A solo 401(k) is the highest-ceiling retirement account most store owners can open, and it is also one of the most misunderstood. People see “$72,000” and assume that is what they can put in. It is not. That number is a cap, and what you can actually contribute depends on your profit, your age and how the plan splits into two separate pieces.
I wrote this guide at Ecommerce Paradise to break the 2026 limits down in plain English, with worked examples for owners with irregular income. If you are still comparing plans, my pillar on how to start investing as a business owner is the place to begin.
The head-to-head with the other popular plan is in solo 401(k) vs SEP IRA.
Every dollar figure below comes from IRS pages I read for this article. When I do my own arithmetic, I label it as an example, because your return and your CPA’s advice decide your real number.
Disclosure: I am not a registered investment adviser, broker-dealer or financial advisor, and this article is education, not personalized financial advice. Ecommerce Paradise may earn a commission if you request offers through the partner tools on this page, at no extra cost to you. Investing involves risk, including the possible loss of principal, and past performance does not guarantee future results. Confirm tax and contribution rules with a qualified tax professional. Information in this article is current as of October 2026.
Solo 401(k) Contribution Limits for 2026 at a Glance
The table below is built from the IRS 401(k) and profit-sharing contribution limits page. The 2026 dollar amounts come from the IRS 2026 limits announcement.
| Limit | 2026 amount | Notes |
|---|---|---|
| Employee salary deferral | $24,500 | Up to 100% of your compensation, subject to the limit |
| Catch-up, age 50 and over | $8,000 | On top of the $24,500 |
| Catch-up, ages 60 to 63 | $11,250 | Replaces the $8,000 figure for those ages |
| Total contributions (annual additions) | $72,000 | Lesser of this or 100% of compensation, not counting catch-up |
| Total with catch-up | $80,000, or up to $83,250 at ages 60 to 63 | Per the IRS limits page |
| Compensation limit | $360,000 | Pay above this is not counted for plan formulas |
| Employer contribution | Up to 25% of compensation | For self-employed owners, about 20% of net earnings |
| Form 5500-EZ trigger | $250,000 in plan assets | Generally required at year end at that level |
One more number for context: the 2026 IRA limit is $7,500, with a $1,100 catch-up at age 50 or older. That is a separate account with a separate limit, and the solo 401(k) lets you save far more.
Compare solo 401(k) providers for self-employed owners
The Two Buckets: Employee Deferral and Employer Contribution
A solo 401(k) has two pieces, and you can fill each one separately. The IRS one-participant 401(k) page explains that the owner can defer up to 100% of compensation as the employee, subject to the annual limit, and the business can add an employer nonelective contribution of up to 25% of compensation as the plan defines it.
Think of it as wearing two hats. As the employee, you choose a dollar amount to defer, up to $24,500. As the employer, the business adds a profit-sharing contribution calculated from your earnings. The two together cannot exceed the $72,000 total, and cannot exceed your compensation.
Bucket One: Your Salary Deferral
The deferral is a dollar amount, not a percentage of profit, which makes it the more predictable piece for a seasonal business. Elective deferrals can be traditional or Roth if your plan allows it. Schwab’s individual 401(k) page, for example, lists a Roth option, which uses after-tax dollars. Qualified Roth distributions can be tax-free, but the conditions are specific, so ask your CPA.
The deferral limit is per person, not per plan. The IRS one-participant page says that if you also participate in another employer’s 401(k), you must count all elective deferrals made during the year. If you work a part-time job with a 401(k) while running your store, your combined deferrals across both plans count against the same $24,500.
Bucket Two: The Employer Contribution
This is where the self-employed formula matters. The IRS says an owner’s compensation is net self-employment earnings minus one-half of self-employment tax and minus the contributions you make for yourself, and it points to the rate table and worksheets in Chapter 5 of Publication 560. Schwab’s page summarizes the employer piece as up to 25% of compensation, or 20% of net self-employment income for owners.
Worked Examples: What You Could Contribute
These are my own arithmetic using the IRS rules above, shown as illustrations and not as advice. I assume a sole proprietor with no employees, and I use net profit levels below the Social Security wage cap. Self-employment tax is figured as 15.3% on 92.35% of net profit, per the IRS self-employment tax topic, and I deduct half of it before applying the 20% employer rate.
| Net profit (example) | Employee deferral | Employer contribution (about) | Total (about) |
|---|---|---|---|
| $40,000 | $24,500 | $7,435 | $31,935 |
| $60,000 | $24,500 | $11,152 | $35,652 |
| $75,000 | $24,500 | $13,940 | $38,440 |
| $100,000 | $24,500 | $18,587 | $43,087 |
Each row assumes you defer the full $24,500, which may be unrealistic at $40,000 of profit once you account for income tax, self-employment tax and living costs. You can defer less. The point of the table is the structure: the deferral is fixed, and the employer piece grows with profit.
