912 Community Day and Ribbon-Cutting in Port Wentworth at the VyStar Pavilion and the Ghost Pirates Ice Cove were a lot of fun! It was great meeting people and enjoying all the festivities and activities.
In the last issue, we covered the SIMPLE IRA, which stands for the Savings Incentive Match Plan for Employees’ Pension. This week, we will talk about the Solo 401(k), a powerful retirement savings account.
What Is a Solo 401(k)?
A Solo 401(k), also called a one-participant 401(k), is a 401(k) plan designed for a business owner with no full-time employees other than a spouse. Because there’s no broader workforce to protect, the plan skips the nondiscrimination testing required of a traditional 401(k), while still allowing the owner to contribute in two capacities: as “employee” and as “employer.”
That dual-contribution structure is what makes the Solo 401(k) the highest-ceiling option for most solo business owners, often allowing significantly larger contributions than a SEP IRA at the same income level, particularly for owners with moderate compensation.
How It Works
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- Employee deferral: You can contribute up to $24,500 of compensation in 2026 as an employee deferral, on a pre-tax or Roth basis if the plan allows.
- Employer profit-sharing contribution: You can add up to 25% of compensation (or a similar calculation for self-employed net earnings) as an employer contribution.
- Combined ceiling: Total contributions from both sources cap at $72,000 for 2026, or $80,000 with the standard 50+ catch-up, or $83,250 for the special age 60–63 catch-up.
- No employees allowed: The plan loses its “solo” status if you hire employees who work more than 1,000 hours per year (or meet the applicable dual-year threshold), other than your spouse.
- Loan and Roth options: Many Solo 401(k) providers allow participant loans and Roth deferrals, features not available in a SEP or SIMPLE IRA. Most allow a loan up to $50,000 or 50% of your account balance.
- Elective deferrals: Up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual deferral limit.
2026 Contribution Limits
| Item | 2026 Limit |
|---|---|
| Employee deferral | $24,500 |
| Catch-up, age 50–59 or 64+ | $8,000 (total employee deferral $32,500) |
| Catch-up, age 60–63 | $11,250 (total employee deferral $35,750) |
| Employer contribution | Up to 25% of compensation |
| Combined total ceiling (under 50) | $72,000 |
| Combined total ceiling (50–59 / 64+) | $80,000 |
| Combined total ceiling (60–63) | $83,250 |
Benefits and Drawbacks
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Who a Solo 401(k) Fits Best
The Solo 401(k) is built for freelancers, consultants, and single-owner (or owner-and-spouse) businesses that want to maximize retirement savings without the cost of a full workplace 401(k). It’s particularly attractive for owners in their peak earning years who want to shelter as much income as legally possible.
It’s not the right fit the moment the business plans to hire non-spouse employees on a sustained, full-time basis. At that point, a SIMPLE IRA or small business 401(k) becomes the more appropriate structure.
Next week, Part 5 covers the small business 401(k), traditional and safe harbor versions, for businesses with employees who want 401(k)-level flexibility.
(READING THIS SERIES: Each article that follows covers one plan in depth: how it works, exact 2026 contribution rules, a clear list of benefits and drawbacks, and the type of business it tends to fit best. Read the overview first, then jump to the plan, or plans, most relevant to your situation.)
If you have questions or would like to discuss any of these further, I would be glad to connect.
Mark your calendar for La Fiesta Hispana September 25, 2026, and the Art Walk 2026 September 26, 2026. I’ll be there both days, and I look forward to meeting you and answering any questions. Stop by our booth, and I’ll see you there!
Thought for the Week:
“You don’t have to become something you’re not to be better than you were.”
Sidney Poitier
(This article is intended for general educational purposes only and reflects tax rules for the 2026 tax year. Tax laws are subject to change. The IRS sets contribution limits, deduction rules, and eligibility requirements annually, and they can change. This content does not constitute personalized investment, tax, accounting, financial, or legal advice. Please consult a qualified financial advisor, tax professional, ERISA attorney, or retirement plan provider before making retirement planning decisions for your business.)
Frederick Hogsett, Jr., is a licensed financial coach with almost 30 years of experience helping individuals, families, small businesses, and nonprofit organizations. His office is located in the Savannah, Georgia, area and can be reached at (803) 463-2773 or by website at www.livemore.net/fhogsettjrclient.