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What you’ll learn
What you’ll learn
Key takeaways
- Self-employed 401(k) plans allow business owners without employees to save as both the employer and the employee to maximize their retirement savings.
- You can set aside up to $24,500 as an employee in 2026, and your business can contribute an additional 25% of your net income on top of that.
- To qualify for this plan, you need to earn self-employment income and have no full-time team members other than yourself or a spouse.
- You can choose to save on a pre-tax basis to lower your taxes today or make Roth contributions for tax-free qualified withdrawals during retirement, if IRS requirements are met.
While a self-employed 401(k) can help solopreneurs build retirement savings, getting a plan started sometimes falls through the cracks. In fact, a 2025 survey by the Transamerica Center for Retirement Studies found that only 22% of self-employed workers have a financial strategy for retirement, and one in five never save for retirement at all.
Without an employer to set up a plan, the responsibility falls on your shoulders. Fortunately, a self-employed 401(k) — often called a solo 401(k) — works a lot like the plans at large companies, but it’s built for you and your spouse (if they also work for the business). Since you’re both the employer and employee, you have the potential to save significantly more while also lowering your tax bill.
If you’re just starting to explore how a solo 401(k) works, this overview explains how the account is structured, what the contribution limits look like for 2026, and the steps to get started.
What is a self-employed 401(k)?
Simply put, a self-employed 401(k) is a high-powered retirement account for a company of one. It follows similar IRS rules as big corporate plans, but it’s designed to cover only you (and your spouse if they work for the business). This straightforward setup gives you more control and higher savings limits than a basic individual retirement account (IRA).
Definition and structure
With an individual 401(k), you have two ways to put money away:
- Employee deferrals: You can move a portion of your own pay into the plan on a pre-tax or Roth basis.
- Employer profit-sharing: Depending on the company type (S Corp, LLC, etc.), your business can also contribute up to 25% of your net self-employment income as an additional deposit.
Eligibility criteria
To get started, you’ll need to:
- Earn net income from a sole proprietorship, partnership, S Corporation, or LLC
- Have no common-law employees other than a spouse
- Set up the plan by your business’s tax-return deadline (yes, extensions count)
Pro tip from Betterment at Work
“The solo 401(k) is built for a company of one, so if you’re thinking about future hires, even a part-time or seasonal W-2 employee could affect your plan’s status. Under SECURE 2.0, workers who log 500 or more hours per year for two consecutive years may need to be included. It’s worth looping in your tax advisor before you hire.”
— Betterment at Work
Now that we’ve covered who can participate, let’s look at how much you can set aside for retirement with this plan type.
Self-employed 401(k) contribution limits
An advantage of a solo 401(k) is that it lets you save from two angles with the IRS setting two main caps each year:
- One for your personal salary deferrals
- One for the business profit-sharing
Employee deferral limit
For 2026, you can put up to $24,500 of your earnings into your 401(k), though keep in mind that you can’t contribute more than you’ve actually earned during the year. Also, if you have another 401(k) for a separate job, the $24,500 limit covers both plans combined.
To help clarify the fine print on how these limits work in the real world, we spoke with Marit Burmood, an independent CPA and small-business coach. She notes that there is a silver lining for side-hustlers.
“While the employee deferral limit is a per-person limit across all plans, the employer profit-sharing side is not. Even if you have maxed out your deferrals at your day job, your own company can still make a profit-sharing contribution (up to 20% of net self-employment income for Schedule C filers) into a solo 401(k) with its own separate $72,000 cap.”
— Marit Burmood, CPA, EA, and OnPay Subject Matter Expert
It’s important to note that if you have ownership in multiple businesses, IRS-controlled group rules may treat those businesses as a single employer, so it’s always best to consult a tax advisor.
Catch-up contributions
Are you 50 or older? If so, you’re eligible to set aside an extra catch-up contribution of $8,000 in 2026. And, under the new SECURE 2.0 rules, if you’re between the ages of 60 and 63, you may be eligible for an enhanced catch-up limit of $11,250. This means a 62-year-old business owner could potentially set aside as much as $35,750 just on the employee side.
Employer profit-sharing
Depending on your company type (S Corp, LLC, etc.) as an employer, you can add another 25% of your net self-employment income (based on a compensation limit of $360,000 for 2026). To figure out what that net number is, you’ll simply subtract half of your self-employment tax and your own personal 401(k) contributions first.
Combined contribution cap
In 2026, the maximum you can put into the plan — excluding catch-up contributions — is $72,000. Staying within this limit helps ensure that you can maximize your savings while remaining compliant with the IRS.
Once you’ve identified your savings goals, the next step is getting your plan up and running.
How to set up a self-employed 401(k) plan
Setting up a plan is simpler than it might seem. Here are the steps to get your 401(k) up and running.
Choose a plan provider
Look at the major brokerage firms to determine who offers the best features for your situation. Many providers don’t charge fees to open or maintain an account — though you’ll still need to pay the underlying expenses for the funds you choose.
- Look for a provider with a user-friendly website and responsive support team.
- Confirm they offer the standard, IRS-approved “one-participant” plan documents.
Gather your information
Before you start filling out paperwork, have these details ready:
- Your Employer Identification Number (EIN).
