Solo 401(k) contributions by business structure

Take Dana, who runs a one-person design studio out of a spare room in Columbus and cleared $150,000 this year. A solo 401(k) lets her pay in twice: as the worker, and again as the boss. The worker half is the same whatever your structure is. The boss half isn't. As a sole proprietor it's tied to profit. As an S corp owner it's tied to your salary, and if you pay yourself a small salary to save payroll tax, that half gets small too.

Who can have one

The IRS page on one-participant 401(k) plans says it's for an owner with no employees (a spouse can join). No yearly IRS filing at first. That changes when the account crosses $250,000 at a year end, and from then on it's generally a Form 5500-EZ each year.

The 2026 numbers

These come from the IRS release IR-2025-111 and Notice 2025-67.

The $24,500 is yours, not the plan's, which trips people up. The IRS says you add up your deferrals across every plan. If Dana also had a part-time job with a 401(k), the two plans would split one $24,500 between them. Also, everything going in can't be more than 100% of what you earned that year.

Sole proprietor or single-member LLC

The plan will say the employer can put in 25% of compensation, and for a sole proprietor that word means net earnings from self-employment minus half your SE tax and minus the contribution itself. That last part is circular, which is why the rate table in Publication 560 turns 25% into 0.20. So the real rule is 20%, applied after you take off half the SE tax.

Here's the studio at $150,000, owner under 50. Schedule SE has you take 92.35% of profit first, which is $138,525. SE tax at 15.3% on that comes to $21,194, half of which ($10,597) you knock off the $150,000, leaving $139,403, and 20% of that gives Dana an employer contribution of $27,881. With her $24,500 deferral she can put away $52,381.

(The SE tax math is this easy only because $138,525 is under the 2026 Social Security wage base of $184,500. Above that, the 12.4% part stops.)

If Dana turns 61 in 2026 she gets $11,250 more (so $63,631), because catch-up money doesn't count toward the $72,000 cap. A multi-member LLC member does the same math on their own share of earnings.

S corp owner

Now say Dana elects S corp status. She's now an employee of her own company, and the IRS is clear that S corp distributions are not earned income for a retirement plan. Only her W-2 pay counts. The company can put in up to 25% of it, which is the cap in section 404(a)(3). No SE tax step, no circular math. 25% means 25%.

If she pays herself $60,000, the company can add $15,000, and with her deferral that's $39,500, which is $12,881 less than she could save as a sole proprietor on the same profit. At a $100,000 salary it's $49,500. She'd need about $112,000 of salary just to get back to $52,381.

Very low salaries hit a second wall. You can't defer more than you're paid, so on $20,000 of wages the most you can defer is $20,000, and the company can add $5,000 more.

The salary trade-off

People elect S corp status to pay a reasonable salary and take the rest as distributions, which have no payroll tax on them. Fine, but every dollar Dana moves out of salary saves her about 15 cents in payroll tax and costs her 25 cents of room in the 401(k).

The $72,000 ceiling makes the gap obvious. The sole proprietor gets there once profit after the SE tax step reaches $237,500. The S corp owner needs a $190,000 salary. Not many one-person S corps pay $190,000 in wages on purpose.

And the deferral doesn't dodge payroll tax. Publication 560 says elective deferrals count as wages for Social Security and Medicare. Her $24,500 deferral out of a $60,000 salary is still taxed for FICA, all $60,000 of it.

So which matters more to you, the payroll tax saving or the bigger 401(k)? Put your numbers in the S corp savings calculator. The structure switch calculator shows the yearly cost of each setup next to each other.

Deadlines

Publication 560 says a self-employed owner has to elect the deferral by the end of the tax year. The cash can follow by the return due date, extensions included. S corp deferrals come out of your W-2 pay, so they go through payroll during the year.