What Does It Take to Reach $72,000?
More arithmetic, labelled as an example. After a $24,500 deferral, you would need about $47,500 from the employer side to reach $72,000.
At the 20% effective rate, that implies roughly $237,500 of earnings after the half-SE-tax deduction. In other words, reaching the cap takes a high-profit business. Most owners will be well below it, and that is perfectly fine.
Catch-Up Contributions at 50 and Over
If you are 50 or older, the IRS limits page lists an $8,000 catch-up for 2026, and for ages 60 to 63 the higher catch-up is $11,250. The same page lists total figures of $80,000 including catch-up, or up to $83,250 for those age 60 to 63. These catch-ups sit on top of the $72,000 annual additions limit, not inside it.
There is a wrinkle for higher earners. Schwab’s page says that if you are 50 or over and your wage income exceeded $150,000 (adjusted annually) in the prior year, any catch-up contribution must be a Roth contribution. That rule is tied to wages, so ask your CPA whether it applies to you, especially if you pay yourself a W-2 salary through an S-corp. Provider pages and the law can differ in how they describe it, so treat this as a question to ask rather than a conclusion.
Why Catch-Ups Matter for Store Owners
It is easy to spend your forties plowing everything back into inventory and ads, then realize in your fifties that your retirement account is thin. The catch-up option exists for exactly that situation. A profitable year after 50 can move a lot of money into tax-advantaged space, as long as the profit is real and the books are clean.
If You Pay Yourself a W-2 Salary Through an S-Corp
When your business is an S-corp, the math shifts from net self-employment earnings to your W-2 wages. As the employee, you defer from your paycheck, up to the limit. As the employer, the company contributes up to 25% of your W-2 compensation under the plan’s definition. The IRS table says the employer deduction limit for qualified plans is 25% of all participants’ compensation plus the amount of elective deferrals.
My own illustration: with a $100,000 W-2 salary, a $24,500 deferral plus a 25% employer contribution of $25,000 comes to $49,500, well under the cap. That figure is not directly comparable to the sole proprietor example above, because the profit also faces payroll tax and reasonable-salary rules. Talk to a CPA before choosing a salary, because the retirement math is only one piece of that decision. My overview of business formation for high-ticket dropshipping explains how entity choice ripples through your taxes.
The timing differs too. Schwab’s page says unincorporated owners have until the tax filing deadline, excluding extensions, for retroactive elective deferrals, while incorporated owners must make deferral contributions in the same tax year.
A Bigger Retirement Account Starts With a Bigger Profit
Done-for-you store builds for owners who want a documented, profitable business to fund their plan.
Deadlines: When Can You Still Contribute for 2026?
Publication 560 says a sole proprietor with no employees can adopt a 401(k) after the end of the tax year if it is adopted by the tax filing deadline, without extensions. Employee deferrals must be elected by the end of the tax year and can then be made by the return filing deadline, including extensions, according to that publication. Employer profit-sharing contributions are due by the due date of the employer’s return, including extensions.
The IRS issue snapshot on late 401(k) contributions adds that a contribution made within 30 days after the extended due date can count toward the prior year’s limits but is not deductible for that year. The practical lesson is the same one I give for every plan: do not wait until April. Open the plan before December 31 so your choices stay open, and then confirm exact dates with your CPA and provider.
Funding in a Lumpy Year
Because the employer piece is based on profit, you can see your numbers before you decide. A common pattern for ecommerce owners is to make a smaller deferral through the year and a larger employer contribution after the books close. Schwab’s page notes that individual 401(k) plans are not required to be funded every year, so a slow year does not break the plan.
Spouses, Employees and the Rules That End Solo Status
The IRS says the one-participant plan is for a business owner with no employees, or that person and a spouse. A spouse who earns income from the business can have their own account in the same plan, and since deferral limits apply per person, each spouse has their own limit. Both still need compensation from the business, so confirm the facts with your CPA.
Hiring changes things. The IRS says that once you have employees, eligible employees must be included in the plan, and their deferrals are subject to nondiscrimination testing unless the plan is a safe harbor or otherwise exempt. That is the moment many owners switch to a different plan design or a SEP, which I compare in my SEP IRA contribution limits guide. Model the cost before you make the first hire.
Paperwork: Plan Document and Form 5500-EZ
A solo 401(k) requires a written plan document, which your provider supplies. The IRS says a plan generally must file an annual Form 5500-EZ if it has $250,000 or more in assets at year end, and plans with fewer assets may be exempt. Owners with no common-law employees do not need nondiscrimination testing. Keep records of every contribution, the tax year it applies to and whether it was a deferral or an employer contribution.
That recordkeeping is easier when your books are tidy. QuickBooks handles general accounting. Finaloop is built for ecommerce and can help you see real profit.
A business bank account like Mercury keeps personal and business money separate.
