Terms in plain English
Solo 401(k) jargon in plain English. Elective deferral, RMD, SECURE 2.0, comp cap, what they mean and why they hit your contribution.
Elective Deferral
An elective deferral is the slice of your paycheck or self-employment income you choose to redirect into a 401(k) before income tax (Traditi...
Profit Sharing (Employer Contribution)
The employer half of a Solo 401(k). You as the business owner contribute up to 25% of W-2 wages (S-Corp) or about 20% of net self-employment...
Catch-Up Contribution
Extra 401(k) room the IRS opens once you turn 50. For 2026 it's $7,500 on top of the $23,500 elective deferral. SECURE 2.0 added a "super ca...
Self-Employment Tax
The 15.3% combined Social Security (12.4%) and Medicare (2.9%) tax that sole props pay on net earnings, the same payroll tax a W-2 employer ...
Vesting
When your 401(k) money becomes legally yours and can't be clawed back. Inside a Solo 401(k) this is a non-issue, you're both employee and em...
RMD (Required Minimum Distribution)
The yearly minimum the IRS forces you to withdraw from a Traditional Solo 401(k) once you turn 73 (75 if you were born in 1960 or later, SEC...
SECURE Act 2.0
The 2022 retirement law that rewrote a lot of the Solo 401(k) rulebook. Highlights: the RMD age moved from 72 to 73 (and to 75 in 2033), Rot...
Compensation Cap
The maximum compensation the IRS lets a 401(k) consider when calculating contributions, $350,000 for 2026. Earn $500,000 from your S-Corp? O...