Total potential contribution: $70,000 (or $77,500 if age 50+).
Sounds simple? It’s not.
If you’re self-employed, a Solo 401(k) is one of your most powerful wealth-building tools—especially for one-person businesses.
But whether you’re a first-timer or an old pro, Solo 401(k) contribution calculations trip up many (including CPAs!).
Why? Because you can contribute as both employee and employer, and IRS formulas apply.
The Two Buckets: Employee & Employer Contributions
-
Employee contribution:
Up to $23,000 in 2025 (or $30,500 if you’re age 50+). -
Employer contribution:
Up to 20% of your adjusted net earnings (your net income after subtracting half your self-employment tax).
Together, these can total up to $70,000 ($77,500 if 50+), but only if your income is high enough.
Most filers overestimate what they can contribute, mainly by overcalculating the employer portion.
Note for S Corps & Partnerships: If your business is an S corp or partnership, different rules apply—consult a tax advisor.
What Actually Limits Your Contribution?
- The annual IRS limit: $70,000 for 2025 ($77,500 if 50+).
- Your adjusted net earnings: Net business income minus half your self-employment tax.
Your real cap is the lower of those two numbers.
For many, adjusted net earnings are lower than the IRS annual limit!
Step-by-Step Calculation (IRS Rules)
-
Calculate self-employment tax base:
Net earnings × 92.35% (the IRS assumes 7.65% covers your employer’s share of Social Security/Medicare). -
Calculate self-employment tax:
That base × 15.3%. -
Adjust net earnings:
Subtract half your self-employment tax from your original net income. -
Employer contribution limit:
20% × adjusted net earnings.
Example 1: $60,000 Net Self-Employment Income
- Net income: $60,000
- Self-employment tax base: $60,000 × 92.35% = $55,410
- Self-employment tax: $55,410 × 15.3% = $8,478
- Half SE tax: $4,239
- Adjusted net earnings: $60,000 – $4,239 = $55,761
| Type | Amount |
|---|---|
| Employee | $23,000 |
| Employer | $11,152 |
| After-Tax | $21,609 |
| Total | $55,761 |
You can add after-tax contributions (if plan allows) to reach your compensation ($55,761), but cannot contribute more—since it’s below the IRS annual contribution cap.
Example 2: High Income Under Age 50($400,000 Net Self-Employment Income)
- Net income: $400,000
- Self-employment tax base: $400,000 × 92.35% = $369,400
- Self-employment tax: $369,400 × 15.3% = $56,518
- Half SE tax: $28,259
- Adjusted net earnings: $400,000 – $28,259 = $371,741
| Type | Amount |
|---|---|
| Employee | $23,000 |
| Employer | $47,000 |
| After-Tax | $0 |
| Total | $70,000 |
With high income, you may reach the IRS $70,000 annual limit through your employee deferrals ($23,000) and employer contributions ($47,000). After-tax contributions are only allowed if there is remaining space under the $70,000 limit after accounting for all employee and employer contributions. If you have already contributed the full $23,000 as employee and $47,000 as employer, no after-tax contributions are permitted for that year.
Quick Reference Table
| Net Income | Adjusted Net Earnings | Employee | Employer | After-Tax | Total Contribution | Maxed Out? |
|---|---|---|---|---|---|---|
| $60,000 | $55,761 | $23,000 | $11,152 | $21,609 | $55,761 | No (comp. limit) |
| $400,000 | $371,741 | $23,000 | $47,000 | $0 | $70,000 | Yes (IRS limit) |
After-Tax (Mega Backdoor Roth) Contributions
If your Solo 401(k) provider allows, you can make additional after-tax contributions up to your compensation or the IRS cap—whichever is lower.
This lets high earners (with the right plan) “fill the gap” if employee + employer does not hit their true max. Check with your plan provider for details.
Contribution Deadlines
- Employee deferral: Must be elected by December 31st.
- Employer contribution (profit sharing): Can be made up to your tax deadline, including extensions.
Key Takeaways
- The true Solo 401(k) cap is the lesser of your adjusted net earnings or the IRS max for 2025: $70,000 (or $77,500 if 50+)[1].
- Most self-employed individuals can’t hit the IRS maximum; your own comp usually limits you.
- After-tax contributions only matter when your income is well below the IRS annual max.
- Those age 50+ may defer more as employee contributions, raising the total cap.
- Always check if your plan supports after-tax/Mega Backdoor Roth before assuming you can use it.
- Policies and limits change—consult an expert before making decisions.
This article is for informational purposes only and is not tax or financial advice. Rules and limits may change; consult your tax professional before making decisions.