- Your basic business information, including your legal name, address, and business structure.
Fill out the forms
Here comes the fun part. You’ll usually complete three main documents:
- Adoption agreement: This is the foundational document for your plan.
- Summary plan description (SPD): This is a guide that explains how your plan works.
- Contribution agreement: This is where you decide whether you’re making pre-tax or Roth contributions.
What are you contributing?
Once your account is open, the final step is linking your deductions and employer contributions to your payroll. Doing this yourself leaves room for error, which is why OnPay partners with Betterment at Work to automate payroll administration. With a seamless integration, there’s no manual entry of data or managing deductions.
We help ensure your 401(k) contributions are deducted each payroll period, so you can easily log in to see how much you’re saving, monitor your total balance, and track your deductions right on your pay stub.
Retroactive employer contributions
While setting up a plan usually happens during the calendar year, there is a helpful loophole for late starters. Thanks to updated rules under SECURE 2.0, you can set up a plan after the year ends and still make employer contributions for the previous year, provided you do so by your tax-return deadline.
Administrative heads-up: Form 5500-EZ
While solo 401(k)s offer tax advantages, they do require some administrative upkeep. We checked in with Burmood about common compliance traps for solopreneurs, and she pointed out a threshold to keep in mind.
“One of the most important responsibilities is the Form 5500-EZ filing requirement,” notes Burmood. “Once plan assets exceed $250,000 at the end of the plan year, the IRS requires an annual Form 5500-EZ filing.”
— Marit Burmood, CPA, EA, and small business consultant
Because these accounts generally grow quietly in the background, some business owners may overlook this. “Many don’t realize they have crossed the threshold until years later, at which point penalties have already been accumulating at $250 per day up to a maximum of $150,000 per plan year,” she explains.
Fortunately, the IRS offers a Penalty Relief Program for late filers. However, Burmood notes that working with an experienced tax advisor and a reputable plan provider can help you stay on top of these requirements from the start without having to rely on penalty relief.
Can I withdraw funds from a self-employed 401(k)?
It’s your money, but Uncle Sam has specific rules about when and how you can access it.
Distribution rules
Generally, you can start taking money out once you reach the age of 59½, if you close the plan, or if you become disabled. Once you reach your required beginning date (e.g., at age 73 or 75), you’ll need to start withdrawing the required minimum distributions (RMDs).
Penalties and taxes
If you take money out before you’re 59½, you’ll typically incur a 10% penalty plus regular income tax. If you need to move your savings, rolling funds into a new 401(k) or an IRA is a common approach to avoid those extra taxes and penalties, but the right move depends on your individual situation, so consult a tax advisor before making a final decision.
What are the tax implications?
Contributing to a solo 401(k) provides both immediate and long-term tax benefits.
- Tax deductions: You can usually deduct both your personal and business contributions from your taxable income today.
- Tax-deferred growth: Your investments grow without being taxed on dividends or gains until you retire.
- Roth options: If you choose a Roth 401(k), you pay taxes now, but your qualified withdrawals in retirement are tax-free from federal income tax (state treatment could vary).Note that beginning in 2026, participants aged 50 or older with prior-year FICA compensation of $150,000 or more must make any catch-up contributions on a Roth basis.
Pro tip from Betterment at Work
“There’s a tax benefit many new plan owners miss: solo 401(k) plans that include an automatic contribution arrangement (ACA) may qualify for a federal tax credit of up to $500 per year for the first three years — that’s up to $1,500 just for setting up the plan. Just look for a provider that includes this by default. Keep in mind that eligibility depends on your plan structure and business circumstances, so it’s worth checking with a tax pro to confirm you qualify.”
— Betterment at Work
Why a self-employed 401(k) is worth the effort
Setting up a self-employed 401(k) can be one of the most impactful moves you can make as a business owner. By acting as both the employer and employee, you can significantly increase your savings and keep more of your hard-earned money.
To make the process as seamless as possible, OnPay’s partnership with Betterment offers an integration that takes the heavy lifting out of plan administration, allowing you to easily set up your account, manage contributions, and get your retirement on track. Ready to start building your nest egg? Let’s get you started today!
About the authors
- OnPay is a top-rated payroll provider for small businesses with more than 30 years of experience in payroll, taxes, and small business compliance.
- Betterment at Work helps growing businesses offer a modern 401(k) that’s easy to manage, built to scale, and supported with compliance guidance. We pair streamlined plan administration with a personalized investing experience for employees.
Disclosures
This is for marketing and educational purposes, not a personalized recommendation. Consider fees and options before rolling over. Post rollover, standard Betterment account fees apply.Information is educational only and not investment or tax advice. External links are educational, and do not imply Betterment’s endorsement. All screenshots are for illustrative purposes only.
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Investment Advice: Advisory services are provided by Betterment LLC, an SEC-registered investment adviser. Betterment LLC’s internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client’s financial situation and do not incorporate specific investments that clients hold elsewhere. Betterment is not a tax advisor.
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Betterment at Work: 401(k) plan administration services provided by Betterment for Business LLC. Investment advice to plans and plan participants provided by Betterment LLC, an SEC registered investment adviser.
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