Each year as the tax deadline approaches, the self-employed that have a Solo 401(k) plan have a powerful tool to lower last year’s taxes and put away a meaningful amount for retirement too.
As long as your Solo 401(k) was set up before your tax deadline, you may make contributions as an “employer” for the previous year until the IRS tax deadline, and based on your business entity type, even make “employee” contributions too. In 2025, you can put up to $70,000 into a Solo 401(k) depending on your earnings (it’s $69,000 in 2024).
Your business entity type will determine when your tax deadline is. Entities formed as S-Corps or Partnerships typically have a March 15th deadline, and all other entity types like LLCs and sole proprietors will have April 15th deadline.
How Are the Employer vs. Employee Contribution Deadlines and Limits Different with a Solo 401(k)?
Remember that with a Solo 401(k), you can contribute to your 401(k) in two different ways — both as an employee and as an employer. As an employee you could have contributed up to $23,000 in 2024 limits increased for 2025 and another $7,000 as a catch-up contribution if you are 50+ years of age. There is now even a so-called “super catch-up” for those 60-63 years of age of $11,500.
Know that the “employee” deadline for contributions is December 31 each year. However, there is an exception for sole proprietors and single-member LLCs in the first year of the plan to make employee contributions until the tax deadline. For example, if a sole proprietor sets up a solo 401(k) on March 1 of 2025 for the 2024 tax year, it can still qualify for both employee and employer contributions until April 15, 2025 to help you save on 2024 taxes.
See our Solo 401(k) tax deadline article for the details.
As mentioned earlier, the all-in amount you may put into a Solo 401(k) is $69,000 for 2024. That can be made by a combination of employee plus employer contributions or 100% employer contributions.
How to Determine the Amount You Can Contribute as an Employer?
Since you’re both an employer and employee when it comes to your Solo 401(k) plan, the smart moves are to contribute a preset monthly amount as an “employee” that fits your budget during the calendar year, and then after year-end, review your situation and make a one-time, employer contribution that best balances your tax saving needs with your retirement savings goals before the filing deadline.
If your business is structured as a corporation, you can make employer contributions up to 25% of W-2 earnings into the 401(k) plan. If you’re a sole proprietor or own an LLC (or partnership), this percentage may be around 20% based on your net schedule C income.
You can use our Solo 401(k) Calculator to help you determine the amount you can put away. Review this with your tax advisor to ensure you don’t need to make any adjustments.
You may also want to review the IRS publication and worksheet that's fairly simple to follow.
Just keep in mind that total contributions as an employer and employee cannot exceed a combined total of $69,000 for the 2024 tax year ($76,000 if you’re over 50 years of age and you maxed your employee “catch-up” contribution).
An Example of How to Lower Your Taxes by $7,920 or More with Solo 401(k) Contributions
The amount you can tax defer will vary by your earnings and your tax rate. Here’s a hypothetical example of how an owner who makes employer contributions of $36,000 will lower taxes by $7,920 assuming an effective tax rate of 22%, versus a person that doesn’t contribute:
Example Solo 401(k) Saving and Tax Calculation & Comparison
| With a 401(k) Contribution | Without a 401(k) Contribution | |
|---|---|---|
| Earnings | $180,000 | $180,000 |
| 20% of Net Self-Employment Contribution | $36,000 | $0 |
| Taxable Income | $144,000 | $180,000 |
| Taxes Owed (22% Effective Tax Rate) | $31,680 | $39,600 |
Again, the owner that contributed to their Solo 401(k) paid $7,920 less in taxes this year while saving $36,000 towards retirement. In actuality, the tax savings could be even greater as the 401(k) contribution may also drop the owner a tax bracket and/or lower the effective tax rate. Remember, this is an example and not meant as tax advice. When 401(k) monies are withdrawn in retirement, it will be taxed with the exception of any “employee” Roth 401(k)savings.
Be sure to consult a tax advisor to discuss your specific situation.
Be well.