How SECURE 2.0 tax credits, falling plan costs, and contribution limits up to $72,000 make this the best year to start a Solo 401(k).

If you’re a freelancer, consultant, independent contractor, or sole proprietor who has been relying on a traditional IRA — or worse, no retirement plan at all — 2026 may be the most important year to reconsider your strategy. The Solo 401(k) has quietly become one of the most powerful tax-reduction and wealth-building tools available to self-employed professionals, and recent changes under the SECURE 2.0 Act have made it even more attractive.

As a CFP® professional and CPA who works closely with self-employed clients, I see the same pattern: business owners who are diligent about managing their operations but leave tens of thousands of dollars in tax savings unclaimed every year because they haven’t set up the right retirement plan. Here’s why the Solo 401(k) deserves your attention right now.

I. The Solo 401(k): Built for the Self-Employed

A Solo 401(k) — also known as a one-participant 401(k) or individual 401(k) — is a traditional 401(k) plan designed for self-employed individuals with no full-time employees other than a spouse. The key advantage is its dual-contribution structure: because you are both the employer and the employee, you can contribute on both sides of the equation, dramatically increasing your annual savings capacity.

For 2026, the numbers are compelling. As the employee, you can defer up to $24,500 of your earnings. As the employer, your business can contribute an additional 25% of your net self-employment income. The combined total can reach up to $72,000 if you’re under 50. If you’re 50 or older, catch-up contributions push that to $80,000. And for those ages 60–63, a new SECURE 2.0 “super catch-up” allows up to $83,250.

See the limits here: https://bfsg.com/retirement-plan-ira-limits/

KEY NUMBERS $72,000  Maximum combined Solo 401(k) contribution for 2026 (under age 50) $83,250  Maximum with super catch-up for ages 60–63 (new under SECURE 2.0) $144,000  Potential household savings if your spouse also participates 25%  Employer profit-sharing contribution as a percentage of net self-employment income

If your spouse works in the business, they can also participate in the plan with their own full set of contributions — potentially doubling your household retirement savings to $144,000 or more per year. That’s a level of tax-advantaged savings that no IRA or SEP can match.

Self-Employed Retirement Plan Comparison — 2026

Feature	Solo 401(k)	SEP IRA	SIMPLE IRA
2026 EE Deferral	$24,500	None	$17,000
Employer Contrib.	25% of comp	25% of comp	3% match or 2% nonelective
Total Max (under 50)	$72,000	$72,000	$17,000 + match
Catch-up (50+)	+$8,000	None	+$4,000
Catch-up (60–63)	+$11,250	None	+$5,250
Roth Option	Yes	Yes	Yes
Loan Provision	Yes	No	No
SECURE 2.0 Credits	Yes	Yes	Yes

Unlike a SEP IRA, the Solo 401(k) allows employee elective deferrals, a Roth contribution option, and the ability to take plan loans — up to $50,000 or 50% of your vested balance, whichever is less. This loan feature can be a valuable source of short-term liquidity without the tax penalties of an early withdrawal. And new for 2026 under SECURE 2.0, you can designate your employer profit-sharing contributions as Roth, giving you even more control over your tax strategy.

✦  REAL-WORLD EXAMPLE Sarah, a 45-year-old independent consultant earning $200,000 in net self-employment income, defers $24,500 as the employee and contributes approximately $37,000 as the employer (25% of adjusted net income). Her total contribution: $61,500 — reducing her taxable income by more than $61,000 and saving roughly $14,700 in federal taxes at a 24% bracket.

II. SECURE 2.0 Tax Credits: Free Money You’re Probably Missing

The SECURE 2.0 Act didn’t just expand contribution rules — it created an unprecedented set of tax credits specifically designed to encourage small and self-employed businesses to start retirement plans. These credits are dollar-for-dollar reductions in your tax liability, far more valuable than standard deductions.

For self-employed businesses with up to 50 employees (including owner-only operations), SECURE 2.0 offers 100% coverage of qualified plan startup costs, capped at $5,000 per year for the first three years — a potential $15,000 in credits. If your plan includes automatic enrollment (now required for most new plans starting in 2025 or later), you qualify for an additional $500 per year for three years.

There’s also a new employer contribution credit: up to $1,000 per qualifying employee (including yourself, if you meet the compensation thresholds) for employer matching contributions. This credit is 100% in years one and two, then phases to 75%, 50%, and 25% in years three through five.

SECURE 2.0 Tax Credit Summary

Credit Type	Year 1	Year 2	Year 3	Year 4–5
Startup Cost	$5,000	$5,000	$5,000	—
Auto-Enroll	$500	$500	$500	—
Match Credit	$1,000	$1,000	$750	$500 / $250

For many sole proprietors, these credits can fully offset the cost of setting up and running a Solo 401(k) in the early years — effectively making it free to operate. When you pair these credits with the standard business deduction for plan administration expenses and the tax savings from your contributions, the net cost is often negative. You end up with more money, not less.

