Looking to open a Solo 401k plan? Get started today! – The Carry Solo 401k Plan is a featured-packed self-directed account that lets you invest in both traditional and alternative assets, take out a loan, or do a Mega Backdoor Roth conversion.

Try Carry Solo 401k
Maximize Your Retirement Savings With a Solo 401k

Maximize Your Retirement Savings With a Solo 401k

As a business of one, you can contribute more and potentially save more on taxes.* Carry’s Solo 401k is built for entrepreneurs, freelancers, and high earners who want flexible investing and bigger retirement contributions, all in one streamlined plan.

LEARN MORE

*Solo 401(k) eligibility and contribution limits depend on IRS rules. Carry does not provide tax advice, consult a tax advisor. Carry Advisors LLC, an SEC-registered investment adviser, provides investment advisory services for discretionary and non-discretionary accounts (e.g., Solo 401(k), IRA, taxable brokerage accounts). Bank and trust accounts are not advised by Carry Advisors. Brokerage accounts are introduced by Global Carry LLC and carried by DriveWealth LLC, both members FINRA/SIPC. Advisory fees may apply and additional disclosures are described in our Form ADV and CRS.

One of the biggest advantages of a Solo 401k is that you have more flexibility in how you contribute to your plan. However, this can also cause some confusion if you’re contributing for the first time.

When you open a Solo 401k plan, you may see several contribution types:

  • Employee
  • Employer
  • Roth Post-tax
  • Traditional Pre-tax
  • Optional After-tax

If you’re unsure what each one means, then you’re on the right page. Read on as we discuss the basics, clarify how the contribution types work together, and show how they could help you maximize your retirement savings.

Table of contents

Employee vs Employer Contributions

With a Solo 401k, you’re both the employee and the employer. This dual role gives you more contribution power than traditional plans.

Your total contributions from both sides combine to reach the 2025 Solo 401k contribution limit of $70,000 (or $77,500 if you’re age 50 or older). Each side, however, follows its own rules.

📝 Note: Contribution limits are typically based on your net adjusted self-employment income (for unincorporated businesses) or your W-2 wages (for incorporated businesses).

Employee Contributions

✅ You can contribute as either Traditional (pre-tax), Roth (post-tax), or a combination of both.
✅ The 2025 limit is $23,500, or $31,000 if you’re age 50 or older, thanks to catch-up contributions.

✏️ Hypothetical Example: If you’re 45 and choose to contribute the full $23,500 as an employee, you still have up to $46,500 in available space for employer contributions.

Employer Contributions

✅ These are always Traditional pre-tax. Employers are not allowed to contribute to a Roth account.
✅ The amount depends on your business structure:

  • 25 percent of W-2 compensation for incorporated businesses (e.g., S Corps, C Corps)
  • Roughly 20 percent of net earnings for unincorporated businesses (e.g., sole proprietors, partnerships)

There’s no separate cap on employer contributions, but they are limited by compensation and must stay within the overall Solo 401k limit. Your combined contributions (employee + employer) must stay within the $70,000 total limit (or $77,500 if age 50+).

✏️ Hypothetical Example: If you earn $100,000 from an S Corp, your business could potentially contribute $25,000 as the employer.

📝 Note: Your exact contribution limit may vary depending on how income is defined and what deductions apply. It’s best to consult a professional to ensure accurate calculations.

Should You Prioritize Employee or Employer Contributions?

There are no rules on where contributions need to be made first. You can start with either side, depending on your goals. Here are two things to consider:

1. Do you want to use the Roth option?
Only employee contributions can go into a Roth post-tax account. If that’s your priority, you may want to reserve your employee limit for Roth and use employer contributions for your pre-tax strategy.

2. Where do you want the tax deduction?

  • Employer pre-tax contributions are typically deductible on the business return.
  • Employee pre-tax contributions are usually deductible on your individual return.

Pre-Tax vs Post-Tax Contributions

One of the key decisions you’ll make when contributing to your Solo 401k is whether to make pre-tax or post-tax contributions. Both offer potential tax benefits, but in different ways and at different times.

Traditional Pre-Tax Contributions

✅ With pre-tax contributions, you defer taxes today and lower your taxable income in the current year.
✅ Instead of paying taxes on your full income, you only pay taxes on what’s left after your contribution.

❌ However, you’ll pay ordinary income taxes when you withdraw the money in retirement, based on your tax rate at that time.

✏️ Hypothetical Example: If you earn $60,000 and contribute $20,000 pre-tax, your taxable income is reduced to $40,000.

Roth Post-Tax Contributions

✅ Roth contributions are made with money that’s already been taxed. Your taxable income stays the same in the year you contribute.

✅ The upside is that qualified withdrawals in retirement are tax-free—both your original contributions and any earnings.

❌ The trade-off is paying taxes upfront, which may feel costly if you’re currently in a higher tax bracket.

✏️ Hypothetical Example: If you earn $60,000 and contribute $20,000 to a Roth Solo 401k, you still report $60,000 in taxable income.

📝 Note: Only employee contributions can be Roth post-tax. Employer contributions must be pre-tax.

