What are the maximum allowable contributions to a solo 401(k) in 2025?
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For 2025, the maximum allowable contributions to a solo 401(k) (also known as an individual 401(k) or self-employed 401(k)) are determined by combining the limits for employee elective deferrals and employer nonelective contributions, subject to certain overall caps and compensation limits. Here’s a detailed breakdown based on the most current IRS guidance and the Internal Revenue Code:
1. Employee Elective Deferral Limit
- For 2025, an individual can defer up to $23,500 of their compensation as an employee elective deferral to a solo 401(k) plan. This limit applies whether the deferral is pre-tax or Roth (if the plan allows Roth contributions),,.
- If the participant is age 50 or older by the end of 2025, they may make an additional catch-up contribution of $7,500, for a total elective deferral of $31,000,.
- For those who turn age 60, 61, 62, or 63 in 2025, a higher catch-up contribution limit of $11,250 applies, making the total possible elective deferral $34,750 for those years,.
2. Employer Nonelective Contribution Limit
- In addition to the elective deferral, the business owner (as employer) can make a nonelective contribution of up to 25% of compensation (for corporations) or, for self-employed individuals, up to 20% of net earnings from self-employment (after subtracting the deduction for self-employment tax and the contribution itself).
- The total of all contributions (employee elective deferrals, including catch-up, plus employer nonelective contributions) cannot exceed $70,000 for 2025, not counting catch-up contributions,,.
- If catch-up contributions are made, the total can be as high as $77,500 (or $81,250 for those age 60–63 in 2025).
3. Compensation Cap
- The maximum amount of compensation that can be considered for these calculations is $350,000 for 2025,.
4. Calculation for Self-Employed Individuals
- For sole proprietors or partners, the employer nonelective contribution is based on net earnings from self-employment, which must be reduced by both the deduction for self-employment tax and the contribution itself. The IRS provides a worksheet to calculate the precise allowable contribution.
5. Overall Limits
- The total contributions (employee plus employer, not including catch-up) cannot exceed the lesser of $70,000 or 100% of compensation for 2025,.
6. Summary Table for 2025 Solo 401(k) Contribution Limits
*Employer nonelective contribution is limited by the overall $70,000 cap and the compensation calculation.
7. Key Points
- The $70,000 limit is the sum of all contributions except catch-up.
- Catch-up contributions are allowed in addition to the $70,000 limit for those age 50+ (or higher for ages 60–63).
- The compensation used for the calculation cannot exceed $350,000.
- For self-employed individuals, use the IRS worksheet to determine the maximum deductible employer contribution.
If you need a step-by-step calculation for a specific compensation amount or self-employment income, please provide those details.
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