What is the Solo 401(k) contribution limit for 2026?

The Solo 401(k) total contribution limit in 2026 is $72,000 — combining an employee elective deferral of up to $24,500 plus an employer profit-sharing contribution of up to 25% of W-2 wages (or approximately 20% of net self-employment income). Workers 50+ add an $8,000 catch-up; those 60–63 get an $11,250 SECURE 2.0 super catch-up.

What is the SIMPLE IRA contribution limit for 2026?

The SIMPLE IRA employee deferral limit is $17,000 in 2026 ($18,100 for employers with 25 or fewer employees). Workers 50+ add a $4,000 catch-up ($5,000 for small employers). Workers 60–63 have a SECURE 2.0 super catch-up of $5,250.

Can I switch from a SIMPLE IRA to a Solo 401(k)?

Yes, but not mid-year. You must terminate the SIMPLE IRA plan before starting a Solo 401(k), and SIMPLE IRA plans have a required 2-year participation period before funds can be rolled to a non-SIMPLE account. You can generally establish a new Solo 401(k) for the following calendar year. Also, hiring any non-spouse full-time employees disqualifies you from the Solo 401(k).

Which is better — Solo 401(k) or SIMPLE IRA for a sole proprietor?

For most sole proprietors without employees, the Solo 401(k) is better. At the same income level, the Solo 401(k) allows far higher contributions because it combines an employee deferral ($24,500) with an employer contribution (up to 20% of net SE income). The SIMPLE IRA only allows a $17,000 deferral plus mandatory employer match. The Solo 401(k) also offers Roth options and a loan provision.

Solo 401(k) vs SIMPLE IRA 2026: Self-Employed Guide

Side-by-Side

Full Feature Comparison

The deciding factor is almost always whether you have non-spouse employees.

Feature	Solo 401(k)	SIMPLE IRA
Maximum Annual Contribution	$72,000 Employee + employer combined	$17,000 employee + required employer match
Employee Elective Deferral	Up to $24,500	Up to $17,000 $18,100 if ≤25 employees
Employer Contribution	Up to 25% of W-2 / 20% of net SE income Discretionary — 0% is allowed	3% match OR 2% non-elective Mandatory — cannot skip
Age 50+ Catch-Up	+$8,000	+$4,000 +$5,000 if ≤25 employees
SECURE 2.0 Super Catch-Up (60–63)	+$11,250	+$5,250
Non-Spouse Employees Allowed	No — disqualified if hired	Yes ✓ — up to 100
Spouse Participation	✓ Yes — if employed in business	✓ Yes — treated as an employee
Roth Option	✓ Yes (if plan allows)	✓ Yes (SECURE 2.0)
Loan Provision	✓ Yes — up to 50% / $50k	No
Early Withdrawal Penalty	10% + taxes	25% in first 2 years! 10% after 2 years
IRS Annual Filing	Form 5500-EZ if assets > $250k	None ✓
Contribution Deadline	Employee deferral: Dec 31 Employer: tax filing deadline	Employee: per payroll Employer: 30 days after period end
Setup Requirements	Plan document required	IRS Form 5304-SIMPLE or 5305-SIMPLE
RMD Start Age	Age 73	Age 73

Contribution Example

How Much Can You Contribute at $80k Net SE Income?

Assuming $80,000 net self-employment income (after the half of SE tax deduction).

💼 Solo 401(k) at $80k

Employee deferral (up to limit)$24,500

Employer profit-sharing (~20%)$16,000

Total 2026 contribution$40,500

🏦 SIMPLE IRA at $80k

Employee deferral (up to limit)$17,000

Employer match (3% of $80k)$2,400

Total 2026 contribution$19,400

At $80k income, the Solo 401(k) allows more than 2× the total contributions vs SIMPLE IRA. The gap is widest at moderate income levels where the employee deferral alone exceeds the SIMPLE IRA cap.

Strengths & Weaknesses

Pros & Cons

💼 Solo 401(k)

Pros

Much higher contribution ceiling — up to $72,000 per year
Employer contribution is fully discretionary — contribute nothing in a bad year
Roth option (after-tax, tax-free growth)
Loan provision — borrow up to 50% of balance or $50k
Standard age-50 catch-up ($8,000) plus SECURE 2.0 super catch-up (60–63)
Spouse can participate if employed in the business

Cons

Automatically disqualified once you hire a non-spouse full-time employee
Employee deferral election must be made by December 31 (not extendable)
Form 5500-EZ required annually when assets exceed $250k
Fewer brokerages offer Solo 401(k) compared to IRAs

🏦 SIMPLE IRA

Pros

Works for businesses with up to 100 employees — employees can save too
Extremely easy to set up (IRS Form 5304 or 5305 — no custom plan document)
No annual IRS filing requirements
Employees appreciate the salary deferral option as a workplace benefit
SECURE 2.0 Roth SIMPLE IRA option now available

Cons

Much lower deferral cap ($17,000 vs $24,500 for Solo 401k employee portion)
Mandatory employer contributions — cannot skip even in a bad year
25% penalty on early withdrawals in the first 2 years — very harsh
Cannot roll over to an IRA (non-SIMPLE) until 2-year participation requirement met
Only 100-employee limit — not scalable beyond that

Decision Guide

Which Should You Choose?

Choose Solo 401(k) if…

You're self-employed with no non-spouse full-time employees
You want to maximize your annual contributions (up to $72,000)
You want Roth contributions or a loan option
You want flexibility to contribute $0 in lean years
Your spouse works in the business and you want to double contributions
You're age 50+ and want the larger catch-up ($8,000 vs $4,000)

Choose SIMPLE IRA if…

You have employees (other than your spouse) who need retirement coverage
You want simplicity with no plan document or 5500 filing
You're a small business wanting to offer employees a salary-deferral benefit
You're comfortable with mandatory employer contributions
You're planning to grow to more than just yourself and a spouse

💡 Growth transition tip: Start with a Solo 401(k) while you're a sole proprietor. When you hire your first non-spouse full-time employee, you must transition to a SEP IRA, SIMPLE IRA, or full 401(k). Plan this transition in advance — a SIMPLE IRA cannot be terminated mid-year, and participants face the 2-year restriction on rollovers.

FAQ

Common Questions

What happens to my Solo 401(k) if I hire an employee?

The Solo 401(k) is only available to businesses with no full-time employees other than the owner and their spouse. If you hire a non-spouse employee who works 1,000+ hours per year, you must transition the plan to a regular 401(k), SEP IRA, or SIMPLE IRA. You typically cannot simply exclude the new employee. Consult a plan administrator before hiring.

Why does the SIMPLE IRA have a 25% early withdrawal penalty?

The 25% penalty applies only within the first 2 years of a participant's initial enrollment in the SIMPLE IRA. Congress designed this to discourage employees from immediately withdrawing funds after employers make required contributions. After 2 full years, the standard 10% early withdrawal penalty applies (like a Traditional IRA or 401k).

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

Generally no — not for the same business. You cannot maintain a SIMPLE IRA and a 401(k) plan simultaneously for the same employer. If you have income from a separate business (e.g., a W-2 job plus self-employment income), you might have a SIMPLE IRA through your employer and a Solo 401(k) for your side business, subject to the combined employee deferral limit of $24,500 across all plans.

Can I contribute to a Solo 401(k) and a Roth IRA in the same year?

Yes. Solo 401(k) contributions don't affect IRA contribution limits. You can max your Solo 401(k) at $72,000 and also contribute up to $7,500 to a Roth IRA (subject to income limits) in 2026. This combination can dramatically accelerate tax-free wealth building for self-employed individuals.