Does hiring a part-time employee affect my solo 401(k)?

It can. A part-time employee who works at least 1,000 hours in a 12-month period generally must be allowed into the plan after a year of service. Under the SECURE 2.0 long-term part-time rule, an employee age 21 or older who works at least 500 hours in two consecutive 12-month periods must be allowed to make elective deferrals, a rule that first applied for the 2026 plan year. Part-time is not a shield.

Do independent contractors disqualify my solo 401(k)?

No. Correctly classified independent contractors are not common-law employees, so hiring them does not affect solo 401(k) eligibility. The danger is misclassification: if a worker you call a contractor is really an employee under IRS rules, the eligibility clock has been running the whole time.

Can I convert my solo 401(k) to a regular 401(k)?

Yes. You amend the plan before the employee's eligibility date, typically into a safe harbor 401(k) design that avoids annual nondiscrimination testing. Most providers and TPAs handle the restatement, but it must be done before the entry date, not after.

What happens if I already missed the employee's eligibility date?

The plan has been operating as a regular 401(k) without following regular 401(k) rules, which is a qualification failure. The IRS correction program (EPCRS) allows self-correction in many cases: make the missed contributions with earnings, amend the plan, and file properly going forward. Talk to a TPA or ERISA counsel rather than trying to unwind it yourself.

Solo 401(k) Contribution Limits 2026: The $24,500 and $72,000 Numbers

Guides · Updated October 2026

On $100,000 of Schedule C profit, a solo 401(k) lets you put away about $43,087 for 2026. A SEP IRA at the same income holds about $18,587. The $24,500 gap between them is the employee deferral, and it is the whole reason the solo 401(k) usually wins for people who earn under about $200,000. Everything below is the arithmetic behind that one comparison.

First, the 2026 limits themselves, from IRS Notice 2025-67. The employee elective deferral is $24,500. The combined annual additions cap, employee plus employer, is $72,000. Catch-up contributions sit on top of that cap: $8,000 at age 50 and up, and $11,250 at ages 60 through 63 under the SECURE 2.0 super catch-up. So the real ceiling is $80,000 at 50 to 59, and $83,250 in the four-year super catch-up window. Compensation that can be counted tops out at $360,000.

Piece of the limit (2026)	Amount
Employee elective deferral	$24,500
Catch-up, age 50 to 59	+$8,000
Super catch-up, ages 60 to 63	+$11,250
Combined cap, under 50	$72,000
Combined cap, age 50 to 59	$80,000
Combined cap, ages 60 to 63	$83,250

Solo 401(k) contribution limits 2026: the worked example

Take a sole proprietor with $100,000 of net Schedule C profit. Self-employment tax is figured on 92.35 percent of that, which comes to roughly $14,129, and half of it, about $7,065, is deductible. Subtract that half and you get plan compensation of about $92,935.

From there the two contributions stack. The employee deferral is a flat $24,500, limited only by compensation. The employer profit-sharing piece is 20 percent of plan compensation for a sole proprietor, which is about $18,587. Add them: $24,500 plus $18,587 is $43,087. The SEP IRA at the same income is only the employer piece, $18,587, because a SEP has no employee deferral at all. Same business, same profit, $24,500 less room.

The employer percentage is the part people get wrong most often. It is 20 percent of net self-employment income for sole proprietors, not 25 percent. The 25 percent figure applies to incorporated businesses paying W-2 wages, where the percentage is taken against the salary. If you run an S-corp, your solo 401(k) employer contribution is 25 percent of your W-2 salary from the corporation, and distributions on your K-1 do not count. Low salary, low limit. That is one more reason the salary you set in an S-corp matters beyond payroll tax.

Where the limit actually binds

At low income, compensation binds before any IRS ceiling does. A part-time consultant netting $40,000 cannot use $24,500 of deferral plus an employer piece. The money is not there. At high income, the $72,000 cap binds. A consultant netting $300,000 could in theory defer $24,500 plus 20 percent of plan compensation, well over $72,000, so the cap cuts the total back to $72,000, or $80,000 with catch-up.

There is also a shared ceiling people miss. The $24,500 employee deferral limit is per person across all 401(k) plans, not per plan. If you already deferred $24,500 into a W-2 employer's 401(k), your solo 401(k) employee deferral for the year is zero. The employer piece is separate per plan, so you can still add profit-sharing from the business. We covered that interaction in detail in the piece on solo 401(k) limits with a W-2 job.

One more 2026 wrinkle: under SECURE 2.0, catch-up contributions must go to a Roth account if your prior-year FICA wages topped $150,000. Below that threshold you choose pre-tax or Roth. For a high-earning consultant, $8,000 of forced Roth catch-up space is not a punishment. It is arguably the better deal.

My own take, stated plainly: if you are self-employed with no employees and you can only set up one plan, the solo 401(k) is the default answer for 2026, and the $24,500 deferral is why. The SEP IRA still makes sense in exactly one situation, which is when you already have employees and want the simplest possible plan. Everywhere else, the solo 401(k) gives you more room at the same income.

Compare both plans on your own income

Run your profit through the solo 401(k) and SEP IRA side by side.

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Frequently asked questions

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

The combined employee plus employer limit is $72,000 for 2026. The employee elective deferral inside that total is $24,500. Catch-up contributions sit on top of the $72,000 cap: $8,000 at age 50 and up, or $11,250 at ages 60 through 63.

How much can I contribute to a solo 401(k) with $100,000 of self-employment income?

About $43,087. Plan compensation after the deductible half of self-employment tax is roughly $92,935. The $24,500 employee deferral plus 20 percent of plan compensation as the employer contribution (about $18,587) totals $43,087.

Is the solo 401(k) employer contribution 20 percent or 25 percent?

Both, depending on entity. Sole proprietors use 20 percent of net self-employment income. Incorporated businesses use 25 percent of W-2 compensation. The two percentages describe the same rule applied to different definitions of pay.

Does the $24,500 deferral limit apply per plan or per person?

Per person, across all 401(k) plans. If you max out the deferral at a W-2 job, you cannot defer again into a solo 401(k) the same year. The employer profit-sharing piece is per plan and still available.

What is the solo 401(k) contribution limit at age 60 to 63 in 2026?

Up to $83,250: the $72,000 combined cap plus the $11,250 SECURE 2.0 super catch-up, which replaces the standard $8,000 catch-up in the years you turn 60, 61, 62, or 63. Your plan document must have adopted the super catch-up provision.

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