What Is a Solo 401(k)? The Freelancer's Guide to Bigger Tax Savings

A solo 401(k) helps freelancers and solopreneurs reduce taxes and build retirement savings by allowing both employee and employer contributions, even without being a full-time employee. Compared to options like SEP IRAs, solo 401(k)s offer higher contribution limits, Roth options, catch-up contributions, and greater flexibility, making them especially valuable for self-employed individuals earning moderate to higher incomes who want to maximize tax advantages.

Most solopreneurs don’t realize how much tax savings they may potentially be leaving on the table every year. If you’re self-employed with no other W-2 employees, a solo 401(k) potentially gives you access to the same powerful contribution limits as large employer plans. For 2026, the IRS allows up to $72,000 in total annual additions (employee + employer combined), with additional catch-up contributions for those 50 and older ($8,000 catch-up contribution), and higher limits for individuals in the 60–63 age range ($11,250 catch-up contribution).

Because you contribute as both the “employee” and the “employer,” a solo 401(k) can help you to reduce your taxable income today, while accelerating long-term retirement growth. Your contributions can work toward both immediate tax savings and long-term financial growth. Ready to open your retirement account? Lettuce Pro memberships include access to Carry’s Solo 401(k), so you can set up your plan and build a retirement strategy that fits your business.

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Solo 401(k) At a Glance

Solo 401(k) Basics: Eligibility, Setup, and How It Works

If you’re a business owner, you’re probably closer to significant tax savings than you realize. Setting up a solo 401(k) gives self-employed business owners a way to potentially reduce taxable income by tens of thousands of dollars without hiring employees or dealing with complicated corporate structures. If you’re running a business of one, this is one of the most powerful tools available to you.

Solo 401(k) Eligibility: Qualifying May Be Easier Than You Realize

The IRS rules for a Solo 401(k) are relatively straightforward: if you earn self-employment income and don’t have any full-time W-2 employees (other than you and/or your spouse), you’re eligible. That includes freelancers, consultants, single-member LLC owners, and S-Corp shareholders. Keep in mind, Contractors and 1099 recipients do not qualify as employees for this purpose. Additionally, there are no income limits and no age restrictions. It’s just you, your business, and a valuable opportunity to reduce your tax bill and save for retirement. The real question is: are you taking advantage of it?

Key Solo 401(k) Deadlines to Know

Timing matters when it comes to Solo 401(k) contributions. In general, owner-employees should elect their employee deferrals by the end of the tax year, although the contribution itself may be funded by the tax-return filing deadline, including extensions. There is also a special first-year rule for sole proprietors: if you are the only participant in a newly established Solo 401(k), you may be able to establish the plan after year-end and make your first-year elective deferral by your tax-return filing deadline, without extensions.

Employer contributions offer additional flexibility and can generally be made by the business’s tax-return filing deadline, including extensions. For calendar-year businesses, S corporations generally file by March 15, while sole proprietors generally follow the individual tax-return deadline in April. With a little planning, these extended contribution windows can help you balance retirement savings with your business’s cash flow.

Unlock More Savings With The Two-Hat Advantage

One of the biggest advantages of a Solo 401(k) is that you can contribute in two different roles. Wearing your employee hat, you can defer up to $24,500 of your earnings in 2026. Then, wearing your employer hat, your business can make an additional contribution—generally up to 25% of W-2 compensation for an S corporation, subject to applicable limits.

For example, an S corporation owner earning $100,000 in W-2 wages could contribute $24,500 as an employee plus up to $25,000 as the employer, for a potential total contribution of $49,500. Assuming the contributions are made on a pre-tax basis, and the owner is in the 37% federal income tax bracket, that could represent approximately \$18,315 in federal income tax savings.

That’s the power of the two-hat strategy: the opportunity to put substantially more toward retirement while potentially reducing your current tax bill. And once your Solo 401(k) plan assets reach $250,000, you’ll generally need to file Form 5500-EZ annually—a small administrative step for reaching such an important retirement milestone.

2026 Solo 401(k) Limits: Larger Contributions. Larger Opportunities.

If you’re self-employed, 2026 could be a powerful year to put more of your money to work for you, not the IRS. A Solo 401(k) lets you contribute as both the employee and the employer, creating two opportunities to build retirement wealth while potentially reducing your current tax bill. The question isn’t just how much you can save for retirement; it’s how much more of what you earn you can keep working toward your future.

