A Solo 401(k) allows self-employed individuals to contribute as both employee and employer. Employee contribution: up to $23,000 (or $30,500 if 50+). Employer contribution: up to 25% of net self-employment income. Total limit: $69,000 ($76,500 if 50+). All contributions are tax-deductible.
Getting the deduction right is not just about whether it is allowed — it is about how you set it up.
You must be self-employed with no full-time employees other than a spouse.
Keep contribution records and plan documents. Track employee vs. employer contribution amounts.
Open a Solo 401(k) at a brokerage. Make employee contributions by December 31. Make employer contributions by your tax filing deadline. Report on Schedule 1.
Do not exceed the annual limits. Do not forget the employer contribution component -- it can be made after year-end.
Maximize the employer contribution (25% of net SE income) in addition to the employee contribution. Consider a Roth Solo 401(k) for tax-free growth.
When structured correctly, this deduction can significantly reduce your taxable income.
Here is how this deduction typically works in real situations:
A freelancer earns $150,000 net and contributes $23,000 as employee and $25,000 as employer to their Solo 401(k).
An S-Corp owner contributes $23,000 as employee through payroll and $17,500 as employer contribution.
A business owner with full-time employees attempts to use a Solo 401(k).
Key Takeaway: The difference between a valid deduction and a denied one usually comes down to documentation, usage percentage, and proper structuring. The same expense can be fully deductible, partially deductible, or not deductible at all — depending on how it is handled.
$69,000 total ($76,500 if age 50+). This includes $23,000 employee contribution plus up to 25% of net self-employment income as employer contribution.
Self-employed individuals with no full-time employees other than a spouse. This includes sole proprietors, single-member LLCs, and S-Corp owners.
