🧠 Solo 401(k) for S-Corp Owners: Rules, Limits & Setup Guide

If you're an S-Corp owner looking to boost your retirement savings while reducing taxes, the Solo 401(k) for S-Corps is a powerful strategy worth exploring. In this guide, we’ll walk you through the rules, contribution limits, and setup steps to make the most of this retirement tool.

💡 What Is a Solo 401(k)?

A Solo 401(k) (also called an individual 401(k) or self-employed 401(k)) is a retirement plan designed for business owners with no full-time employees other than a spouse. It offers:

• High contribution limits
  

• Both employee and employer contributions
  

• Pre-tax and Roth Solo 401(k) options
  

• Potential loan access
  

• Catch-up contributions if you're age 50+
  

Compared to a SEP IRA, the Solo 401(k) provides more contribution flexibility—making it one of the best retirement plans for S-Corp owners.

🔍 Can S-Corp Owners Use a Solo 401(k)?

Yes—but there are specific S-Corp Solo 401(k) rules to follow. As an S-Corp owner, you're both an employer and employee, which affects your ability to contribute.

Unlike sole proprietors, you can't contribute based on net business profit. Instead, your contributions are tied directly to your W-2 salary. This makes proper compensation planning essential.

Wages vs. Distributions

• W-2 Wages: Count toward contribution calculations.
  

• Distributions: Do not count—no matter how large.
  

Only your salary matters for Solo 401(k) contribution limits.

📊 Contribution Limits & Salary Rules

2025 Contribution Limits:

• Employee Deferrals: Up to $23,500
  

• Catch-Up (Age 50+): +$7,500
  

• Enhanced Catch-Up (Age 60–63): +$11,250 (SECURE 2.0)
  

• Employer Contributions: Up to 25% of your W-2 salary
  

• Total Limit (Under 50): $69,000
  

• Age 50+: $76,500
  

• Age 60–63: $80,250
  

✅ Important: These limits apply only to W-2 wages. Distributions don’t count.

Real-World Example

W-2 Salary: $120,000

• Employee Deferral: $23,500
  

• Employer Contribution (25%): $30,000
  

• Total: $53,500
  

To max out the $69,000 limit, you’d need about $183,000 in wages.

🎯 How to Set Up a Solo 401(k) for an S-Corp

Here’s how to establish your plan and stay compliant:

1. Choose a Plan Provider

Look for providers offering:

• Roth Solo 401(k) options
  

• Loan features
  

• Self-directed 401(k) investments (e.g., real estate)
  

2. Meet Deadlines

• Plan must be established by Dec 31 to contribute for that year.
  

• Employee deferrals must be elected by Dec 31.
  

• Employer contributions can be made by your business’s tax-filing deadline (plus extensions).
  

3. File Form 5500-EZ (If Needed)

If plan assets exceed $250,000, you must file Form 5500-EZ annually.

Typically your plan administrator will file these on your plan’s behalf.

4. Maintain Good Records

Keep documentation for:

• Contributions
  

• W-2 wages
  

• Plan setup and amendments
  

🔁 Solo 401(k) vs SEP IRA for S-Corp Owners

If you want to maximize savings and flexibility, the Solo 401(k) is usually the better option.

🤔 Choosing the Best Retirement Plan for S-Corps

The best retirement plan for an S-Corp owner depends on your goals:

• Want higher savings with tax flexibility? ➡️ Solo 401(k)
  

• Want simplicity without employee contributions? ➡️ SEP IRA
  

• Need liquidity? ➡️ Choose a plan with a loan feature
  

Roth vs. Traditional Solo 401(k)

• Roth Solo 401(k): Pay tax now, grow tax-free
  

• Traditional Solo 401(k): Defer taxes now, pay later
  

Your age, income, and tax strategy will help guide this decision.

📌 Frequently Asked Questions

Q: Can I open a Solo 401(k) mid-year?
Yes, as long as it’s before December 31 for that tax year.

Q: Can my spouse participate too?
Yes—if they earn income from the S-Corp.

Q: Can I have other retirement plans too?
Possibly, but IRS limits still apply across all plans.

✅ Final Thoughts: Maximize Your Tax Savings

For S-Corp owners, the Solo 401(k) is a top-tier way to boost retirement savings and reduce taxes—but only if set up and structured correctly.

• Set reasonable compensation
  

• Understand contribution mechanics
  

• Work with a CPA or tax advisor
  

Proper planning can turn this plan into a powerful tax-sheltered savings machine.

Resource: https://www.irs.gov/retirement-plans/one-participant-401k-plans