Solo 401(k) Roth vs Traditional: The One Number That Decides It
A one-person design studio owner I know stared at her plan's contribution screen last spring and got stuck on a checkbox. Should you make Roth or traditional contributions to your solo 401(k)? Her plan let her check both boxes and split the money between them, and that option made the question harder, not easier. More choices, same uncertainty.
The wrinkle most guides skip: the Roth option lives on only one side of a solo 401(k). As the employee, you can designate your elective deferral, up to $24,500 for 2026 ($32,500 at age 50 or older), as Roth, traditional, or a split of both. As the employer, your profit-sharing contribution, roughly 20% of net self-employment income for a sole proprietor, is pre-tax by default. SECURE 2.0 Section 604 lets a plan treat employer contributions as Roth too, but many solo 401(k) providers have not added the feature, so check your adoption agreement before you assume it is available. Your deferral is the one lever you control.
The one number: your rate now versus your rate later
Strip away the brochure language and the decision is a rate comparison. Traditional contributions buy you a deduction at today's marginal rate and a tax bill at tomorrow's rate. Roth contributions flip it: you pay tax at today's rate and withdraw tax-free later, once you are past 59 and a half and the account has been open five years.
A $24,500 deferral at a 24% marginal rate, worked both ways
| Choice | Tax paid now | Tax owed later |
|---|---|---|
| Traditional | $0 (saves $5,880 this year) | Withdrawal taxed at retirement rate |
| Roth | $5,880 | $0 on a qualified withdrawal |
| Break-even rule | Roth wins if your retirement rate exceeds your rate today | |
This is the answer to the title's question, and I held it until now because it is easy to dismiss when it arrives early. If you are in the 32% bracket now and expect to land in the 22% bracket in retirement, traditional is worth roughly 10 percentage points of every dollar contributed. If you are in a low-income launch year at 12% and expect your business income to climb, Roth is the bargain. Most self-employed people do not stay in one bracket, which is why the most sensible default is a split: traditional in the fat years, Roth in the lean ones. That split is what tax diversification actually looks like for a one-person business.
Two details that change the math in practice. First, retirement contributions do not reduce self-employment tax. The IRS taxes your net earnings for Social Security and Medicare before any retirement contribution, so do not size your deferral expecting a SE tax break. Second, the employer profit-sharing side of your plan is already giving you a large pre-tax position every year. If you contribute $24,500 as the employee plus another $18,000 as the employer, most of your retirement dollars are pre-tax by default. Directing some of the employee deferral to Roth is the simplest way to keep that balance from drifting one-sided.
The SEP IRA comparison. A SEP IRA has no Roth option at all. The only path to Roth money is a conversion after contributing, which is a taxable event you have to plan around. If Roth contributions matter to your strategy, this is another reason the solo 401(k) beats the SEP for owner-only businesses.
Practical next step: open your plan's adoption agreement and confirm two things. One, that designated Roth employee contributions are enabled, most are. Two, whether the plan adopted the SECURE 2.0 employer Roth option, most solo 401(k) providers have not. Then pick the split that matches your bracket this year, and revisit it every January the way you revisit estimated taxes. The right answer changes when your income does.
Compare how much more a solo 401(k) lets you shelter than a SEP IRA at your income.
Run your own numbers with the free calculatorFrequently asked questions
Should I make Roth or traditional contributions to my solo 401(k)?
Use traditional if your marginal rate is higher now than you expect in retirement; use Roth if it is lower now. The common default for self-employed people with uneven income is a split: traditional in high-income years, Roth in low-income years.
Can the employer contribution in a solo 401(k) be Roth?
Usually not. Employer profit-sharing contributions are pre-tax by default. SECURE 2.0 allows plans to designate employer contributions as Roth, but adoption among solo 401(k) providers is still spotty. Check your plan document.
Can I split my solo 401(k) deferral between Roth and traditional?
Yes. The 2026 employee deferral of $24,500 ($32,500 with the age-50 catch-up) can be split between Roth and traditional in any proportion your plan allows. The combined deferral cannot exceed the limit.
Does a Roth solo 401(k) contribution reduce my self-employment tax?
No. Neither Roth nor traditional contributions reduce self-employment tax. SE tax is calculated on net earnings before retirement contributions. Only your income tax is affected.
Can I get Roth treatment inside a SEP IRA instead?
No. SEP IRAs have no Roth contribution option. The only route to Roth money is a separate conversion, which is taxable. This is one of the solo 401(k)'s clearest advantages over the SEP.
Related reading: Solo 401(k) Contribution Limits If You Have a W-2 Job · Solo 401(k) Setup Deadline: Why December 31 Is the Date That Matters · Can I Contribute to Both a Solo 401(k) and a SEP IRA?
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