Why Solo 401(k) Owners Should Max Out Employee Contributions First

Ian Cooper

Mon, May 18, 2026 at 9:59 AM EDT 3 min read

Quick Read

• The Solo 401(k) ceiling sits at $72,000 in combined contributions, but the path to get there splits into two buckets with very different mechanics

• For a solopreneur without a separate W-2 job, the employee contribution should be maxed before anyone opens a spreadsheet for the employer side.

• The analyst who called NVIDIA in 2010 just named his top 10 AI stocks. Get them here FREE.

The Quote That Reframes Solo 401(k) Strategy

On NerdWallet's Smart Money Podcast episode Is College Worth It in 2026? Plus, How to Split Solo 401(k) Contributions to Save More, the host laid out a piece of advice that cuts against how most self-employed savers think about funding retirement. "You don't automatically get to put in an additional $47,500 to get to the $72,000. There's a calculation in place."

The stakes for solopreneurs are concrete.

The Solo 401(k) ceiling sits at $72,000 in combined contributions, but the path to get there splits into two buckets with very different mechanics. Misread the rules, and you either underfund retirement during peak earning years or trigger IRS corrections for overcontribution. With the national savings rate compressed to 4.0% and CPI inflation still running above the Fed's 2% target at a reading of 330.3, every dollar parked inside a tax-advantaged account matters more this year than last.

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The Verdict: Fill the Employee Bucket First

The host is right. For a solopreneur without a separate W-2 job, the employee contribution should be maxed before anyone opens a spreadsheet for the employer side.

The employee bucket allows a flat $24,500 contribution regardless of business structure. As the host put it: "You get that $24,500 without really having to think about it." No payroll calculation, no S-corp election required, no CPA consult to lock it in.

The employer bucket is where the complexity lives.

For an S-corp, the employer contribution is capped at 25% of W-2 salary. For an LLC that hasn't elected S-corp treatment, the cap drops to 20% of income, calculated after the deductible portion of self-employment tax. The host's worked example: "If you do the $24,500 and then you pay yourself a $100,000 salary, you can do another $25,000."

Run that scenario in real life.

A consultant operating as an S-corp who pays herself a $100,000 W-2 contributes $24,500 as employee plus $25,000 as employer, for $49,500 total. Reaching the $72,000 ceiling requires a much higher salary, which in turn means more payroll tax. That tradeoff between FICA drag and contribution capacity is exactly what a CPA solves when they tell you, in the host's words, "This is what you should be paying yourself through payroll or salary in order to take the best advantage of solo 401(k) while at the same time maximizing some other tax benefits."