Why a solo 401(k) contribution split calculator matters for owner-operators

Solo 401(k) plans allow self-employed professionals to wear two hats at once: they can make employee salary deferrals and employer profit-sharing contributions, often creating retirement savings capacity that dwarfs what a traditional workplace plan allows. Yet the same flexibility produces confusion. Tax guides reference multiple contribution limits, the Internal Revenue Code sets different calculations for sole proprietors and for S-corporation shareholders drawing wages, and catch-up contributions introduce yet another layer once the participant turns fifty. Mistakes carry real consequences. Over-contributions must be corrected with amended returns and earnings adjustments, while under-contributions leave valuable tax-deferred space on the table. A transparent planning tool helps owner-operators decide how to allocate cash between salary deferrals, profit sharing, and other business needs.

The planner on this page translates the arcane IRS formulas into plain English. You supply your age, business structure, earnings, and any amounts already contributed during the current tax year. The tool responds with the maximum additional contribution you can still make as an employee, the catch-up space (if eligible), and the remaining employer profit-sharing limit. It also shows how the section 415 annual additions limit interacts with these numbers so you can see whether a tempting profit-sharing deposit would actually create an excess. Instead of juggling spreadsheets, you can make decisions in minutes and document them with an exportable CSV summary.

Understanding the formulas that govern solo 401(k) deposits

Solo 401(k) plans abide by the same IRS limits that cover large employer plans, but the calculations differ because the business owner effectively plays the role of both employee and employer. For 2024 the maximum employee salary deferral under Internal Revenue Code section 402(g) is $23,000. Participants aged fifty or older can contribute an additional $7,500 catch-up deferral, pushing the combined limit to $30,500. The employer profit-sharing component falls under section 415, which caps the total of employer contributions and regular employee deferrals at the lesser of $69,000 or 100% of compensation. Catch-up contributions sit on top of that cap, but they still require enough compensation to support them.

Compensation means different things depending on the business structure. Sole proprietors and partners use net earnings from self-employment after subtracting half of the self-employment tax. Corporate owner-employees use their W-2 wages reported on Form W-2 Box 1. Because the self-employment tax includes both the Social Security and Medicare components, the computation for sole proprietors requires a feedback loop: the deduction for half of the tax depends on the contribution, and the contribution depends on the deduction. The IRS resolves that loop with a shorthand fraction. Instead of multiplying net earnings by 25% and backing out the deduction manually, you multiply by 20% to arrive at the permissible employer contribution. The MathML block below captures that translation explicitly.

$C=\frac{0.25}{1.25}\times (N-\frac{1}{2}S)$

In the expression, N represents the Schedule C profit and S denotes the self-employment tax. The fraction 0.25/1.25 simplifies to 0.2, which is the multiplier used inside the calculator. For corporate filers the math is simpler: profit sharing is limited to 25% of W-2 wages. The self-employment tax itself is calculated on 92.35% of net earnings up to the Social Security wage base ($168,600 in 2024) at a rate of 12.4%, plus 2.9% Medicare tax on all self-employment income. Owners with very high profits will max out the Social Security portion, leaving only the Medicare component on earnings above the wage base.

How the planner processes your inputs

When you submit the form, the planner first cleans the numbers, rejecting negative entries and ensuring that deferrals already made do not exceed the statutory limits. For a sole proprietor it computes the self-employment tax with the Social Security wage base constraint, subtracts half of that tax from net profit, and treats the result as compensation. For corporate wages the compensation is simply the W-2 amount. The tool then compares your age to the catch-up threshold. If you are at least fifty by the end of the year, you receive an additional $7,500 deferral allowance; otherwise the catch-up space remains zero.

Existing elective deferrals to other employer plans reduce the amount of regular salary deferrals still available under the $23,000 limit. The planner assumes that previously contributed amounts apply to the regular limit before eating into catch-up space, mirroring how payroll systems operate. It therefore reports three numbers: regular deferral headroom, catch-up headroom (if eligible), and the total deferral headroom. Employer contributions already made to the solo 401(k) reduce the profit-sharing headroom. The tool also checks the section 415 limit. If your compensation is lower than $69,000, the limit automatically shrinks to your compensation, ensuring that the recommended deposit never exceeds what the IRS allows.

