Roth and Traditional deferrals draw on the same limit. For 2026 that’s $24,500 for the employee side of a Solo 401(k), plus $8,000 of catch-up from age 50, and the IRS counts Roth and pre-tax deferrals together. So the choice doesn’t change how much you can save. It changes when the tax is paid. A Traditional deferral is deducted this year and taxed when you take the money out. A Roth deferral gets no deduction now, and qualified withdrawals come out tax free.
For a freelancer, the whole decision comes down to one comparison: how much tax the deduction saves you this year, against the tax rate you expect on withdrawals. The next section puts a number on the first half. For the limits themselves, see the 2026 contribution limits guide, and if you haven’t set up a plan yet, start with how to open a Solo 401(k).
What stays the same and what changes
| Traditional (pre-tax) | Roth (designated) | |
|---|---|---|
| Tax this year | Deducted on Schedule 1, so it lowers income tax | Not deducted; the money is taxed now |
| 2026 limit | $24,500 combined, plus catch-up | Same $24,500 combined, plus catch-up |
| Income limit to contribute | None | None |
| Withdrawals in retirement | Taxed as ordinary income | Tax free if qualified: five years after the first Roth contribution and age 59½, disability or death |
| Required minimum distributions | Start at 73; an owner of the sponsoring business can't wait for retirement | None while the owner is alive |
| Self-employment tax | Not reduced | Not reduced |
| Changing your mind | Fixed once contributed | No recharacterization back to pre-tax |
| Who offers it | Every Solo 401(k) | Only plans amended to allow it |
Tax this year
- Traditional (pre-tax)
- Deducted on Schedule 1, so it lowers income tax
- Roth (designated)
- Not deducted; the money is taxed now
2026 limit
- Traditional (pre-tax)
- $24,500 combined, plus catch-up
- Roth (designated)
- Same $24,500 combined, plus catch-up
Income limit to contribute
- Traditional (pre-tax)
- None
- Roth (designated)
- None
Withdrawals in retirement
- Traditional (pre-tax)
- Taxed as ordinary income
- Roth (designated)
- Tax free if qualified: five years after the first Roth contribution and age 59½, disability or death
Required minimum distributions
- Traditional (pre-tax)
- Start at 73; an owner of the sponsoring business can't wait for retirement
- Roth (designated)
- None while the owner is alive
Self-employment tax
- Traditional (pre-tax)
- Not reduced
- Roth (designated)
- Not reduced
Changing your mind
- Traditional (pre-tax)
- Fixed once contributed
- Roth (designated)
- No recharacterization back to pre-tax
Who offers it
- Traditional (pre-tax)
- Every Solo 401(k)
- Roth (designated)
- Only plans amended to allow it
Sources: Publication 560 (2025); IRS designated Roth account page; IRS Roth comparison chart; IRS required minimum distributions FAQs. Self-employment tax is figured on net profit before any contribution.
Two lines in that table surprise people. The first is the income limit. Roth IRAs phase out at higher incomes, and the IRS says designated Roth accounts are not subject to those limits, which is why a high earner who can’t contribute to a Roth IRA directly can still do it through a Solo 401(k). The second is that neither type reduces self-employment tax, so the deduction only touches income tax. The self-employment tax guide shows the arithmetic.
What the Traditional deferral saves you
This is the number that decides most cases. We ran a $24,500 deferral through the same functions as our retirement contribution calculator, on top of the 20% employer contribution a self-employed person can also deduct. The table shows how much extra federal income tax the deferral saves, and what share of the $24,500 that is.
| Net profit | Employer contribution | Tax saved by the deferral | Share of the $24,500 | Net cost of a Traditional deferral |
|---|---|---|---|---|
| $60,000 | $11,152 | $2,168 | 8.8% | $22,332 |
| $80,000 | $14,870 | $2,352 | 9.6% | $22,148 |
| $120,000 | $22,304 | $3,162 | 12.9% | $21,338 |
| $160,000 | $29,739 | $4,312 | 17.6% | $20,188 |
| $200,000 | $37,177 | $4,319 | 17.6% | $20,181 |
$60,000
- Employer contribution
- $11,152
- Tax saved by the deferral
- $2,168
- Share of the $24,500
- 8.8%
- Net cost of a Traditional deferral
- $22,332
$80,000
- Employer contribution
- $14,870
- Tax saved by the deferral
- $2,352
- Share of the $24,500
- 9.6%
- Net cost of a Traditional deferral
- $22,148
$120,000
- Employer contribution
- $22,304
- Tax saved by the deferral
- $3,162
- Share of the $24,500
- 12.9%
- Net cost of a Traditional deferral
- $21,338
$160,000
- Employer contribution
- $29,739
- Tax saved by the deferral
- $4,312
- Share of the $24,500
- 17.6%
- Net cost of a Traditional deferral
- $20,188
$200,000
- Employer contribution
- $37,177
- Tax saved by the deferral
- $4,319
- Share of the $24,500
- 17.6%
- Net cost of a Traditional deferral
- $20,181
Single filer, no other income, under age 50, standard deduction, 2026 federal rates, no state tax or credits. Tax saved is the federal income tax with the employer contribution alone minus the tax with the employer contribution plus the $24,500 deferral. A Roth deferral costs the full $24,500 and saves nothing.