See solo 401(k) and brokerage offers you may qualify for
Picking a Provider
Not every brokerage offers a solo 401(k). Schwab’s individual 401(k) page, for example, says the plan is available to self-employed individuals and business owners, with a $0 minimum opening deposit and no fee to open or maintain, though other fees, fund expenses and commissions may apply. It also says participant loans are not available, so read the feature list before you assume loans are possible.
Robinhood’s IRA overview describes traditional and Roth IRAs and does not mention solo 401(k) plans, so if you want an owner plan, confirm availability first. You can still use Robinhood for an IRA if that fits your goals.
My best retirement accounts guide compares other providers. The best online brokerage roundup covers the broader field.
Mistakes to Avoid and Your Game Plan
Mistakes to Avoid
The first is treating $72,000 as your limit instead of a ceiling. The second is forgetting the per-person deferral limit when you have another job. The third is guessing the employer contribution instead of using the self-employed formula or a provider calculator. The fourth is waiting until the filing deadline to open the plan, which can narrow your options.
The fifth is skipping the investment plan. Contributing is not investing. The money still has to be invested in something, and any investment can lose value.
For beginners, I recommend learning the basics through how to invest in stocks. The best investing apps for beginners guide is a good second stop. Read the SEC’s guidance on diversification too, before you put everything in one fund.
The sixth is ignoring what happens if you hire or change entity structure. Revisit the plan every year with your CPA.
Your Solo 401(k) Game Plan
Here is the sequence I would follow. Before year end, estimate your profit, decide what deferral you can afford and open the plan. As the year closes, have your CPA calculate the employer contribution using the self-employed formula. Make the contributions before the applicable deadlines, record the tax year, and invest the money in a diversified mix that matches your time horizon and risk tolerance.
If you are still building the income, start with my high-ticket niches list. Then read the guide to finding suppliers.
The free high-ticket dropshipping guide explains the model I teach.
Want Help Growing Profit You Can Actually Contribute?
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Frequently Asked Questions
What is the maximum solo 401(k) contribution for 2026?
The IRS lists a $24,500 employee deferral and a $72,000 annual additions limit, which covers deferrals plus employer contributions. Age 50 and over can add an $8,000 catch-up, or $11,250 at ages 60 to 63, for totals of $80,000 or up to $83,250.
Can I contribute the full $72,000 on any income?
No. Contributions cannot exceed your compensation, and for self-employed owners the employer piece is calculated at about 20% of net earnings after the half-SE-tax deduction. Reaching $72,000 takes a high profit.
Can I make contributions after December 31?
Possibly. Publication 560 says a sole proprietor with no employees can adopt a 401(k) after year end by the tax filing deadline without extensions, and employer contributions run to the return due date including extensions. Deferral timing is more specific, so confirm with your CPA and provider.
Do I need to file anything with the IRS?
The IRS says a one-participant plan generally must file Form 5500-EZ if it has $250,000 or more in assets at year end. Plans with fewer assets may be exempt from the annual filing.
Can my spouse contribute too?
The IRS says the one-participant plan can cover a business owner and their spouse. Deferral limits apply per person, but the spouse needs compensation from the business, so confirm the details with your CPA.
More Guides in This Series
These are the other guides in my investing series, covering how to pick a provider and what to buy once your plan is open.
- Best Solo 401(k) Providers: how to compare fees, Roth options and loan features across providers.
- Best ETFs for Beginners: how to choose and compare your first funds.
- Best S&P 500 Index Funds: costs, minimums and how to choose one.
- Best Dividend ETFs: how to compare yield, cost and holdings.
- How to Start Day Trading: the rules, taxes and risks business owners should know first.
Related Articles
If you found this useful, these guides go deeper on related topics:
- How to Start Investing in 2026: A Guide for Business Owners
- Solo 401(k) vs SEP IRA in 2026: Which One Fits Your Store?
- SEP IRA Contribution Limits 2026: How Much Can You Put In?
- Best Retirement Accounts 2026: Solo 401(k), SEP, SIMPLE, IRA and HSA for Store Owners
- Best IRA Accounts 2026
Trevor Fenner is an ecommerce entrepreneur and the founder of Ecommerce Paradise, a platform focused on helping entrepreneurs build and scale profitable high-ticket ecommerce and dropshipping businesses. With over a decade of hands-on experience, Trevor specializes in high-ticket dropshipping strategy, niche and product selection, supplier recruiting and onboarding, Google & Bing Shopping ads, ecommerce SEO, and systems-driven automation and scaling. Through Ecommerce Paradise, he provides free education via in-depth guides like How to Start High-Ticket Dropshipping, advanced training through the High-Ticket Dropshipping Masterclass, and fully done-for-you turnkey ecommerce services for entrepreneurs who want a faster, more hands-off path to growth. Trevor is known for emphasizing sustainable, real-world ecommerce models over hype-driven tactics, helping store owners build scalable, sellable, and location-independent brands.
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