Solo 401(k) 2026 Mandatory Roth Requirements for FICA Wages

Twenty-five years ago, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made the solo 401(k) plan popular among:

• Freelancers and gig workers
• Sole proprietors
• Limited liability companies
• S corporations and C corporations
• Business owners
• Partnerships with no employees

The solo 401(k) is known for its high contribution limits, which allow individuals with no employees, except a spouse who earns income from the business, to save a significant amount for retirement. The higher contribution limits came from two changes made by EGTRRA:

• The addition of catch-up contributions.
• The second was the removal of salary deferrals from the deduction limitation.

Key Takeaways

• Solo 401(k)s offer substantial retirement savings potential due to their high contribution limits for business owners without common-law employees.
• New rules starting in 2026 will require "high earners" to make catch-up contributions as Roth, impacting solo 401(k) participants receiving W-2 wages.
• Properly identifying what qualifies as a "catch-up contribution" can be complex and may not always align with separate elections.
• Given upcoming regulatory changes, seeking professional guidance for solo 401(k) plan administration and compliance will be increasingly important.

Solo 401(k) Contribution Limits and Catch-up Rules

In 2025, the solo 401(k) offers substantial savings potential:

• Maximum employee contribution: $23,500
• Employee contribution: An additional 25% of compensation from the employer
• Annual contribution limit: $70,000
• Compensation needed to fully fund: Approximately $186,000 is needed to fully fund the solo 401(k) plan (($70,000 - $23,500) / 25%)

Catch-up contributions allow for even greater savings based on age:

• Age 50-59 or older than 64: An additional catch-up contribution of $7,500, increasing the total employee contribution to $31,000
• Ages 60-63: An additional $11,250 can be contributed, increasing your total employee contribution to $34,750.

These employee and employer contributions have been fully tax-deductible in prior years and are deductible in 2025. Therefore, coordinating payroll, income tax returns, and Form 5500EZ has been relatively straightforward for the solo 401(k) sponsor.

Solo 401(k) Roth Catch-Up Contributions in 2026

This straightforward approach will change for “high earners” starting in 2026. Beginning January 1, 2026, an income limit will apply to catch-up contributions, requiring individuals with prior year FICA wages over $145,000 (indexed) to make catch-up contributions as Roth.

Therefore, this provision applies first to the solo 401(k) participant receiving W-2 wages from the sponsoring entity. Sole proprietors with net self-employment earnings from Schedule C are exempt from the Rothification of their salary deferrals.

New Roth Catch-up Rules for High Earners

Adding another wrinkle to the application of the Roth provision is the fact that wages paid from related employers are not aggregated when determining whether the individual is a high earner.

It is not unusual for an entrepreneur to conduct two or more trades or businesses. Thus, the entrepreneur could be paid $140,000 on each W-2 and escape the mandatory Roth requirements.

Debunking Solo 401(k) Catch-up Contribution Myths

Solo 401(k) participants should not believe that if the plan offers a separate election for age 50+ catch-up contributions, those contributions are in the "catch-up bucket" for purposes of this provision. A salary deferral contribution becomes a catch-up contribution only when it exceeds a listed limit.

Consider these examples to clarify when contributions are considered “catch-up”:

• Example 1 - Employee Termination Before Limit: All deferrals (pre-tax plus Roth) made to a plan are regular deferrals until the employee has deferred the maximum for the calendar year ($23,500 in 2025). Assume an employee who makes a separate catch-up election in January, plus a regular deferral election. The employee was then terminated in June after deferring a combined amount of $17,000. This employee has not made any catch-up contributions since they never exceeded the $23,500 limit.
• Example 2 – Exceeding Overall Allocation Limit: If the total amount allocated to an employee in a single employer's plan exceeds $70,000 (the 2025 limit). In this case, contributions and forfeitures allocated more than $70,000, up to $77,500, are classified as catch-up contributions, even if the employee only made deferrals totaling $23,500. For example, an employee defers $23,500 in 2025, receives a 100% match of $23,500, and makes after-tax contributions totaling $27,000 for a total of $74,000. The employee has catch-up contributions due to exceeding the $70,000 limit of $4,000, even though the deferral limit of $23,500 was not exceeded.

The Importance of Professional Guidance for Solo 401(k) Compliance

Solo 401(k) participants receiving W-2 wages should begin reviewing plan operations now, since the complexities of the mandatory Roth provisions are more than meets the eye.

They may also want to consider hiring a third-party administrator (TPA), if they don’t already work with a TPA, to help them make the transition to the new rules.

If you're a solo 401(k) participant or business owner, speak with a retirement plan specialist today to make sure your plan remains compliant and optimized for your retirement goals.