The share is lower than the tax bracket you’re in for a reason that surprises many freelancers. The qualified business income deduction is 20% of your business income after subtractions, and the Form 8995 instructions list the deductible part of self-employment tax, self-employed health insurance and contributions to a qualified retirement plan among the items that reduce it. A bigger deduction for the deferral therefore shrinks the QBI deduction a bit. At $80,000 of profit, the whole deferral falls in the 12% bracket, and the 20% QBI offset takes it to 9.6%. If you want the mechanics, see the QBI guide.
How to compare it with your rate later
Say your profit is $80,000. A full Traditional deferral saves $2,352, so it costs you $22,148 out of pocket this year. A Roth deferral of the same cash cost would be $22,148, since there’s no tax saving to subtract. Now assume, for the example only, that both accounts double before you withdraw. The Traditional account holds $49,000 before tax and the Roth account holds $44,296 that you won’t owe tax on.
| Tax rate on the withdrawal | Traditional, after tax | Roth, tax free |
|---|---|---|
| 5% | $46,550 | $44,296 |
| 9.6% | $44,296 | $44,296 |
| 12% | $43,120 | $44,296 |
| 22% | $38,220 | $44,296 |
5%
- Traditional, after tax
- $46,550
- Roth, tax free
- $44,296
9.6%
- Traditional, after tax
- $44,296
- Roth, tax free
- $44,296
12%
- Traditional, after tax
- $43,120
- Roth, tax free
- $44,296
22%
- Traditional, after tax
- $38,220
- Roth, tax free
- $44,296
Traditional: $24,500 × 2 = $49,000 before tax. Roth: $22,148 × 2 = $44,296, the same cash cost as the Traditional deferral once its $2,352 tax saving is counted. Doubling is an assumption for the example; the break-even rate is the same for any growth.
The growth assumption cancels out, which is the useful part. Traditional wins when your tax rate on the withdrawal ends up below the share you saved this year, here 9.6%. Roth wins when it ends up above. The two are equal at 9.6%. What you can’t know is that future rate, because it depends on your other income, the brackets in force then, and how big the withdrawal is. Withdrawals are taxed across the brackets like any income, so what matters is the average rate on the dollars you take out, not the top one.
A second argument for Roth has nothing to do with rates. When you’re maxing out the limit, a Roth deferral puts $24,500 of already-taxed money to work, while a Traditional one puts in $24,500 of money that still owes tax. If you can afford the full limit either way, Roth shelters more after-tax value for the same cap. If cash is the constraint, the lower out-of-pocket cost of Traditional goes the other way.
A worked example: $80,000 three ways
Same freelancer, $80,000 of profit, no other income, under 50. The employer contribution is $14,870 and the full deferral is $24,500, which is $39,370 if everything is Traditional. Self-employment tax is $11,304 in all three versions, because neither type changes it.
| All Traditional | Half and half | All Roth | |
|---|---|---|---|
| Employer contribution (deducted) | $14,870 | $14,870 | $14,870 |
| Deferral deducted | $24,500 | $12,250 | $0 |
| Total deducted | $39,370 | $27,120 | $14,870 |
| Federal income tax | $1,564 | $2,740 | $3,916 |
| Tax saved vs. no contribution ($5,344) | $3,780 | $2,604 | $1,428 |
Employer contribution (deducted)
- All Traditional
- $14,870
- Half and half
- $14,870
- All Roth
- $14,870
Deferral deducted
- All Traditional
- $24,500
- Half and half
- $12,250
- All Roth
- $0
Total deducted
- All Traditional
- $39,370
- Half and half
- $27,120
- All Roth
- $14,870
Federal income tax
- All Traditional
- $1,564
- Half and half
- $2,740
- All Roth
- $3,916
Tax saved vs. no contribution ($5,344)
- All Traditional
- $3,780
- Half and half
- $2,604
- All Roth
- $1,428
Single filer, no other income, under 50, 2026 federal rates. The same $5,344 without any contribution and the $3,780 saving appear in our Solo 401(k) and self-employment tax guide. Self-employment tax is $11,304 in every column.
