Solo 401k Contribution Limits: Maximize Your Tax Deduction

Most retirement plans have a single limit. The Solo 401k has two. Think of it as having two pockets: one for you as the Employee (Salary Deferral) and one for you as the Employer (Profit Sharing). By combining these two, you can shelter nearly $72,000 (or up to $83,250 if aged 60-63) from taxes in 2026. However, the math changes drastically depending on whether you are a Sole Proprietor or an S-Corp owner. Here is the updated 2026 guide to filling both pockets without triggering an IRS penalty.

BMT Tax Team BMT Tax Team · 📅 Feb 2026 · ⏱️ 5 min read · INVESTING › LIMITS
Bucket 1
$24,500
Employee Deferral (2026)Fact
Bucket 2
25%
Employer Profit ShareRule
Total
$72,000
Combined Annual MaxGood
Calculating Solo 401k limits with calculator and tax forms

The math is distinct: Schedule C (Sole Prop) vs W-2 (S-Corp) determines your limit.

1. The “Two Bucket” System Explained (2026)

Unlike an IRA, a Solo 401k lets you double-dip.

Total Contribution Limit Structure ($72,000 Example)
Employee ($24.5k)
Employer Profit Share (~$47.5k)
  • Bucket 1 (Employee): You can contribute 100% of your earnings up to $24,500.
  • Bucket 2 (Employer): You can add an extra 20-25% of your business profits on top of Bucket 1.

2. Calculating by Entity Type (Checklist)

The math differs slightly based on how you pay yourself.

Entity Employee Limit (You) Employer Limit (Biz)
Sole Proprietor
(Schedule C)		 Up to $24,500
(100% of Net Earnings)		 ~20% of Net Earnings
(Calculated after 1/2 SE Tax deduction)
S-Corp
(W-2 Salary)		 Up to $24,500
(Deducted from W-2)		 25% of W-2 Salary
(Not based on Distributions)

*Note: Total contributions cannot exceed your total earned income. You cannot contribute more than you make.

3. The SECURE 2.0 “Super Catch-Up”

Age matters. In 2026, there are now THREE tiers of limits.

Under 50
Age 50+
Age 60-63

*New for 2026: Ages 60, 61, 62, 63 get a special $11,250 catch-up limit (instead of the standard $7,500).

4. S-Corp Strategy: The Salary Dial

S-Corp owners must pay themselves enough W-2 salary to unlock the full employer bucket.

💡 The $190k Sweet Spot

To hit the full $72,000 limit in 2026 (Under 50):

  • Required Salary: You need a W-2 salary of approx $190,000.
  • The Math: $24,500 (Employee) + 25% of $190k ($47,500) = $72,000 Total.
  • Lesson: If you only pay yourself $50,000, your max limit is capped at ~$37,000. Low salary = Low deduction.

5. Frequently Asked Questions

What if I have a day job?
Employee Bucket is Shared. If you contributed $24,500 to your day job’s 401k, you have $0 room left in your Solo 401k’s Employee bucket. However, you can still max out the Employer bucket (20-25% of side hustle profit).
When is the deadline?
Election vs Funding. You must formally set up the plan by Dec 31. However, you generally have until your tax filing deadline (April 15 or Oct 15 with extension) to actually deposit the money.