Important Stuff Upfront
- The 2026 limits went up. Employee deferrals into a solo 401(k) cap at $24,500, the combined employee and employer cap is $72,000 and the IRA limit is $7,500 (IRS Notice 2025-67).
- You are 62% through the year. If you are not 62% of the way to your target, the gap is what the rest of this piece is about.
- Being behind pace is survivable. Unlike a salaried worker stuck with payroll deferrals, a self-employed saver can put in the whole employee deferral in December if the cash is there.
- The date to protect is Dec. 31. A solo 401(k) that does not exist by then generally cannot take 2026 employee deferrals, and no amount of April enthusiasm fixes that.
Mid-August is an awkward time to look at a retirement account. The year is too far along to pretend you will start next month, and still early enough that the number can move a lot. For someone with a W-2 job, the check takes 30 seconds: open the payroll portal, read the year-to-date figure, adjust the percentage. For someone self-employed, there is no portal doing the work, no automatic deduction, and two separate contribution limits that behave differently. So the check gets skipped, and December arrives with the decision already made by default.
This is a 20-minute version of that check, using the 2026 numbers.
The pacing question is simpler than it looks
Where the calendar actually sits
Aug. 16 is day 228 of 365, which means 62% of 2026 is gone. The comparison worth making is whether you have saved 62% of what you intended to save this year. Most people who feel behind are behind by less than they fear, and most people who feel fine have not checked.
The number to write down
Log into wherever the money sits and find the 2026 year-to-date contribution total. The account balance is the wrong figure, because it includes market gains and prior years. Then subtract the contribution total from your target for the year. That difference, divided by the months left, is your required monthly pace. Everything else here is about whether that pace is realistic and where the money should go.
Your ceiling is two numbers, not one
The most common mid-year mistake is checking your progress against the wrong maximum. A solo 401(k) lets you contribute in two capacities, and freelancers who only know the headline deferral figure regularly leave the larger half untouched.
The employee side: $24,500
As the employee of your own business, you can defer up to $24,500 of earned income in 2026, up from $23,500 in 2025. If you are 50 or older, add an $8,000 catch-up for $32,500. If you turn 60, 61, 62 or 63 during 2026, the catch-up is $11,250 instead, a SECURE 2.0 provision that a lot of savers in that band do not know exists.
The employer side: roughly 20% of net earnings
As the employer, you can add a profit-sharing contribution of up to 25% of compensation. For a sole proprietor there is no W-2 compensation to apply that to, so the calculation runs off net earnings from self-employment (net profit minus half your self-employment tax), and the arithmetic of applying 25% to a base that shrinks by the contribution itself works out to about 20%. Employee and employer money together cannot exceed $72,000 for 2026, though almost nobody at freelancer income levels gets near that ceiling.
Marcus, at $90,000 of profit
Marcus: on pace, but only on half his limit
- Projected 2026 net profit: $90,000. Deferred so far, January through July: $9,000.
- Self-employment tax base: $90,000 × 0.9235 = $83,115. SE tax at 15.3% = $12,717. Half of that, $6,358, is deductible.
- Net earnings from self-employment: $90,000 − $6,358 = $83,642. Employer profit-sharing room at 20% = $16,728.
- Employee room left: $24,500 − $9,000 = $15,500, or $3,100 a month across August through December.
- Total he could still put in this year: $15,500 + $16,728 = $32,228.
Marcus was pacing fine against $24,500 and had not thought about the employer contribution at all. Contributing the full $41,228 for the year drops his taxable income from $67,542 to $26,314, cutting his federal income tax from $9,571 to $2,910. That is $6,662 saved, an effective 16% on the money contributed.
Notice what happened to the rate. Marcus starts in the 22% bracket, so the first dollars he contributes save 22 cents each. By the time he has contributed $41,228 he has fallen into the 12% bracket, and the last dollars save 12 cents. Averaged out, the deduction is worth 16%, not 22%. That is worth knowing before you strain your cash flow chasing the maximum: the tax benefit gets weaker the further down you push.
You can still catch up in four and a half months
Why the self-employed can back-load
A salaried worker who reaches August at $4,000 of deferrals has a hard problem, because the money can only go in through payroll, and there are a fixed number of paychecks left. A self-employed saver does not have that constraint. Your deferral is limited by your earned income for the year, not by a payroll schedule, so a December election can be large. This is the single most useful thing to know in August: a bad first half does not cap the second half.
The catch is that the election generally has to be in place by Dec. 31 even though the cash can follow later, and the plan itself has to exist by then. Waiting until you file to think about it is how people lose the deferral.
Priya, starting from zero in August
Priya: nothing saved yet, $58,000 of projected profit
- Self-employment tax base: $58,000 × 0.9235 = $53,563. SE tax = $8,195, half of which ($4,098) is deductible.