Choosing all Roth costs $2,352 more in federal income tax this year than the all-Traditional version, which is the $2,352 from the table above. Whether that’s a good price depends on the rate you expect later, as we saw. Our Freelance Tax Calculator lets you enter a Traditional contribution with your own numbers, including state tax, and the Solo 401(k) contribution calculator gives the maximum deferral and employer contribution for your profit.
Other things that tip the decision
- Income-based thresholds. A Traditional deferral lowers your adjusted gross income, and a Roth one doesn’t, which matters if you’re near a line that depends on income. The ACA subsidy cliff guide works through the best-known one for freelancers.
- Uneven income. The split is yours to set each year, so it doesn’t have to be the same every year. Saving for retirement on irregular income covers how to size contributions when profit moves around.
- A 401(k) at your day job. The $24,500 limit is shared, so a Roth deferral at work uses up the room you’d have in the Solo 401(k). See Solo 401(k) and a 401(k) at work.
- The employer contribution. For a Solo 401(k), the employer side is figured the same way whichever deferral you choose. Roth deferrals still count when you work out the maximum on the Publication 560 worksheet, so choosing Roth doesn’t free up extra employer room.
The rules for Roth money
A qualified distribution from a designated Roth account is tax free. The IRS defines it as one made at least five years after the year of your first designated Roth contribution, counting that year as the first, and made on or after age 59½, on account of disability, or on or after death. Publication 560 adds that the five-year clock runs per plan, from the first year a contribution was made to the Roth account in that plan.
A distribution that isn’t qualified is split pro rata between earnings and your own contributions, and the 10% early withdrawal tax may apply to the part that’s included in income, according to the IRS. A designated Roth account can be rolled over to another designated Roth account or to a Roth IRA, and Publication 560 says rollover amounts don’t count toward the annual deferral limit.
Watch out
Once a Roth deferral is made, you can’t turn it into a pre-tax one. The IRS says no recharacterizations are allowed for designated Roth contributions. Decide the split before you elect the deferral.
Check that your plan offers Roth
Not every Solo 401(k) has a Roth option. The IRS says a plan has to be amended to offer designated Roth contributions, with separate accounts and a choice between pre-tax and Roth deferrals. Ask the provider two things before you open the plan: are Roth deferrals offered, and can the employer contribution be designated as Roth too. Publication 560 says an eligible employee may be permitted to designate certain nonelective or matching contributions as Roth, and those amounts are included in income. The provider’s adoption agreement is where each option is switched on or off.
If you’re past 50, the 2026 rule on Roth catch-up contributions applies to higher earners at an employer. The contribution limits guide explains why, as the IRS describes it, it isn’t aimed at a sole proprietor’s profit.
Mistakes to avoid
- Assuming a Roth deferral also lowers your tax this year. It doesn’t, and it doesn’t touch self-employment tax either.
- Choosing a plan without checking for Roth, then finding out in December that it isn’t offered.
- Comparing the two as if the $24,500 costs the same. A Traditional deferral costs less cash this year, so compare equal cash costs, as in the table above.
- Forgetting the limit is shared with a job plan.
- Treating a Roth deferral as reversible. It isn’t.
- Looking only at this year’s bracket. The break-even is your average rate on withdrawals, not your top bracket today.
How we got these figures
The limits, the Roth contribution rules, the five-year period, rollovers, employer-contribution designation and the worksheet that includes Roth deferrals come from Publication 560 (2025). The qualified distribution rules, the plan amendment requirement, the pro rata treatment of nonqualified distributions and the ban on recharacterization come from the IRS designated Roth account page, and the absence of an income limit from the IRS Roth comparison chart. We used the IRS required minimum distributions FAQs for the age 73 start and the exemption for Roth accounts. The QBI offset comes from the Instructions for Form 8995 (2025), and the 2026 standard deduction and tax rates from the 2026 Form 1040-ES. We opened all of these on October 11, 2026. We did not use the older figures printed on the IRS Roth pages for 2023 and 2024. The tax figures are our own arithmetic, run through the same functions as our retirement and freelance tax calculators, once for each profit level and for each column of the worked example. Doubling the account is an assumption for the example only. For how we choose and check sources, see How We Research.
This is general information, not tax or investment advice for your situation. Your plan document controls what your plan allows, and a tax professional can confirm the details before you contribute.
