Filing taxes as a self-employed business owner comes with extra responsibilities, especially if you have a Solo 401k. Missing a deadline or overlooking a requirement could lead to penalties that might impact your retirement savings. 

This guide outlines seven essential things to know about Solo 401k tax filing for 2025, helping you stay compliant and make the most of your plan.

The Solo 401k Handbook

Everything you need to know about the most powerful retirement plan for business owners and the self-employed.

Table of contents

7 Things to Know Before Filing Solo 401k Taxes

Before you file, make sure your Solo 401k meets all IRS requirements. Use this checklist to stay organized and informed:

1. Understand Your Contribution Limits

✅ Employee Contributions

  • For 2025, you may contribute up to $23,500 in elective deferrals
  • If you’re age 50 or older, you may make an additional $7,500 in catch-up contributions, bringing the total to $31,000.

✅ Employer Contributions

As the employer, you can contribute up to 25% of your net self-employment income, not to exceed a combined total limit of $70,000 (including employee contributions) for 2025.

2. Meet Contribution Deadlines

✅ Employee Contributions

Must be made by December 31, 2025, to be counted for the 2025 tax year.

✅ Employer Contributions

Can be made up to your tax filing deadline, including extensions. For most sole proprietors, this is April 15, 2026, or October 15, 2026, if an extension is filed.

📌 Also Read: When Are Taxes Due? Important Deadlines for the 2024 & 2025 Tax Years

3. Plan for Required Minimum Distributions (RMDs)

If you’re age 73 or older in 2025, the IRS requires that you begin taking Required Minimum Distributions (RMDs) from your Solo 401k. Missing these distributions can result in significant penalties.

✅ RMD Start Age: First RMD must be taken by April 1 of the year after you turn 73. For example, if you turned 73 in 2024, your first RMD is due by April 1, 2025.

✅ Annual Deadlines: Future RMDs are due by December 31 each year.

✅ Tax Implications: RMDs are considered taxable income and must be reported on your federal tax return.

✅ Penalties for Non-Compliance: Failing to take the required RMD may result in a 25% excise tax on the amount not distributed. This penalty may be reduced to 10% if corrected within two years.

✅ Calculation Method: The RMD amount is calculated by dividing your Solo 401k account balance as of December 31 of the previous year by a life expectancy factor provided by the IRS.

✅ Roth Accounts: RMD rules do not apply to Roth IRAs during the owner’s lifetime. However, Roth 401k accounts are subject to RMDs unless rolled over into a Roth IRA.

📌 Also Read: Solo 401k Required Minimum Distributions

4. Track Your Business Income and Expenses

✅ Accurately report net self-employment income, as this determines your allowable employer contribution.

✅Keep organized financial records or use accounting software to support your tax filings, especially when determining your 25% employer contribution.

📌 Also Read: Standard Deduction vs Itemized Deduction: Which One’s Better?

5. Understand Tax Deductibility of Contributions

✅ Employee Contributions (Elective Deferrals)

  • Traditional (Pre-Tax) Contributions: These are made before taxes are applied, reducing your taxable income for the year.
  • Roth Contributions: Made with after-tax dollars, these contributions don’t reduce your current taxable income. However, qualified distributions in retirement are tax-free, provided the account has been held for at least five years and you’re at least 59 ½ years old.

✅ Employer Contributions (Profit-Sharing)

  • As the employer, you can contribute up to 25% of your compensation, as defined by the plan, up to a combined total contribution limit of $70,000 for 2025. These contributions are tax-deductible for your business.
  • If you’re self-employed, the employer contribution to a Solo 401k requires a specific calculation that accounts for adjustments to net earnings. This amount must be reduced by half of your self-employment tax and your own Solo 401k contribution.

✏️ Hypothetical Example: 

Suppose your net earnings from self-employment are $100,000. After subtracting half of your self-employment tax and your own retirement contribution, your adjusted net earnings might be around $90,000. Applying the reduced rate of 20 percent, your maximum employer contribution would be $18,000.

📝 Important Notes

  • Deduction Timing: Employer contributions are generally deductible for the tax year in which they are made. However, if made after the close of the tax year but before the due date of your tax return (including extensions), they may still be deductible for the prior year.
  • Reporting: Employee contributions are reported on your individual tax return, while employer contributions are deducted on your business tax return.

6. Report Your Solo 401k Contributions on Form 5500-EZ

✅ If your Solo 401k plan has more than $250,000 in total assets at the end of the year, you must file Form 5500-EZ by the tax filing deadline (including extensions).

❌ If your Solo 401k has less than $250,000, you don’t need to file Form 5500-EZ.

7. Avoid Common Filing Mistakes

✅ Double Check Your Contributions: Make sure you haven’t exceeded the annual contribution limits.

✅ File on Time: Missing deadlines for contributions or Form 5500-EZ can lead to penalties.

✅ Use Catch-Up Contributions: If you’re age 50 or older, remember to include catch-up contributions in your planning.

✅ Separate Your Business and Personal Funds: Make sure that your Solo 401k contributions are made from business earnings, not personal funds.

Bonus Tips

📝 Tax Withholding on Distributions

Distributions from your Solo 401k may be subject to federal and state income taxes. Consider appropriate withholding to avoid unexpected tax liabilities.

📝 Consult a Tax Professional

Given the complexity of Solo 401k rules, consulting with a tax professional can provide personalized guidance and ensure compliance with all regulations.

Closing Checklist for Solo 401k Filers

As you prepare to file your taxes, it’s helpful to run through a quick Solo 401k checklist. 

✅Have I contributed within the IRS limits?

✅Did I meet all deadlines?

✅Is Form 5500-EZ required? If yes, have I filed it?

✅Are all my records up to date and accurate?

These final checks help protect your retirement plan and ensure you’re fully compliant with the IRS. If anything is unclear, especially around contribution calculations or deadlines, it may be worth speaking with a tax professional who understands self-employed retirement plans.

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