Worked example: A consultant balancing multiple income streams

Imagine a 52-year-old consultant who nets $180,000 on Schedule C and has already contributed $10,000 in elective deferrals through a part-time W-2 job. She has not yet contributed anything to her solo 401(k) for the year. The planner starts by computing self-employment tax on 92.35% of her profit, which equals $166,230. The Social Security portion stops at the $168,600 wage base, so the full amount is subject to 12.4%, producing $20,613 in Social Security tax. Medicare applies to the entire $166,230 at 2.9%, adding $4,821.67. The combined self-employment tax is $25,434.67, and half of that ($12,717.34) reduces the compensation available for contributions. Her net compensation is therefore $167,282.66. The maximum employer contribution equals 20% of that figure, or $33,456.53.

On the employee side, she has a $23,000 regular deferral limit and an additional $7,500 catch-up allowance because of her age. Her $10,000 W-2 deferral is treated as using the regular limit first, leaving $13,000 of regular headroom. The planner reports the full $7,500 catch-up space as available because she has not used any catch-up contributions elsewhere. The section 415 limit sits at the lesser of $69,000 or compensation. Since her compensation is well above $69,000, the statutory cap remains $69,000. The planner subtracts the regular deferral headroom of $13,000 from that cap, leaving $56,000 available for employer contributions. Because the raw employer calculation (20% of compensation) is only $33,456.53, she can deposit the full employer amount without violating section 415. The resulting plan is $13,000 regular deferral, $7,500 catch-up, and $33,456.53 employer contribution for a total of $53,956.53, comfortably below the $69,000 cap. The CSV export records each component for her compliance binder.

Comparison of contribution strategies by business structure

The table below summarizes how the same $120,000 of pre-retirement compensation produces different contribution opportunities depending on the business structure and age. It highlights why S-corporation owners sometimes adjust their W-2 wage levels to optimize retirement savings while balancing payroll taxes.

Solo 401(k) capacity with $120,000 of earnings

Scenario	Compensation base	Employer contribution limit	Total regular deferral space	Catch-up space (50+)
Sole proprietor, age 45	$111,312 after self-employment tax deduction	$22,262 (20% of compensation)	$23,000	Not available
S-corp shareholder, age 45, W-2 wages $120,000	$120,000 Box 1 wages	$30,000 (25% of wages)	$23,000	Not available
Sole proprietor, age 55	$111,312 after self-employment tax deduction	$22,262 (20% of compensation)	$23,000	$7,500
S-corp shareholder, age 55, W-2 wages $120,000	$120,000 Box 1 wages	$30,000 (25% of wages)	$23,000	$7,500

Note how the sole proprietor’s compensation shrinks because of the self-employment tax adjustment, reducing the employer contribution limit. The difference can be worth nearly $8,000 per year. However, corporation owners must run payroll, remit employment taxes on wages, and document reasonable compensation, so the extra retirement space is not free. The planner helps quantify the trade-offs when advisors discuss whether to elect S-corporation status or remain a Schedule C filer.

Interpreting the results panel and CSV export

The results panel narrates the numbers in plain language, highlighting whichever constraint binds first. If compensation is low, you might see a message that the section 415 limit is the bottleneck even though the statutory dollar caps look generous. If you have already exhausted the regular deferral limit through another employer, the planner encourages you to focus on profit sharing or catch-up contributions. The CSV download includes the compensation base, computed self-employment tax for sole proprietors, the remaining headroom in each contribution category, and the relevant IRS limit. This documentation is useful during year-end planning meetings with CPAs or when preparing the annual Form 5500-EZ filing that reports total plan contributions.

Limitations, compliance reminders, and assumptions

The calculator assumes 2024 IRS limits: a $23,000 regular elective deferral cap, $7,500 catch-up allowance for those aged fifty or older, and a $69,000 section 415 annual addition limit. If Congress updates the cost-of-living adjustments, you should revise the inputs or treat the results as a conservative baseline. The self-employment tax computation relies on the $168,600 Social Security wage base and ignores the additional 0.9% Medicare surtax on earned income above $200,000 for single filers or $250,000 for joint filers; that surtax affects tax liability but not the contribution limit, so omitting it keeps the focus on contribution capacity. The planner also assumes that elective deferrals made to other employer plans are regular deferrals rather than catch-up amounts. If you have already used catch-up space elsewhere, manually subtract that amount from the catch-up result before acting.

Another limitation is that the calculator treats the owner’s compensation as known and stable. In practice, S-corporation owners may adjust their W-2 wages later in the year or retroactively via bonus payroll runs. Similarly, sole proprietors may see net income fluctuate as invoices are collected or expenses shift. Revisit the planner whenever there is a material change. Finally, always coordinate major contributions with a qualified tax professional. Solo 401(k) rules interact with defined benefit plans, backdoor Roth IRA strategies, and estimated tax payments. The tool offers clarity and structure, but compliance responsibility remains with the business owner and their advisors.