- Net earnings from self-employment: $53,902. Employer room at 20% = $10,780, on top of any deferral.
- She decides $10,000 of employee deferral is affordable: $2,222 a month from mid-August through December.
- Taxable income before contributing: $53,902 − $16,100 standard deduction = $37,802, which sits in the 12% bracket.
The $10,000 deferral saves her $1,200 in federal income tax, a flat 12%. Because she is in the 12% bracket rather than the 22%, the traditional deduction is worth relatively little to her, which is the argument for putting that $10,000 into the Roth side of the solo 401(k) instead and paying the 12% now.
Open the account before you fund it. A solo 401(k) needs a signed plan document, an EIN and, at some brokerages, a paper application that takes one to three weeks to process. If you plan to defer in December, start the paperwork in October. A SEP-IRA is faster to open, and an IRA can be opened online in an afternoon.
Three accounts, three different deadlines
If you have not opened anything yet, the choice between these is mostly a question of how much room you need and how much time you have left.
| Solo 401(k) | SEP-IRA | Traditional or Roth IRA | |
|---|---|---|---|
| 2026 maximum | $24,500 employee, plus about 20% of net earnings as employer, up to $72,000 combined | About 20% of net earnings, up to $72,000 | $7,500 |
| Catch-up at 50+ | $8,000 ($11,250 if you are 60 to 63) | None | $1,100 |
| Deadline to open | Dec. 31, 2026 (first-time sole proprietors get until the filing deadline, no extensions) | Filing deadline including extensions | April 15, 2027 |
| Deadline to fund | Filing deadline, with extensions for the employer piece | Filing deadline including extensions | April 15, 2027, no extensions |
| Roth version | Yes, if the plan allows it | Permitted since SECURE 2.0, but few providers support it | Yes |
| Best fit | Highest ceiling at moderate income, no employees | Simple paperwork, decided late, or you have employees | Small amounts, or a supplement to the above |
If you have not opened anything yet
The solo 401(k) gets you more room at every income level below roughly $120,000 of profit, because the employee deferral does not depend on your earnings the way the SEP percentage does. Priya can put in $10,000 through a solo 401(k) regardless of the 20% rule; in a SEP her ceiling at $58,000 of profit is $10,780 total. The trade is paperwork and the harder December deadline. If it is already November and nothing is open, a SEP-IRA you can still fund next April beats a solo 401(k) you did not get established in time.
Not sure what your 2026 profit will look like? Estimate the tax first.
Calculate My SE Tax →What the contribution does not do
It does not reduce your self-employment tax
This is the misconception that costs freelancers the most in surprise. Retirement contributions come out of your income tax, not your self-employment tax. The 15.3% is charged on net profit from the business, and a solo 401(k) deferral is a personal deduction that happens after that number is set. Marcus contributing $41,228 does not change his $12,717 SE tax by a dollar. If you are budgeting a quarterly payment on the assumption that a big December contribution will shrink it, you will be short. We covered the full set of levers that do move SE tax in Understanding Self-Employment Tax (And How to Reduce It).
It does not always save what you assume
Two people contributing $10,000 can get very different results, as Marcus and Priya show: 22 cents on the dollar at the top of his contribution, 12 cents flat on hers. If a large deduction pushes you down into a lower bracket, the last slice of it is working at the lower rate. And if you claim the qualified business income deduction, a self-employed retirement deduction reduces the income that QBI is calculated on, which trims the benefit further. The examples above leave QBI out to keep the arithmetic visible, so treat them as the shape of the answer rather than your answer.
The two things worth doing this week are small. Pull your 2026 year-to-date contribution total and compare it against 62% of your target, and check whether the account you would need in December is actually open. Everything after that is a cash flow decision you can make in November, when you know what the year really earned.
More in this series
Bookkeeping Systems for Freelancers: Simple Options That Work → Understanding Self-Employment Tax (And How to Reduce It) → Mid-Year Financial Review: 5 Numbers Every Freelancer Should Know → Setting Up a Solo 401(k), Step by Step →Disclaimer
This article provides general tax education and estimates only, not personalized tax, legal or financial advice. The 2026 contribution limits above come from IRS Notice 2025-67 and IR-2025-111, checked Aug. 16, 2026. Worked examples assume a single filer taking the $16,100 standard deduction, a sole proprietor with no employees, no state income tax and no qualified business income deduction; the QBI deduction would reduce the federal saving shown. Plan establishment and funding deadlines vary by plan document and provider, and the retroactive first-year rule for sole proprietors applies only to a first 401(k) plan. Consult a qualified tax professional before acting. For federal rules see IRS one-participant 401(k) plans, IRS SEP FAQs and IR-2025-111.