How to Calculate Your Solo 401k Maximum Contribution

A Solo 401(k) is a retirement savings plan for self-employed individuals and small business owners who have no employees, other than a spouse. The primary appeal of the Solo 401(k) is its capacity for substantial contributions, which surpasses the limits of more common retirement accounts like traditional or Roth IRAs. This plan provides a direct path for business owners to accelerate their retirement savings based on their business income.

The Two Types of Solo 401k Contributions

A participant in a Solo 401(k) plan makes contributions from two distinct capacities: as an “employee” and as an “employer.” This dual role is the mechanism that allows for the plan’s high contribution limits.

The first component is the employee contribution, technically known as an elective deferral. As the employee of your own business, you can defer up to 100% of your compensation, up to a specified annual dollar limit. For 2025, this limit is $23,500. This contribution can be made as a traditional pre-tax deferral, which reduces your current taxable income, or as a Roth contribution, which is made with after-tax dollars and allows for tax-free qualified distributions in retirement.

Individuals aged 50 and over are permitted to make an additional “catch-up” contribution. For 2025, this amount is $7,500, allowing those eligible to contribute a total of $31,000 as an employee. These elective deferral limits are per person, not per plan. If you also contribute to a 401(k) plan at another job, your total employee contributions across all plans cannot exceed the annual limit.

The second component is the employer contribution, often referred to as a profit-sharing contribution. In your role as the employer, your business can contribute a percentage of your compensation to the plan.

The sum of your employee and employer contributions cannot exceed 100% of your compensation or the total plan limit for the year. For 2025, the maximum total contribution, combining both employee and employer amounts, is $70,000.

How to Calculate Your Maximum Contribution

Calculating your maximum Solo 401(k) contribution requires applying the rules to your specific business structure and income. The methodology differs significantly depending on whether your business is a sole proprietorship or an incorporated entity.

For Sole Proprietors and Single-Member LLCs

For individuals operating as sole proprietors or single-member LLCs, the contribution calculation is based on “net adjusted business income.” This figure is not simply the net profit from your business. The calculation begins with your net profit as reported on Schedule C. From this amount, you must subtract one-half of your self-employment taxes. The resulting figure is your compensation base for determining the employer contribution.

The self-employment tax is calculated on 92.35% of your net business earnings. After determining the tax, you subtract half of that amount from your net profit to arrive at your plan-eligible compensation. The employer contribution is then limited to 20% of this adjusted compensation figure.

Consider a sole proprietor under age 50 with a Schedule C net profit of $100,000. One-half of the self-employment tax on this income is $7,065. The compensation base for the 401(k) is the net profit minus this deduction: $100,000 – $7,065 = $92,935. With this compensation base, the maximum employer contribution is 20% of $92,935, which equals $18,587.

The individual can also make the maximum employee contribution of $23,500. The total contribution would be the sum of both: $23,500 (employee) + $18,587 (employer) = $42,087.

For S-Corporations and C-Corporations

The calculation for owners of S-Corporations and C-Corporations is more direct because their compensation is defined by the W-2 salary the business pays them. The basis for the employer contribution is the owner’s gross W-2 wages. The business, acting as the employer, can contribute up to 25% of the owner’s W-2 salary to the Solo 401(k) plan.

For example, take an S-Corporation owner under age 50 who receives a W-2 salary of $80,000. The maximum employer contribution the corporation can make is 25% of this salary, which is $20,000. In addition, the owner can make the maximum employee contribution of $23,500 for 2025. The total combined contribution would be $43,500. The compensation used for the calculation is the formal salary reported on Form W-2, not the business’s total profit or distributions taken by the owner.

Contribution and Plan Establishment Deadlines

Timely action is necessary to take advantage of the Solo 401(k) for a given tax year, as there are deadlines for both establishing the plan and making contributions. Recent legislation has created more flexibility for establishing a new plan. For sole proprietors and single-member LLCs, a Solo 401(k) can be established for the prior tax year up until the business’s tax filing deadline for that year. This allows you to create and fund a plan for a year that has already ended. For S-Corporations and C-Corporations, the plan must still be established by December 31 to allow for employee contributions for that tax year.

The deadline for making the employee contribution also depends on the business type. For S-Corps and C-Corps, employee contributions must generally be made during the calendar year. For a sole proprietor, the employee contribution can be made up to the business’s tax filing deadline.

The deadline for the employer profit-sharing contribution is the most flexible for all business types. This contribution can be made anytime up to the business’s tax filing deadline for that year, including any extensions. This extended timeframe gives business owners additional months to calculate their final income and decide on the amount of the employer contribution. For a sole proprietorship, this is typically April 15 of the following year, or October 15 if an extension is filed.