Solo 401(k) Roth or Pretax at 24% vs 32% Bracket

Priya Nair is a fractional CFO in Austin, Texas, married filing jointly, with $310,000 of net Schedule C income in 2026. She just opened a Solo 401(k) and has to decide how to fund her $24,500 employee deferral: Roth or pre-tax? Her household lands in the 24% federal bracket (MFJ $206,701–$394,600). She expects to draw roughly $180K–$220K in retirement, keeping her in the 22–24% zone for life. For Priya, the answer is Roth on the full $24,500 deferral — she locks in tax at a rate she’ll likely match or exceed later, and Texas has no state income tax to complicate it. Her business’s profit-sharing contribution, by contrast, goes in pre-tax. Below is exactly how to make that call for your own numbers.

The decision in one sentence

Roth wins when your retirement marginal rate will be equal to or higher than today’s. Pre-tax wins when your retirement rate will be lower. That’s the entire framework — everything else is refinement. The mistake most solopreneurs make is comparing Roth to pre-tax on today’s bracket alone. Today’s bracket only tells you the cost of choosing Roth; the benefit shows up decades later when you withdraw.

For 2026, the two brackets that matter for this decision sit here (IRC §1, indexed by Rev. Proc. 2025-32):

Why does 24% lean Roth and 32% lean pre-tax? Because 24% is a historically low rate — under the TCJA structure that OBBBA made permanent in 2025, paying 24% now is a bargain you’ll rarely beat in retirement. At 32%, the rate is high enough that deferring to a likely-lower retirement bracket usually wins the arbitrage.

The two buckets: employee deferral vs employer profit-sharing

A Solo 401(k) has two contribution sources, and they are governed by different rules. Conflating them is the single most common planning error.

• Employee deferral — $24,500 for 2026 (IRC §402(g)), plus a $8,000 catch-up at age 50+ (or a SECURE 2.0 §109 super catch-up of $11,250 at ages 60–63). This is the bucket where you genuinely choose Roth or pre-tax. You can split it any way you like.
• Employer profit-sharing — up to 25% of compensation, capped so that employee + employer combined hits the $72,000 total limit (IRC §415(c); +$8,000 if you’re catching up). This is the bucket where the answer is almost always pre-tax.

So a self-employed saver with enough income can put $24,500 in (Roth or pre-tax) as the employee, then add employer profit-sharing on top up to the $72,000 ceiling — $47,500 of employer room if the full deferral is used.

Why the employer slice should stay pre-tax

SECURE 2.0 §604 (effective 2023) created a new option: you can designate employer contributions as Roth. But read the fine print. A Roth-designated employer contribution is included in your taxable income the year it’s made and reported on Form 1099-R. You forfeit the deduction entirely.

Run the numbers. A $40,000 Roth employer contribution for a 32%-bracket owner adds $40,000 to taxable income — a $12,800 current tax hit, out of pocket, with no offsetting deduction. Compare that to the same $40,000 contributed pre-tax: the business deducts it, saving $12,800 now. The Roth version only makes sense in a rare year when your income (and rate) is unusually depressed and you want to flush dollars into Roth at a low cost. For the typical earning year, fund the employer slice pre-tax and capture the deduction. If you want more Roth exposure, get it through the employee deferral or a mega-backdoor conversion — not by taxing your profit-sharing.

Worked example: 24% solopreneur (Priya) vs 32% peak earner (Marcus)

Two self-employed savers, same $24,500 employee deferral, opposite answers.

Priya — 24% bracket, MFJ, Austin TX

$310,000 net Schedule C, MFJ, expects a 22–24% retirement rate. Choosing Roth on the deferral costs her $5,880 in tax today (24% × $24,500). In return, every dollar of growth and every dollar of withdrawal is tax-free for life. If her retirement rate holds at 24% or rises (rates could revert; her own balances will push her up), she breaks even or wins. With Texas charging no state income tax, there’s no state-side reason to defer either. Verdict: Roth deferral.

Marcus — 32% bracket, single, New York NY

Marcus is a single freelance software architect with $235,000 of net self-employment income, sitting in the 32% federal bracket ($197,301–$250,525). On top of that he pays New York state tax (5.85% marginal at his income, plus NYC 3.876%). His combined marginal rate on the deferral is roughly 32% + 5.85% + 3.876% ≈ 41.7%. He plans to retire to Florida (no state income tax) and draw about $90K/year, landing him in the 22% federal bracket with zero state tax. Deferring pre-tax now saves him ~41.7% and costs him ~22% later — a ~20-point arbitrage. Verdict: pre-tax deferral.

