How to Maximize Your Solo 401(k) Contributions and Tax Savings Before Year-End

The end of the year is a good time to review how much you’ve saved for retirement and whether you can contribute more. If you’re self-employed or run a small business, your Solo 401(k) may allow you to contribute in two capacities and potentially reduce your current federal income tax bill. Your income, business structure, and previous contributions determine how much you can put away. Here’s how to calculate your remaining allowance, understand your tax options, and prepare for the applicable deadlines.

How to Maximize Your Solo 401(k) Contributions and Tax Savings Before Year-End

1. Review Your Contributions So Far

Before making another contribution, check how much you’ve already put into your Solo 401(k) during 2026.

Review these four amounts:

• Employee contributions: Money you’ve contributed from your eligible earnings.
• Employer contributions: Money your business has contributed to your retirement account.
• Contributions to other 401(k) plans: Employee deferrals you’ve made through another employer.
• Catch-up contributions: Additional employee contributions you’ve made because of your age.

Keep employee and employer contributions separate because they follow different limits. If you also contribute to a 401(k) through another job, include those employee contributions when checking your remaining allowance. The standard employee deferral limit generally applies across your plans combined.

For example, if you’ve contributed $15,000 as an employee during 2026 and haven’t made employee deferrals to another plan, you may have another $9,500 available under the basic $24,500 limit. Your eligible earnings and plan terms must support the additional contribution.

2. Calculate How Much More You Can Contribute

For 2026, the basic employee contribution limit is $24,500. The overall annual limit for employee and employer contributions is generally $72,000, before catch-up contributions.

These are maximum limits, not guaranteed contribution amounts. Your eligible compensation, existing contributions, and plan terms determine how much you can actually contribute.

Your business structure also affects the calculation.

Sole proprietor: Your calculation starts with net earnings from self-employment. You must account for the deductible portion of your self-employment tax and your own retirement plan contribution to determine the income used for the calculation. The IRS provides specific worksheets for this purpose.

S corporation owner: Your contributions are generally based on eligible W-2 salary paid by the corporation. Shareholder distributions do not count as compensation for Solo 401(k) contribution purposes.

Consider two business owners:

• A sole proprietor reports $100,000 in net business profit. Their contribution must be calculated after the required self-employment tax and retirement contribution adjustments.
• An S corporation owner receives a $70,000 salary and $30,000 in shareholder distributions. Their contributions are generally calculated using the eligible $70,000 salary, not the combined $100,000.

To calculate your remaining allowance, work out the employee and employer amounts separately, subtract contributions already made, and check the total against the applicable limits. Sole proprietors should use the IRS calculation method rather than applying a flat percentage to their business profit.

3. Update Your Year-End Business Income Estimate

Your contribution calculation should reflect what your business is expected to earn for the full year.

Review your income and expenses so far, payments you expect to receive, and any major expenses due before December 31. If your business has earned more than expected, you may have additional contribution room. If income has fallen or expenses have increased, you may need to reduce your original estimate.

For a sole proprietor, start with expected net business earnings and account for the adjustments required by the IRS. If you own an S corporation, review your expected W-2 salary rather than relying on company revenue or shareholder distributions.

Once your income estimate is updated, recalculate your contribution allowance. This also helps you decide how much you can afford to put into retirement without leaving your business short of cash for upcoming expenses.

4. Use Both Employee and Employer Contributions

As mentioned earlier, an eligible Solo 401(k) owner can contribute in two capacities. You can make employee contributions, and your business can make separate employer contributions.

• Employee contributions: These are elective deferrals, subject to the annual limit and your eligible compensation.
• Employer contributions: These are generally profit-sharing or nonelective contributions calculated under your plan’s terms.

For example, an owner who has contributed $15,000 as an employee may still have $9,500 available under the basic employee limit, assuming there are no other employee deferrals and sufficient eligible earnings. The business may also be able to make an employer contribution.

The employer contribution needs its own calculation. Sole proprietors use the special self-employed method, while S corporation owners generally use eligible W-2 compensation.

Reviewing both amounts gives you a clearer picture of how much you can put toward retirement for 2026.

5. Check Your Catch-Up Contribution Allowance

If you’re 50 or older by December 31, you may qualify for additional employee contributions, provided your plan permits them.

For 2026:

• Age 50 or older: You may contribute an additional $8,000.
• Ages 60 to 63: You may qualify for the higher catch-up limit of $11,250 instead.

