January 14, 2026
For many high earners, especially those with additional income streams, the bigger challenge is finding ways to save beyond these limits in a tax-efficient manner.
At the same time, it is becoming increasingly common for full-time employees to earn an income outside of their primary job. If you offer freelance or consulting services, or if you turn your favorite hobby into an income source, you may need an LLC. This is especially true for 1099 contractors who earn meaningful self-employment income in addition to a W-2 job. An LLC can not only provide crucial legal protection to business owners, but also give sole proprietors and their spouses access to additional retirement savings options, as long as certain conditions are met.
One of the most compelling benefits is the ability to make after-tax contributions and convert them to Roth within a well-structured Solo 401(k), potentially creating a powerful source of tax-free retirement income.
This is why it may be worth creating a separate retirement account, called a Solo 401(k), under your LLC.
What is a Solo 401(k)?
A Solo 401(k) is a retirement plan, similar to a traditional 401(k), that is specifically designed for self-employed individuals or business owners without full-time employees (other than a spouse). This includes business owners and 1099 contractors who earn self-employment income, even if they also participate in an employer-sponsored retirement plan through a W-2 job. To be eligible to open and contribute to a Solo 401(k) under your LLC, you must be earning income.
A Solo 401(k) can be an especially beneficial offering for solo entrepreneurs because it allows you to contribute as both an employee and an employer. As an employee you can make contributions up to the annual amount. As an employer, your company can make additional profit-sharing contributions depending on IRS limits related to income and compensation.
Importantly, you can own and contribute to either a Traditional 401(k) or a Solo 401(k), but both are subject to the same annual contribution limit, meaning your combined pre-tax contributions to both accounts in 2026 cannot exceed $24,500. However, this limit only applies to employee deferrals, not to total contributions.
Solo 401(k) strategies
While they can certainly work together, each plan may serve a slightly different purpose within your retirement savings strategy. Your traditional plan can help you achieve benefits related to your employment, including employer matching, while your Solo 401(k) allows your company income to fund its own retirement strategy, often with more flexibility and a higher overall contribution potential. For many high-income entrepreneurs and 1099 earners, it’s that flexibility that makes advanced Roth strategies possible.
Here are a few ways to use a Solo 401(k) in addition to your traditional plan.
Hire your spouse
If your spouse can contribute to the business in a legitimate, documented role, paying a reasonable wage is one way to increase access to tax benefits for retirement savings. As an employee of the LLC, your spouse may be eligible to contribute to the Solo 401(k) up to the annual employee deferral limit. The company can also pay employer contributions on his behalf.
By including your spouse as an employee, you can potentially significantly increase your household’s retirement savings while keeping your business income within the family.
Optimize your employer matching
Most employers who offer 401(k)s to employees will include contribution matching to encourage participation. Often, matching contributions are limited to a certain percentage or dollar amount, such as 3% of the employee’s salary.
If you or your spouse receive an employer match through a W-2 job, continue contributing up to the matching limit. This is essentially free money from your employer, which can really add up between now and retirement.
Once you reach the employer matching limit, consider focusing your contributions on your Solo 401(k) instead. You can put additional employee deferrals into the Solo 401(k) and bring in employer contributions from your company, essentially getting tax-deferred benefits from both plans.
Adjust your investment options
Employer 401(k)s are often limited to a few predetermined funds or strategies, often target date mutual funds. They try to find the most beneficial solution for a wide range of people. However, with a Solo 401(k), you have the flexibility and control to custom-build an investment portfolio that fits your investment needs, comfort level with risk, and timeline toward retirement. Depending on the custodian and structure, you may have access to a much broader investment universe, including ETFs, private investments and alternative strategies.
Create potential tax-free retirement income with Roth conversions
Certain 401(k) plan structures allow participants to make after-tax contributions, which can be converted into Roth accounts through a Roth conversion or a mega backdoor Roth conversion. Over time, this can help build a pool of tax-free retirement assets in addition to traditional, tax-deferred savings. This is one of the most powerful planning options available to high-income business owners and 1099 contractors.
If designed correctly, a Solo 401(k) can allow you to contribute beyond standard pre-tax limits by making after-tax contributions and converting them to a Roth. The maximum allowable contribution to a 401(k) is $72,000 in 2026. This includes both employee and employer contributions and may also include after-tax contributions depending on the plan design.
Roth conversions can be technically complex and often require certain provisions or criteria to be effective. Please contact your advisor and subscription provider before converting.
Make the most of your 401(k) in 2026 and beyond
If you tend to meet your workplace retirement plan’s maximum contribution limits before year-end, a Solo 401(k) through your LLC can provide additional planning options. This can be especially valuable for 1099 contractors and business owners who want more control over how and where they save for retirement. If you are considering opening and contributing to a new plan, speak to a financial advisor first. Our team at Envision can help you understand contribution rules, investment options, tax considerations and more. Schedule a call to get started.
Sources:
- https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
This article was originally published here and is republished on Wealthtender with permission.
Sean Gerlin, CFPĀ®, CPWAĀ®, ChFCĀ®, CLUĀ®
Creating clarity from complexity
Sean Gerlin, CFPĀ®, CPWAĀ®, ChFCĀ®, CLUĀ®
| Imagine wealth planners
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