III. Plan Administration Is More Affordable Than You Think

One of the biggest misconceptions among self-employed professionals is that a 401(k) is expensive and complicated to administer. That may have been true years ago, but it’s no longer the case. Plan administration fees have become significantly more affordable, and the range of providers competing for your business means you have more options — and better pricing — than ever before.

KEY NUMBERS More Affordable  Plan administration fees have dropped significantly, with competitive flat-fee structures now widely available Broad Options  Today’s plans offer a wide range of investments — mutual funds, target-date funds, managed portfolios, and more Advisor Continuity  Your current financial advisor can continue to manage your investments within the plan < $250K  Plans under this threshold typically don’t require annual Form 5500 filing with the IRS

One of the most important points to understand is that opening a Solo 401(k) doesn’t mean starting over with your investment strategy. Most modern plans offer open-architecture investment platforms, which means your current financial advisor can continue to guide your portfolio — selecting investments, rebalancing allocations, and adjusting your strategy as your income and goals evolve. The 401(k) is simply the tax-advantaged wrapper; the investment management relationship you already trust stays intact.

Plans with fewer than $250,000 in assets also benefit from simplified reporting requirements, as no annual Form 5500 filing is required with the IRS until you cross that threshold. This significantly reduces the paperwork and compliance overhead for most self-employed plan owners in their early years.

And don’t forget: administration fees paid from your business account are fully tax-deductible. When combined with the SECURE 2.0 startup credits that can cover 100% of those costs in the first three years, many self-employed individuals find that their 401(k) generates net tax savings from day one. The plan effectively pays for itself.

IV. California Self-Employed Professionals: You’re Required to Act

If you’re self-employed in California with even one W-2 employee, you’re now subject to the CalSavers mandate. As of January 1, 2026, every California employer with at least one W-2 employee must either offer a qualified retirement plan or enroll in CalSavers, the state-sponsored Roth IRA program. Noncompliance carries penalties of $250 per eligible employee, increasing to $500 if the violation continues beyond 180 days.

Even if you’re a sole proprietor with no W-2 employees and are technically exempt from CalSavers, the mandate is a timely reminder that retirement planning should be a priority. And if you do have even one employee — including a spouse on payroll — you’ll need to comply.

CalSavers vs. Solo / Private 401(k) — Key Differences

Feature	CalSavers	Solo / Private 401(k)
Annual Limit	$7,500 (IRA)	$24,500+ (2026)
Employer Contrib.	Not Allowed	Up to 25% of comp
Tax Credits	None	Up to $5,000+/yr
Investment Options	Limited Menu	Open Architecture
Roth + Traditional	Roth Only	Both Available
Loan Provision	No	Yes

CalSavers is a Roth IRA with a 2026 contribution limit of just $7,500 — compared to $72,000 or more with a Solo 401(k). It doesn’t allow employer contributions, offers a restricted investment menu, and generates no tax credits for your business. If you’re already required to facilitate a retirement program, a private 401(k) turns that compliance obligation into a powerful financial advantage.

V. The Bottom Line: Every Year You Wait Costs You

The Transamerica Center for Retirement Studies found that 55% of self-employed workers expect to retire at age 70 or later — or don’t plan to retire at all. And yet, planning not to retire is not a retirement strategy. A Solo 401(k) gives you the structure and tax advantages to build wealth on your own terms, whether you plan to sell your business, scale back gradually, or fund a retirement on your timeline.

Every year you delay, you leave SECURE 2.0 tax credits unclaimed and miss out on the compounding power of tax-deferred (or tax-free Roth) growth. The credits are structured to be most valuable in the first two years of a new plan — so each month you postpone, you’re narrowing that window.

✦  KEY TAKEAWAYS 1.  Solo 401(k)s allow up to $72,000 in annual contributions ($83,250 ages 60–63) — far exceeding SEP or IRA limits 2.  SECURE 2.0 tax credits can cover 100% of startup costs + $1,000 in matching credits for up to 5 years 3.  Roth contributions, plan loans, and the new employer Roth option give you unmatched flexibility 4.  Plan administration is more affordable than ever, with a wide range of investment options — and your current advisor can continue managing your portfolio 5.  California self-employed with W-2 employees must offer a retirement plan or face penalties 6.  Spousal participation can double household savings to $144,000+ per year

Starting a Solo 401(k) doesn’t have to be complicated. Here at BFSG, we can help you choose a plan design that fits your income, your business structure, and your long-term goals. We’ll coordinate the setup with your CPA to help with maximizing every available credit and deduction from day one. Our goal is to take the complexity off your plate so you can focus on running your business — and building toward the retirement you deserve.

Reach out if you’d like to learn more about the plans that best meet your needs.

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