How Much Can You Put in a
Solo 401(k) This Year?

How to use this calculator

The Solo 401(k) has two contribution components. The employee deferral works like a regular 401(k): you can contribute up to the annual IRS limit. The employer profit sharing component lets you contribute an additional 25% of your net self-employment compensation. Together, these can add up to significantly more than a SEP-IRA for most self-employed earners.

• 1
  Enter your net self-employment income
  This is your business profit after expenses but before the self-employment tax deduction. If you have a Schedule C, use that profit figure. If you are unsure, use a conservative estimate of your expected annual profit.
• 2
  Enter your age
  If you are 50 or older, you qualify for catch-up contributions. If you are between 60 and 63, you qualify for an enhanced catch-up under current law.
• 3
  Select your federal marginal tax rate
  This is the rate on your last dollar of income. For most self-employed earners with $100k to $300k in net income, this is 22% to 32%. Your tax professional can confirm this.
• 4
  Review the total contribution and estimated savings
  The savings shown reflect federal income tax only. State income tax savings will add to this number in most states.

How to interpret your results

• The Solo 401(k) almost always beats the SEP-IRA for the same income.At most income levels below $300,000, the Solo 401(k) allows larger total contributions because of the employee deferral component. The SEP-IRA is simpler to set up, but if contribution limits matter to you, the Solo 401(k) wins.
• The tax savings are immediate.Every pre-tax dollar you contribute reduces your taxable income this year. At a 32% marginal rate, a $20,000 contribution saves $6,400 in federal income tax. You also reduce your adjusted gross income, which can affect other deductions and credits.
• You must establish the plan by December 31st to contribute for that tax year.Unlike a SEP-IRA, which can be opened and funded up to your tax filing deadline, a Solo 401(k) must be established by the end of the calendar year. However, you can fund it up to your tax deadline including extensions. If you have been meaning to open one, do not wait until January.
• Roth is available inside a Solo 401(k).You can designate some or all of your employee deferral as Roth, paying tax now in exchange for tax-free growth and withdrawals in retirement. This is particularly valuable if you expect your tax rate to rise in retirement, which is common as savings grow.
• The contribution limit grows over time.IRS limits adjust periodically for inflation. The calculator uses the most current published limits, but worth double-checking each year before you finalize your contribution.

Common mistakes to avoid

• Setting up a SEP-IRA without comparing the Solo 401(k) first.Many self-employed individuals open a SEP-IRA because their accountant mentioned it. For most earners below $300,000 in net self-employment income, the Solo 401(k) allows larger total contributions. It is worth comparing before you commit.
• Missing the plan establishment deadline.The Solo 401(k) must be opened before December 31st of the tax year. Many self-employed people learn about it in February when their accountant is doing their taxes, and discover they missed the window. Put a reminder in October.
• Not accounting for the self-employment tax deduction.The IRS requires you to reduce your net self-employment income by half of your self-employment tax before calculating your employer contribution. This calculator does that for you, but if you are doing the math manually it is a common error.
• Contributing more than your net earnings.You cannot contribute more than your net self-employment income. If you have a low-income year, your Solo 401(k) contribution is limited to that amount, even if prior years had higher limits.
• Ignoring the plan once it is set up.A Solo 401(k) has some administrative requirements, including a Form 5500-EZ filing once your plan assets exceed $250,000. This is not burdensome, but you need to be aware of it.