This brings the potential employee contribution limit to $32,500 for eligible participants aged 50 or older, or $35,750 for those aged 60 to 63. These amounts include the basic $24,500 limit.

If you also contribute to a 401(k) through another job, your employee deferrals generally share one annual limit.

There is also a Roth requirement to consider. For 2026, participants whose 2025 wages from the sponsoring employer exceeded $150,000 generally must make catch-up contributions as Roth contributions when the requirement applies. This can affect S corporation owners who receive W-2 wages from their business.

Check your age, previous contributions, and plan provisions before making an additional contribution.

6. Understand How Your Contributions Affect Your Taxes

Your Solo 401(k) can help you save for retirement while reducing your federal income tax bill. However, the tax benefit depends on the type of contribution you make.

Traditional contributions: These can lower your taxable income for the year.

For example, if your taxable income is $100,000 and you make a qualifying $10,000 traditional contribution, your taxable income could drop to $90,000. This means you pay federal income tax on a lower amount, although your actual tax savings depend on your tax bracket.

Roth contributions: These are made with money you’ve already paid taxes on. They generally don’t reduce your taxable income for the current year, but qualified withdrawals can be tax-free in retirement.

If you’re self-employed, your own eligible Solo 401(k) contributions are generally claimed as a retirement deduction on your individual tax return, rather than as a business expense.

Before making your final contribution, check how much you can contribute and whether it qualifies for a tax deduction. Your tax professional can help you calculate the amount based on your business income.

7. Traditional vs. Roth: Which Should You Choose?

The choice between traditional and Roth contributions depends partly on whether you want a potential tax benefit now or prefer to pay taxes on your contributions today.

Your current income, expected retirement income, and long-term plans can help you decide which option fits your needs. If your plan allows it, you can also split your employee contributions between traditional and Roth options.

8. Know When You Need to Make Your Contributions

If you’re contributing to your Solo 401(k) for 2026, the deadline depends on whether you’re making an employee or employer contribution.

Employee contributions: December 31, 2026

If you already have a Solo 401(k), you generally need to decide how much of your eligible earnings to contribute as an employee by December 31, 2026. You usually cannot decide to defer money after you’ve already received it.

Employer contributions: You may have until 2027

If you’re making an employer contribution for 2026, you can generally contribute by your business tax-return deadline, including a valid extension.

For a calendar-year business, the usual deadlines are:

• S corporation: March 15, 2027, or September 15, 2027, with an extension.
• Sole proprietor: April 15, 2027, or October 15, 2027, with an extension.

Opening your first Solo 401(k)

Certain sole proprietors who have no employees other than themselves can set up their first plan after the year ends and make qualifying first-year employee contributions by April 15, 2027, without an extension.

These deadlines depend on your business structure and circumstances. Check with your plan administrator or tax professional before relying on a later deadline.

What If You Can’t Max Out Your Solo 401(k)?

Not every business owner will have enough money available to make the maximum contribution. Business income can fluctuate, and you may need to keep cash available for operating expenses, taxes, payroll, or an upcoming investment in your business.

Start by reviewing your contributions so far, your expected year-end income, and your remaining contribution room. Then compare the amount you could contribute with the cash you can comfortably set aside without affecting your business or personal finances.

Remember that you don’t have to reach the maximum for a Solo 401(k) to be worthwhile. A partial contribution can still build your retirement savings and may provide applicable tax benefits. Choose an amount that fits your financial position rather than committing money you may need in the coming months.

Year-End Solo 401(k) Checklist

Use this checklist to review your contributions and prepare for your final 2026 deposit.

• Calculate year-to-date business income.
• Estimate full-year net self-employment income or eligible W-2 salary.
• Check employee contributions already made.
• Check employer contributions already made.
• Include employee contributions to other 401(k) plans.
• Check catch-up contribution eligibility.
• Calculate your remaining contribution allowance.
• Choose traditional or Roth contributions based on your tax goals.
• Confirm the applicable contribution deadlines.
• Verify your final contribution amount with your plan administrator or tax professional.

Closing Thoughts

A year-end review can help you find out how much more you can contribute to your Solo 401(k) and whether additional savings may lower your current tax bill. Check your business income, separate your employee and employer contributions, and review your catch-up eligibility before making a final decision. Just as importantly, confirm your deadlines and choose an amount that fits your finances. You can make progress toward retirement without putting unnecessary pressure on your business’s cash flow.

Frequently Asked Questions