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$100k of Schedule C profit shelters $43,087 — but only if you apply the SE-tax adjustment first.
Every "contribute 25% of your income" solo 401(k) article is wrong for sole proprietors: the employer side is 25% of compensation, and compensation is profit minus half the self-employment tax minus the contribution itself — which solves to 20% of net earnings, not 25% of anything. This calculator runs the circular formula correctly, handles S-corp wages separately, applies the 2026 limits and the $184,500 Social Security wage base, and shows both sides of the contribution.
Freelancers use it at year-end to find the real number: the employer side is 20% of net earnings after the half-SE-tax adjustment — not the "25% of profit" every article quotes — plus the deferral and catch-up, capped at $72,000 for 2026.
$43,087 for 2026, computed honestly: your SE tax on $100,000 is $14,129.55 (92.35% of profit × 15.3%), half of it ($7,065) comes off, leaving net earnings of $92,935. The employer side is 20% of that — $18,587 — and the employee deferral adds $24,500. Age 50+ adds the $8,000 catch-up for $51,087. The widely-quoted "25% of profit = $25,000 employer contribution" overstates it by $6,413 because it skips both adjustments.
The circular definition: employer contributions are 25% of compensation, but for the self-employed, compensation is net earnings AFTER subtracting the contribution itself. Solving C = 25% × (net − C) gives C = 20% × net. "Net" itself is Schedule C profit minus half the self-employment tax. S-corp owners skip the algebra entirely — the employer side is a flat 25% of W-2 wages, which is why the salary-setting decision matters so much for them.
The plan must be established by December 31 of the tax year (SECURE Act pushed funding deadlines, not establishment). Employee deferrals are generally due by year-end through payroll; employer profit-sharing can be contributed until the tax-filing deadline including extensions. Once plan assets exceed $250,000, Form 5500-EZ is due annually. And a solo 401(k) covers only you and a spouse — hire one full-time non-spouse employee and the plan must convert to a regular 401(k) with testing.