Can I have a Solo 401(k) and a SEP IRA at the same time?

Generally no — not for the same business. You can only have one type of employer-sponsored plan per business entity. However, if you have two separate businesses, each with its own income, you could potentially have different plans for each. This is a complex area and worth discussing with a CPA.

Can my spouse participate in my Solo 401(k)?

Yes. If your spouse earns compensation from your business, they can participate in the Solo 401(k) as an employee. This can effectively double the household contribution capacity. The same employee deferral and employer profit-sharing limits apply to your spouse based on their compensation.

What happens if I hire an employee?

If you hire a full-time employee (generally someone working 1,000+ hours per year) who is not your spouse, your business no longer qualifies for a Solo 401(k). You would need to convert the plan to a traditional 401(k) that covers eligible employees, or consider other retirement plan structures. A plan administrator and CPA can help you navigate the transition.

Do I need to file anything with the IRS for a Solo 401(k)?

Once your Solo 401(k) plan assets exceed $250,000, you are required to file Form 5500-EZ annually with the IRS. Below that threshold, there is no annual filing requirement, though the plan document must be maintained and updated as IRS rules change.

Can a Solo 401(k) hold alternative investments?

Yes. A Solo 401(k) established with a qualified custodian that permits self-direction can hold private equity, real estate, private credit, and other alternative assets — the same categories available through a self-directed IRA. The prohibited transaction rules apply equally.

What is the contribution deadline for a Solo 401(k)?

The plan must be established by December 31 of the tax year. Employee deferrals must also be made by December 31. Employer profit-sharing contributions can be made up to your tax filing deadline, including extensions — typically October 15 if you file an extension.

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Solo 401(k)Business OwnersTax Strategy

Solo 401(k) for Business Owners and the Self-Employed

A Solo 401(k) is one of the most powerful retirement savings tools available to self-employed individuals and business owners — and one of the least understood. It offers higher contribution potential than a SEP IRA at lower income levels, includes a Roth option that a SEP IRA does not, and can be self-directed to hold alternative assets.

If you work for yourself and have no full-time employees other than a spouse, a Solo 401(k) is worth understanding in detail.

What Is a Solo 401(k)?

A Solo 401(k) — also called an Individual 401(k) or one-participant 401(k) — is a retirement plan structured identically to an employer 401(k) but designed specifically for self-employed individuals and owner-only businesses. It follows the same IRS rules as a traditional 401(k) and carries the same contribution limits.

What distinguishes the Solo 401(k) from other self-employed retirement accounts is its two-component contribution structure: an employee deferral and an employer profit-sharing contribution. Together, these two components allow significantly higher total contributions than a SEP IRA at many income levels.

Who Qualifies for a Solo 401(k)?

A Solo 401(k) is available to self-employed individuals and business owners who have no full-time employees other than themselves and, optionally, a spouse. Eligible business structures include:

Sole proprietors and single-member LLCs filing on Schedule C
Partnerships with no outside full-time employees
S-corporation shareholders who receive W-2 wages from the business
Freelancers and independent contractors with 1099 income

Once you hire a full-time employee (generally defined as an employee working 1,000 hours or more per year who is not your spouse), a Solo 401(k) is no longer available. At that point, you would need to transition to a traditional employer 401(k) plan — which requires offering the plan to eligible employees — or consider other structures.

Contribution Limits for 2026

The Solo 401(k) has two separate contribution components, each with its own limit:

Employee Deferral

You can contribute up to $24,500 as an employee deferral in 2026 (up from $23,500 in 2025). Those aged 50 and older can contribute up to $32,500. A new extended catch-up provision for those aged 60 to 63 allows up to $35,750 — though this enhanced limit applies only if your plan document allows it. Employee deferrals can be made as pre-tax (traditional) or after-tax (Roth) contributions. The employee deferral limit applies across all 401(k) plans combined — if you also participate in an employer's 401(k), your total employee deferrals across both plans cannot exceed the annual limit.

Employer Profit-Sharing

In addition to the employee deferral, you can make an employer profit-sharing contribution of up to 25% of W-2 wages (if operating as an S-corp) or approximately 20% of net self-employment income (if a sole proprietor or single-member LLC, after the self-employment tax deduction). The maximum employer contribution is $47,500 in 2026.

Combined Maximum

The total combined contribution — employee deferral plus employer profit-sharing — cannot exceed $72,000 in 2026 (or your total compensation, whichever is less).

At lower income levels, the Solo 401(k) typically allows higher total contributions than a SEP IRA because the employee deferral component is not percentage-based. A financial advisor can model the exact figures for your income level.

Contribution Deadlines

Timing matters with a Solo 401(k) — the rules differ depending on which contribution component you are making:

Plan establishment — the Solo 401(k) plan must be established by December 31 of the tax year for which you want to make contributions. Unlike a SEP IRA, which can be opened as late as your tax filing deadline, a Solo 401(k) cannot be established retroactively.
Employee deferrals — must be made by December 31 of the tax year.
Employer profit-sharing contributions — can be made up to your tax filing deadline, including extensions (typically October 15 for individuals who file an extension).

Can a Solo 401(k) Be Self-Directed?

Yes. A Solo 401(k) can be established with a specialized custodian or trust company that permits alternative investments — private equity, real estate, private credit, and other assets beyond publicly traded securities. This is often called a self-directed Solo 401(k) or a checkbook Solo 401(k).

The same prohibited transaction rules that apply to a self-directed IRA apply here: the account cannot engage in self-dealing, cannot transact with disqualified persons, and cannot be used for personal benefit before retirement. Working with an advisor familiar with both the account mechanics and the investment landscape helps ensure compliance.

For more on how self-directed accounts work, see: What Is a Self-Directed IRA?

Not sure which custodian to use? Fees, accepted asset types, and service quality vary widely. I recommend specific ones based on what you're trying to do.

Solo 401(k) vs. SEP IRA: Key Differences

Both accounts serve self-employed individuals and support significantly higher contributions than a standard IRA. The right choice depends on your income level, business structure, and goals.

Feature	Solo 401(k)	SEP IRA
Contribution structure	Employee deferral + employer profit-sharing	Employer contribution only
2026 max contribution	$72,000	$72,000
Advantage at lower income	Yes — employee deferral not percentage-based	No
Roth option	Yes	No (but can convert)
Employees allowed	Owner + spouse only	Can have employees (with requirements)
Plan establishment deadline	December 31 of the tax year	Tax filing deadline (incl. extensions)
IRS filing required	Form 5500-EZ once assets exceed $250,000	None
Loan provision	Allowed if plan permits	Not allowed

For a deeper look at the SEP IRA, see: SEP IRA for Business Owners and the Self-Employed

Frequently Asked Questions

This guide is for informational purposes only and does not constitute tax or legal advice. Contribution limits, eligibility rules, and IRS requirements are subject to change. Consult a qualified CPA, tax attorney, or financial advisor for guidance specific to your situation.