Which One Should You Choose?

You’re not locked into one type. A Solo 401k lets you mix and match your contributions between pre-tax and Roth post-tax each year.

Here are two common considerations:

  1. Your current vs. future tax bracket
    If you’re in a higher tax bracket today and expect to be in a lower one later, pre-tax may help reduce your overall tax bill. If you think your tax rate will stay the same or increase, Roth could be worth considering for the long-term tax savings.
  2. Short-term deductions vs. long-term flexibility
     Pre-tax contributions reduce your current taxable income, which may offer immediate tax savings. Roth contributions give you the ability to withdraw tax-free in retirement, offering more flexibility later.

✏️ Hypothetical Example: You plan to contribute $20,000 this year. You prefer Roth, but reducing your taxable income by $5,000 would bring you into a lower tax bracket. In that case, you could contribute $15,000 post-tax and $5,000 pre-tax.

What About Investment Growth?

Both pre-tax and Roth contributions benefit from tax-free compounding, meaning you don’t pay capital gains tax on investment growth inside the plan.

✏️ Hypothetical Example: John and Jane each contribute $50,000 to their Solo 401k. Over time, their investments grow to $2 million.

  • John chose pre-tax. In retirement, his withdrawals will be taxed as ordinary income. To manage the tax impact, he spreads withdrawals across multiple years.
  • Jane chose Roth. She can potentially withdraw the entire $2 million tax-free—either all at once or gradually. She’s also not required to take withdrawals until age 73, when Required Minimum Distributions (RMDs) begin.

📝 Note: Both options offer long-term tax advantages. However, the right mix for you depends on your income, goals, and tax outlook. It’s often helpful to speak with a tax professional to create a contribution strategy that fits your specific situation.

What is the Optional After-Tax Account?

In addition to pre-tax and Roth post-tax options, some Solo 401k plans include an optional after-tax account. This account is separate and it serves a specific, advanced purpose.

✅ Like Roth contributions, after-tax contributions are made with money you’ve already paid taxes on.
❌ But unlike Roth, any investment earnings in this account will still be taxed when you withdraw them in retirement.

Because of this, the after-tax account generally isn’t useful on its own. It becomes valuable only when used for a Mega Backdoor Roth strategy.

When Does It Matter?

The after-tax account is typically used to contribute beyond the standard Roth deferral limit by converting those after-tax funds into your Roth Solo 401k.

Here’s a general breakdown:

Normally, you’re allowed to contribute up to $23,500 (or $31,000 if age 50+) directly to a Roth Solo 401k as an employee.

With a Mega Backdoor Roth, you could potentially contribute up to the full $70,000 limit ($77,500 if age 50+) into your Roth Solo 401k by using the after-tax account and converting it immediately.

This is how it works:

  1. You contribute after-tax dollars to your Solo 401k’s optional after-tax account.
  2. You then convert that amount into your Roth Solo 401k—ideally right away.
  3. Because the original contribution was after-tax, the conversion typically isn’t taxable.
  4. Once in the Roth account, future growth is tax-free (if withdrawn under qualified conditions).

📝 Tip: This strategy requires careful tracking and timely conversions. It may not be available on all Solo 401k platforms and often needs a provider that supports automatic Roth conversions.

Should You Use the After-Tax Account?

Unless you’re specifically aiming to implement a Mega Backdoor Roth conversion, this account may not be necessary. In most cases, pre-tax and Roth contributions are enough to meet typical savings goals.

Still, if your income is high and you’re looking for additional Roth space beyond the usual IRS limits, the after-tax option can be a powerful tool—but only when used correctly.

Wrapping Up Solo 401k Contribution Choices

Solo 401k plans offer a rare level of contribution flexibility, allowing you to contribute as both an employee and an employer. But with that flexibility comes a need to understand how each type—pre-tax, Roth post-tax, and after-tax—fits into your broader financial picture.

Each contribution type has different tax implications. Pre-tax contributions may reduce your current taxable income but are taxed when withdrawn. Roth contributions don’t offer an upfront deduction but allow for tax-free withdrawals in retirement. And while the optional after-tax account is less commonly used, it can be valuable for those pursuing a Mega Backdoor Roth strategy.

Ultimately, the right approach may vary from year to year depending on your income, tax bracket, and savings goals. Solo 401k plans let you adapt over time which is especially useful if your earnings fluctuate or your retirement outlook changes.

📌 Exploring ways to make the most of your plan? We got you covered:

Disclaimer:

The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.

The accounts, strategies and/or investments discussed in this material may not be suitable for all investors. All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. All statements and opinions included on the Carry Learning Center are intended to be current as of the date of publication but are subject to change without notice.

To access investment advisory services through Carry Advisors, you must be a client of Vibes on an eligible membership plan. For more information about Carry Advisors’ investment advisory services, please see our Form [ADV Part 2A] (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=916200) brochure and [Form CRS] (https://reports.adviserinfo.sec.gov/crs/crs_323620.pdf) or through the SEC’s website at [www.adviserinfo.sec.gov] (http://www.adviserinfo.sec.gov/).