How to Calculate Your Solo 401k Employer Contribution

To calculate the solo 401(k) employer contribution for 2026, apply 25% to your W-2 wages if your business is an S-corp or C-corp, or an effective 20% to your adjusted net self-employment earnings if you’re a sole proprietor or partner. Either way, the total of your employer contribution plus your employee elective deferral cannot exceed $72,000 for the year.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs The reason the two rates look different is that the IRS defines your compensation base differently depending on how you’re paid.

If You Take W-2 Wages From an S-Corp or C-Corp

The math is direct. Multiply your W-2 wages by 25%.2Internal Revenue Service. One-Participant 401(k) Plans Whatever Box 1 of your W-2 shows is the number you work with, and no further adjustments apply.

Say your S-corp pays you $120,000 in wages. The maximum employer profit-sharing contribution is $120,000 × 25% = $30,000. The corporation writes the check into the plan’s trust account and deducts the contribution as a business expense.

Only compensation up to $360,000 counts for 2026.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs In practice, the $72,000 annual additions cap usually bites first for a solo owner.

If You File Schedule C or a Partnership Return

The 25% rate does not apply cleanly to self-employment income, because the contribution itself reduces the earnings it’s calculated on. To break that loop, the IRS uses a reduced contribution rate.3Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction

The formula is: plan rate ÷ (1 + plan rate). For a plan that specifies the maximum 25%, the reduced rate is 25% ÷ 125% = 20%. That 20% is then applied to your net earnings after the self-employment tax adjustment, not to your raw Schedule C profit.3Internal Revenue Service. Self-Employed Individuals – Calculating Your Own Retirement Plan Contribution and Deduction

Here is the calculation stepped out for a sole proprietor with $100,000 of Schedule C net profit:

  • Calculate SE tax: $100,000 × 92.35% × 15.3% = $14,130.
  • Subtract half the SE tax from net profit: $100,000 − $7,065 = $92,935.
  • Apply the reduced rate: $92,935 × 20% = $18,587.

The maximum employer contribution on $100,000 of Schedule C profit is $18,587. You can verify by working backward: $92,935 − $18,587 = $74,348, and 25% of $74,348 is $18,587.

One trap catches sole proprietors regularly. Your employee elective deferral does not reduce the earned-income base for computing the employer piece. Elective deferrals get added back before you run the 20% calculation; only the employer profit-sharing contribution itself is subtracted.4Internal Revenue Service. Calculation of Plan Compensation for Sole Proprietorships

The employer contribution is discretionary. You can put in any amount up to the calculated maximum, which is useful when cash flow is tight.

How the Employer Contribution Fits Under the Overall Cap

Your profit-sharing contribution doesn’t stand alone. Under IRC Section 415(c), the total of the employer contribution plus your employee elective deferral cannot exceed the lesser of 100% of compensation or $72,000 for 2026.5Office of the Law Revision Counsel. 26 USC 415 – Limitations on Benefits and Contribution Under Qualified Plans1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs

The 2026 employee elective deferral limit is $24,500.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 If you max the deferral, the biggest employer contribution you can add is $72,000 − $24,500 = $47,500, and only if your compensation supports a contribution that large.

Two S-corp examples show how the ceilings interact:

  • W-2 wages of $200,000: the 25% cap is $50,000, but the annual additions limit trims the employer piece to $47,500 once you’ve deferred $24,500. Total: $72,000.
  • W-2 wages of $100,000: the 25% cap is $25,000, and compensation is what limits you. Total: $24,500 deferral + $25,000 employer = $49,500.

Catch-Up Contributions If You’re 50 or Older

If you turn 50 or older by year-end, you can add a catch-up on top of the standard deferral. For 2026 the general catch-up is $8,000, and participants aged 60 through 63 get a higher catch-up of $11,250 under SECURE 2.0.6Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Once you turn 64, you drop back to the standard $8,000.

Catch-ups are always employee deferrals, never employer profit-sharing.7Internal Revenue Service. Retirement Topics – Catch-Up Contributions They also sit outside the $72,000 annual additions cap, so the true ceilings for 2026 are $80,000 (age 50–59 or 64+) and $83,250 (age 60–63).

Deadlines for Making the Contribution

The employer profit-sharing contribution is due by the business’s federal return deadline, including valid extensions. That timing varies by entity:

S-corp owners have the shortest runway. Filing Form 7004 by March 15 pushes the employer contribution deadline to September 15.

Employee elective deferrals work on a different clock. For corporate owners, deferrals must be withheld from wages paid during the calendar year, so the practical cutoff is December 31. Sole proprietors who establish the plan by the tax filing deadline (without extensions) can still make both types of contributions up to that filing date; if the plan is set up after the original filing deadline but before the extension deadline, only the profit-sharing portion is available for that year.

A Few Situations That Change the Picture

If your spouse works in the business and receives compensation, they get their own full set of contribution limits, calculated the same way as yours.2Internal Revenue Service. One-Participant 401(k) Plans That can potentially double the household’s annual additions.

If you also contribute to a 401(k) at a day job, the $24,500 elective deferral limit is a personal limit across all your plans combined.10Internal Revenue Service. Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits The $72,000 annual additions cap, by contrast, applies separately to each unrelated employer’s plan. Tracking the deferral total is on you; neither plan administrator sees the other.

Since SECURE 2.0, plans may allow employer profit-sharing contributions to be designated as Roth.11Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2 The dollar calculation doesn’t change; the tax treatment does, with the contribution reported as taxable income on Form 1099-R in the year made. Not every provider supports this yet, so confirm before you assume it’s available.