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.
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.”
Where the Advice Fits, and Where It Breaks
This sequencing works cleanly for the single-hat solopreneur: a freelancer, consultant, or small-business owner whose only earned income flows through the business. Fill the employee bucket on autopilot. Then optimize salary with a CPA.
The advice breaks for someone with a day job. If a W-2 employer already offers a 401(k), the $24,500 employee limit is shared across all plans. Defer $20,000 at the day job, and you have only $4,500 of employee room left on the Solo 401(k) side. The host flags this directly: “You actually might want to put more as the employer.”
The employer bucket on your side business is independent of the day-job plan, so that is where the side income gets sheltered.
What to Do This Week
- Confirm whether a W-2 employer plan is already eating into your $24,500 employee limit. If yes, redirect that capacity to the employer side of the Solo 401(k).
- If you operate as an S-corp, ask your CPA to model two or three salary levels against the 25% employer cap. The breakeven between payroll-tax savings and employer-contribution capacity usually sits in a narrow range.
- Fund the employee contribution before December 31. Employer contributions can typically be made up to the tax-filing deadline, but employee deferrals generally cannot.
The single takeaway: the employee bucket is the easy money in a Solo 401(k). Take it first, then negotiate the harder math with a professional.
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