• Employee deferrals pack a punch: As the employee, you can contribute up to $24,500 of earned income into your Solo 401(k) for 2026. If you're 50 or older, you can add an $8,000 catch-up contribution, bringing your total possible employee deferral to $32,500. Under SECURE 2.0, some plans allow an enhanced “super catch-up” for ages 60–63, raising your total employee contribution to $35,750 if your plan supports it.
• Employer contributions add muscle: As the business owner, you can contribute up to 25% of your W-2 compensation if you’re an S-Corp, or roughly 20% of adjusted net earnings if you’re a sole proprietor. These employer contributions are made in addition to your employee deferrals, giving you another powerful way to maximize your retirement savings.
• See your potential tax savings in action: An S-Corp owner earning a $92,000 salary could defer $24,500 as the employee and contribute another $23,000 as the employer (25% of W-2 compensation), for a total 2026 contribution of $47,500. Assuming the contributions qualify for a current federal income-tax benefit and a 37% marginal tax rate applies, that could represent approximately $17,575 in potential federal income-tax savings—while putting nearly $50,000 to work toward retirement.
• A Strategic edge over SEP IRAs: At moderate income levels—typically around $90,000 to $150,000—a Solo 401(k) can allow you to contribute more toward retirement because it combines employee deferrals with employer contributions, while SEP IRAs rely solely on employer contributions. Solo 401(k)s may also offer Roth contributions and participant loan options, giving you greater flexibility to build a retirement and tax strategy around your financial goals.
• Double your tax strategy options: Choose traditional pre-tax contributions for upfront tax savings, or Roth contributions for tax-free growth and retirement withdrawals. With a Solo 401(k), you have more control over the timing of income recognition in your retirement savings.

What You Can Invest In With a Solo 401(k)

One underrated advantage of a solo 401(k) is investment flexibility. Depending on your plan provider, you can hold a wide range of assets inside your Solo401(k) plan accounts:

• Stocks and ETFs — individual equities and exchange-traded funds
• Mutual funds — actively or passively managed diversified funds
• Bonds — government, municipal, and corporate bonds
• Real estate — through a self-directed solo 401(k), you can invest in rental properties and REITs
• Private equity — private company investments via self-directed plans
• Precious metals — IRS-approved gold, silver, platinum, and palladium
• Crypto — available through select self-directed plan providers

Standard brokerage-based solo 401(k)s (Fidelity, Schwab, Vanguard) generally cover stocks, ETFs, mutual funds, and bonds. If you want private real estate, crypto, or alternative assets, you'll want a self-directed solo 401(k) through a specialized custodian.

Availability varies by provider; alternative assets such as crypto, private equity, and real estate carry additional eligibility considerations, plan risks and liquidity considerations. Consult an investment professional before investing.

Solo 401(k) Withdrawal Rules

Knowing when and how you can access your money helps you plan smarter — and avoid costly mistakes.

• Penalty-free withdrawals begin at age 59½. Once you reach this age, you can withdraw from your solo 401(k) without the 10% early withdrawal penalty.
• Early withdrawals come with a 10% penalty. Taking money out before 59½ may impose a 10% penalty on top of ordinary income tax, unless a qualifying exception applies (disability, substantially equal periodic payments, etc.).
• Traditional contributions are taxed on withdrawal. Pre-tax contributions and their earnings are treated as ordinary income when you take distributions in retirement.
• Qualified Roth withdrawals can be completely tax-free. Once you reach age 59½ and satisfy the five-year holding requirement, qualified Roth distributions — including both contributions and earnings — can be withdrawn tax-free.
• The 5-year Roth rule applies. Even if you're over 59½, Roth withdrawals aren't considered qualified until the account has been open for five years.
• RMDs depend on your age. Traditional solo 401(k)accounts are generally subject to required minimum distributions (RMDs) beginning at age 73 or 75, depending on your birth year. Under SECURE 2.0, designated Roth 401(k) accounts are not subject to RMDs during the account owner's lifetime.

Rolling Over Into a Solo 401(k): Bring Your Retirement Savings With You

If you're making the move from a W-2 job to self-employment, you don't necessarily have to leave your old retirement savings behind. Depending on your solo 401(k) plan terms, you may be able to consolidate eligible retirement accounts into your new plan, giving you greater control over your retirement savings.