State of residence is half the decision

Notice that Marcus’s case hinges as much on geography as on federal brackets. A high earner in a high-tax state (California 13.3% top, New York 10.9% plus NYC) who will retire to a no-income-tax state (Florida, Texas, Nevada, Washington, Wyoming, and five others) gets a powerful pre-tax arbitrage: deduct against the high combined rate today, withdraw against zero state tax later. Reverse the move — a saver in no-tax Texas today who might retire to California — and Roth gets even more attractive, because deferring would mean paying California tax on the back end.

What most people miss: the QBI interaction

Here’s the subtlety that changes the breakpoint for self-employed savers specifically. The §199A qualified business income (QBI) deduction lets eligible pass-through owners deduct up to 20% of QBI. A pre-tax deferral reduces your taxable income — which can reduce the QBI deduction you’d otherwise claim. In effect, each dollar of pre-tax deferral may only save you (marginal rate − the QBI offset), not your full stated bracket.

The practical consequence: the true tax saved by going pre-tax is often lower than your headline bracket suggests, which nudges the decision toward Roth for QBI-eligible solopreneurs. This is most pronounced for owners whose income sits near the §199A phase-in thresholds, where each dollar of deduction swings QBI eligibility. If you’re a specified service trade or business (consulting, law, health, financial services) phasing out of QBI, model both the bracket and the QBI effect before locking in pre-tax. Two things make Roth structurally more appealing for the self-employed than for a W-2 employee at the same bracket: the QBI interaction, and the fact that Roth dollars never generate RMDs or push up future IRMAA Medicare surcharges.

The decision checklist

1. Pin down today’s combined marginal rate — federal bracket (24% or 32%) plus your state and any local tax.
2. Estimate your retirement combined rate — projected withdrawals, Social Security, RMDs after age 73/75, and the state you’ll live in.
3. If retirement rate ≥ today’s rate → Roth deferral. If retirement rate is meaningfully lower → pre-tax deferral.
4. Adjust for QBI — if you’re QBI-eligible, shade toward Roth because pre-tax saves less than the headline rate.
5. Fund the employer profit-sharing slice pre-tax regardless of the deferral choice, up to the $72,000 §415(c) limit.
6. Hedge if genuinely uncertain — split the deferral (e.g., half Roth, half pre-tax) to diversify against future rate uncertainty.

How to actually split it inside the plan

Most modern Solo 401(k) providers (Carry, Solo401k.com, IRA Financial, Fidelity, Schwab) let you elect Roth vs pre-tax at the dollar level on the employee deferral. A clean, common configuration for a 24%-bracket owner:

• Employee deferral: $24,500 → 100% Roth
• Employer profit-sharing: up to $47,500 more (to reach the $72,000 cap) → pre-tax
• Result: a single plan holding both Roth and pre-tax dollars — tax diversification baked in

For a 32%-bracket owner, flip the employee deferral to pre-tax and keep the employer slice pre-tax; if you still want Roth exposure beyond the deferral, layer in the mega-backdoor (after-tax contributions up to the $72,000 limit, then in-plan Roth conversion) — but only if your plan document explicitly permits after-tax contributions and in-plan conversions. Many one-page Solo 401(k) documents do not.

Roth deferral vs mega-backdoor Roth: sequence them

These are not competing choices — they stack. Fill the $24,500 Roth employee deferral first; it’s simple and available in nearly every plan. Only after that’s maxed does the mega-backdoor matter, and only if you want Roth dollars above the deferral and your plan supports after-tax contributions plus in-plan conversion. If your provider’s document doesn’t allow it, the Roth deferral is your ceiling for Roth contributions in that plan.

Key takeaways

• The decision is governed by your retirement marginal rate vs today’s, not today’s rate alone. Roth wins when retirement rate ≥ today’s; pre-tax wins when it’s lower.
• At the 24% bracket, lean Roth on the $24,500 employee deferral — 24% is a historically low rate to lock in. At the 32% bracket, lean pre-tax if you expect to retire in the 22–24% zone.
• The employer profit-sharing slice should stay pre-tax up to the $72,000 §415(c) total limit. A Roth employer contribution is allowed under SECURE 2.0 §604 but is taxable to you immediately with no deduction.
• Your state of residence — now and in retirement — can flip the answer. High-tax-state earners retiring to no-tax states get a strong pre-tax arbitrage; the reverse strengthens Roth.
• The QBI §199A interaction means a pre-tax deferral can save less than your headline bracket, structurally nudging self-employed savers toward Roth.
• The lever: set your deferral type to match your projected retirement rate plus state move, fund employer profit-sharing pre-tax, and split the deferral 50/50 only if your future rate is genuinely unknowable.