouse needs compensation from the business to make contributions.
Can an S corp owner use the after year end rule?
Not for employee deferrals. Those come out of W-2 wages through payroll, so the plan and the election need to be in place before your last payroll of the year.