Solo 401k Tax Deductions: How to Claim Contributions For 2025

Disclosure: Tax laws and regulations are subject to change. The information provided is current as of January 6, 2025, and may not reflect the most recent updates. Always consult with a tax professional for the latest guidance.

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A Solo 401k generally doesn’t require annual tax filings with the IRS unless your account assets exceed $250,000 in value. If your plan’s total assets go over this threshold, you must submit Form 5500-EZ each year. 

Even though most Solo 401k plans don’t require yearly filings, pre-tax contributions are tax deductible, so you still need to report them when filing your taxes. The way you claim these deductions depends on your business structure.

This guide explains which Solo 401k contributions qualify for tax deductions and how to report them based on your business entity.

Are Solo 401k Contributions Tax Deductible?

Yes, pre-tax contributions to a Traditional Solo 401k are tax deductible. Roth Solo 401k contributions, however, are made with after-tax dollars and are not tax deductible.

✅ Contributions to a Traditional Solo 401k are paid with pre-tax dollars and gets deducted from your taxable income. However, you’ll pay taxes on withdrawals once you retire. 

✅ Contributions to a Roth Solo 401k are paid with after-tax dollars, so they don’t lower your taxable income now. However, all withdrawals in retirement, including earnings, are completely tax-free.

📌 Looking for a Solo 401k that offers a Roth account? Compare the best Roth Solo 401k providers here.

How Solo 401k Contributions Work

With a Solo 401k, you contribute as both the employer and the employee, each with its own contribution limit.

For 2025, the total contribution limit for a Solo 401k is $70,000. Here’s the breakdown:

✏️ Example: If you’re self-employed and want to max out your Solo 401k in 2025, you’ll need to account for both employee and employer contributions. As the employee, you can typically contribute up to $23,500. As the employer, you can generally add 20% of your net self-employment income.

To reach the $69,000 total contribution limit, your employer portion needs to be $45,500. Since that’s 20% of your net income, you divide $45,500 by 0.20, which gives you $227,500. That means you’d typically need $227,500 in net self-employment income to fully max out your Solo 401k.

Disclaimer: Self-employment taxes may still apply. Contributions can only be made with net self-employment income.

How Much of a Tax Deduction Can I Get with a Solo 401k?

If you allocate all your contributions to a Traditional Solo 401k using pre-tax dollars, you can deduct up to the maximum contribution limit of $70,000 ($77,500 if age 50+) for 2025.

However, maximizing tax deductions means not contributing to the Roth Solo 401k portion.

Employer contributions must be made with pre-tax dollars to a Traditional Solo 401k. Employees, however, can choose to direct their contributions to either a Traditional (pre-tax) or Roth (after-tax) account. In other words, you can choose how much you want to deduct from your taxable income for the year.

Deciding which account to contribute depends on your current tax situation and retirement goals:

✅ To maximize current tax deductions, direct all contributions to the Traditional Solo 401k.

✅ If you prefer tax-free withdrawals in retirement and don’t mind paying taxes now, consider contributing to the Roth Solo 401k.

📝 Tip: If you’re interested in  maximizing your Roth contributions, you can explore  a strategy called the Mega Backdoor Roth with your Solo 401k, which can then be converted to Roth funds. Learn more about it here.

How to Claim Solo 401k Contributions on your Tax Returns

The process for claiming Solo 401k contributions varies depending on  your business structure — whether it’s a passthrough entity or an incorporated entity.

Passthrough (not incorporated) business entities include:

Incorporated business entities include:

The main difference is that if you’re not incorporated, both business income and contributions pass directly to your personal income tax return. This is why they’re referred to as passthrough businesses. In contrast, incorporated businesses are separate legal entities, meaning their income and contributions do not pass directly to your personal income tax return.

Process for Passthrough Businesses

If your business is a sole proprietorship, partnership, or LLC taxed as a sole proprietorship, follow these steps:

Process for Incorporated Businesses

If your business entity is an S corporation, C corporation, or LLC taxed as a corporation, follow the steps below.

Unlike for passthrough businesses, employer and employee contributions for incorporated businesses are reported separately. Since the business is a separate entity, you must file employer and employee contributions on different tax forms.

For employer contributions:

📝 You might ask:

Why is the form different for an S corporation?

Incorporated businesses cannot pass business income directly to their owners. Instead, the corporation pays its own income taxes. However, an S corporation does pass through business income to its owners. Therefore, it requires a different tax reporting process than other incorporated business entities.

For employee contributions:

📝 Note: Box 12 on your W-2 has multiple categories and codes. For a Solo 401k, the correct code is “12D” which is where you report your employee contributions.

Form 5500-EZ

The IRS requires Solo 401k account holders to file Form 5500-EZ annually if their account value exceeds $250,000. This form provides a summary of your 401k plan, including contributions, asset values, and any rollovers or loans you may have done. It’s important to note that this filing is separate from claiming your contribution tax deductions. 

The deadline for submitting Form 5500-EZ is seven months after your fiscal year ends. If your business follows the calendar year, the due date is by July 31 the following year. While plans with assets below the $250,000 threshold are not required to file, it’s still a good practice to submit one annually.

📌 Important Reminder: Be aware that failing to file Form 5500-EZ on time can result in significant penalties — $250 per day, up to a maximum of $150,000 per plan year. To avoid these steep fines, ensure you file promptly and accurately. For more detailed information and access to the form, visit the IRS’s official page on Form 5500-EZ.