Is a Solo 401(k) Tax Deductible?

Quick Answer: ✅ Yes — Solo 401(k) contributions are tax-deductible. You can contribute as both employee AND employer, up to a combined $70,000 in 2026 (or $77,500 if you're 50+).

The Short Answer

A Solo 401(k) — also called an individual 401(k) or one-participant 401(k) — is the most powerful retirement plan for self-employed individuals with no employees (other than a spouse). It lets you make contributions in two roles: as the employee (elective deferrals) and as the employer (profit-sharing). This double contribution means you can often shelter more income than a SEP-IRA, especially at lower income levels.

IRS Rules for Deducting Solo 401(k) Contributions

The Solo 401(k) has two contribution buckets:

1. Employee Elective Deferrals (Your Salary Deferral)

• 2026 limit: $23,500 (under age 50)
• Catch-up contribution: $7,500 additional if age 50+ (total: $31,000)
• This is money you choose to defer from your compensation into the plan
• Can be Traditional (pre-tax) or Roth (after-tax) — your choice

2. Employer Profit-Sharing Contribution

• Up to 25% of compensation (W-2 wages for S-Corp; ~20% of net self-employment income for sole props)
• Always pre-tax (Traditional)
• This is on TOP of the employee deferral

Combined Limit

• $70,000 total for 2026 (employee + employer portions)
• $77,500 if you're 50 or older
• Note: New SECURE 2.0 "super catch-up" may apply for ages 60-63 — check with your CPA for 2026 specifics.

Source: IRS Publication 560 — Retirement Plans for Small Business

Who Qualifies

• Self-employed individuals with no full-time employees (other than a spouse)
• Sole proprietors, single-member LLCs, partnerships, S-Corps, C-Corps
• Must have earned income from self-employment
• If you hire a full-time W-2 employee (other than your spouse), you generally can't use a Solo 401(k) anymore

How Much Can You Deduct?

Traditional (pre-tax) contributions are fully deductible.

Example — Sole Proprietor earning $80,000 net:

• Employee deferral: $23,500
• Employer contribution (~20% of adjusted net): ~$13,900
• Total contribution: $37,400
• Tax savings at 24% bracket: ~$8,976

Compare to SEP-IRA at same income:

• SEP max: ~$13,900 (20% of adjusted net)
• Solo 401(k) advantage: $23,500 more thanks to the employee deferral

This is why the Solo 401(k) is often better than a SEP-IRA at lower and moderate income levels.

How to Categorize in QuickBooks

• QBO Category: Owner contributions are not a business expense for sole props — they go on your personal return
• Schedule C / 1040: Schedule 1 (Form 1040), Line 15 — Self-employed SEP, SIMPLE, and qualified plans
• For S-Corps: Employer profit-sharing portion is a business expense → "Employee Benefit Programs" or "Retirement Contributions." Employee deferral reduces your W-2 wages.
• Tip: Track employee and employer contributions separately. They have different rules and limits.

Common Mistakes to Avoid

1. Missing the plan establishment deadline — Unlike a SEP-IRA, the Solo 401(k) plan must be established by December 31 of the tax year you want to contribute for. You can fund it later, but the plan itself must exist by year-end.
2. Exceeding the employee deferral across multiple plans — The $23,500 employee deferral limit is per-person across ALL 401(k) plans. If you also have a W-2 job with a 401(k), your Solo 401(k) deferral + employer 401(k) deferral can't exceed $23,500 combined.
3. Not considering Roth contributions — Solo 401(k)s can accept Roth employee deferrals. If you expect to be in a higher tax bracket in retirement, Roth contributions (no deduction now, tax-free later) might be smarter.
4. Forgetting Form 5500-EZ — Once your Solo 401(k) balance exceeds $250,000, you must file Form 5500-EZ annually with the IRS. Miss it and there are penalties.

Record-Keeping Requirements

• Solo 401(k) plan documents (adoption agreement from your provider)
• Contribution records showing employee vs. employer portions
• Annual statement from the custodian/brokerage
• Form 5500-EZ if plan assets exceed $250,000
• Calculation worksheet showing contribution amounts

Who Can Deduct Solo 401(k) Contributions?

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