• Traditional 401(k) — Eligible pre-tax funds from a former employer’s 401(k) can generally be rolled into a Solo 401(k)
• Traditional IRA — Pre-tax IRA funds may generally be rolled into a Solo 401(k) if the plan accepts incoming rollovers
• SEP IRA — SEP IRA funds may generally be rolled into a Solo 401(k)
• SIMPLE IRA — A rollover may be permitted after satisfying the applicable two-year participation requirement
• 403(b) and 457(b) plans —Eligible distributions may generally be rolled into a Solo 401(k), provided the plan accepts them

Here’s the big advantage: Eligible rollovers do not count against your annual contribution limit. For example, rolling $200,000 from a former employer’s 401(k) into your Solo 401(k) would not reduce your ability to make up to $72,000 in employee and employer contributions for 2026, assuming you have sufficient eligible compensation and otherwise qualify for the maximum contribution. Catch-up contributions may allow eligible participants to contribute even more.

This can make the transition from employee to solopreneur an opportunity to consolidate retirement savings while continuing to maximize new contributions.

Keep in mind: Designated Roth 401(k) funds may generally be rolled into a designated Roth account within a Solo 401(k) if the receiving plan permits it. Roth IRA funds cannot be rolled into a Solo 401(k)

Solo 401(k) Frequently Asked Questions (FAQs)

The right solo 401(k) questions lead to bigger tax savings and smarter retirement decisions. Here’s what freelancers, solopreneurs, and self-employed business owners need to know to maximize the benefits of a Solo 401(k) and build a stronger financial future.

How does a solo 401(k) help self-employed people save on taxes?

A solo 401(k) can help reduce your current taxable income through traditional pre-tax contributions. You defer taxes today, with the potential to pay them later in retirement when you may be in a lower tax bracket. This employee-and-employer contribution structure can significantly reduce your tax bill while allowing you to put more of your income toward long-term retirement savings accounts.

Can I open a solo 401(k) if I'm a freelancer with no employees?

Yes, freelancers with no full-time employees qualify. You can include a spouse if they work in your business. Independent contractors generally do not count as employees for Solo 401(k) eligibility, but part-time employees can affect eligibility. There is no simple “under 21 hours per week” safe harbor. Under current 401(k) rules, long-term part-time employees may become eligible if they complete at least 500 hours of service in two consecutive 12-month periods and meet the applicable age requirement. For S-Corp owners, a Solo 401(k) can be an especially powerful strategy for maximizing retirement savings and potential tax advantages.

When do I need to establish a solo 401(k) plan?

Timing matters when maximizing your Solo 401(k). Generally, owner-employees must elect employee deferrals by the end of the tax year, with contributions funded by the tax-return filing deadline, including extensions. Certain sole proprietors establishing a new Solo 401(k) have additional first-year flexibility and may make their election and contribution by the tax-return due date, without extensions. Employer contributions can generally be made by the business’s tax-return filing deadline, including extensions. This added flexibility can make it easier to coordinate retirement contributions with your business’s cash flow.

What happens if I hire employees later?

Your solo 401(k) must cover eligible employees once you hire them. You'll need nondiscrimination testing and potentially convert to a traditional 401(k). Many consultants plan around this by using contractors instead of employees.

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Make Big-Tax Moves With A Solo 401(k)

A Solo 401(k) is one of the smartest ways for freelancers and solopreneurs to reduce their tax bill while building real retirement savings. With the ability to contribute as both the employee and the employer, you have valuable flexibility to fine-tune your contributions and make your retirement strategy work harder for you.

The real headache? The administration. Payroll, contribution tracking, tax compliance, and year-end filings can quickly become another job on your already-full plate. That’s where automation can make all the difference. Lettuce’s automation makes it easier to handle. For eligible solopreneurs, Lettuce helps form and automate your S-Corp and provides year-round tax, accounting, and payroll support. Through its partnership with Carry, Lettuce customers also have access to a Solo 401(k) platform designed to make setting up and managing retirement savings easier.

Ready to simplify your finances, maximize your retirement strategy, and keep more of what you earn, working toward your future? Start with Lettuce and get streamlined access to Carry’s Solo 401(k) platform—built with the self-employed in mind.

The Lettuce Learning Center is operated by Lettuce Financial Labs Inc. (“Lettuce”) and contains generalized educational content about personal finance topics. The information published should not be construed as personalized investment or tax advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.

The accounts, strategies and/or investments discussed in this material may not be suitable for all. All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. All statements and opinions included on the Lettuce Learning Center are intended to be current as of the date of publication but are subject to change without notice.

Carry is owned by Lettuce; the two are affiliated. Any investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. .

To access Carry investment advisory services through Carry Advisors, you must be a client of Carry on an eligible membership plan. For more information about Carry Advisors’ investment advisory services, please see our Form ADV Part 2A brochure and Form CRS or through the SEC’s website at www.adviserinfo.sec.gov.