Retirement Plans for S Corp Owners: Solo 401(k), SEP, and Deadlines

S-corporation owners have four workable retirement plans to choose from: the SEP IRA, the SIMPLE IRA, the Solo 401(k), and a defined benefit plan. Every one of them calculates contribution room off the owner’s W-2 wages rather than total business profit, so the salary you set for yourself controls how much you can save. Depending on the plan and the salary behind it, retirement plans for S corp owners can shelter anywhere from roughly $21,000 to well over $200,000 a year in 2026.

Start with the W-2 Salary

The IRS requires S-corp shareholder-employees to receive reasonable compensation for services they provide to the business before any non-wage distributions are paid out.¹ That salary is not just a payroll-tax issue. It is the number every retirement plan uses to compute your limit.

An owner paying themselves $60,000 has very different contribution room than one earning $200,000. Set the salary too low and the IRS can reclassify distributions as wages with back taxes and penalties. Set it too high and you overpay payroll tax and shrink your distributable cash. Within the range the IRS considers defensible, the salary itself becomes a planning lever: higher wages mean larger employer contributions, lower wages save payroll tax but tighten plan room. Run the numbers with an accountant rather than guessing.

Solo 401(k) for Owner-Only Businesses

If the S-corp has no employees other than the owner and possibly a spouse, the Solo 401(k) is the strongest option available. It lets you contribute in two capacities from the same salary: as an employee deferring wages and as the employer making a profit-sharing contribution.

2026 Contribution Limits

On the employee side, the owner can defer up to $24,500 from W-2 wages. Participants 50 and older add an $8,000 catch-up, and those turning 60 through 63 during the year qualify for an $11,250 super catch-up instead.² On the employer side, the S-corp can contribute up to 25% of the owner’s W-2 wages as profit sharing. Combined employee and employer contributions cannot exceed $72,000, not counting catch-up amounts.³

The math scales quickly. At a $100,000 salary, an owner can defer $24,500 and have the S-corp contribute another $25,000 for a total of $49,500 before any catch-up. At $200,000, the employer piece rises to $47,500 and the combined total hits the $72,000 cap.

Roth Deferrals, Loans, and Spouses

A Solo 401(k) can accept Roth employee deferrals up to the same $24,500 limit, contributed after tax and withdrawn tax-free in retirement. That is a real edge over IRA-based plans for anyone expecting higher rates later. If the plan document allows it, the account can also make loans of up to $50,000 or 50% of the vested balance, repayable within five years with substantially level payments at least quarterly. No IRA-based plan permits loans.⁴

A spouse who draws W-2 wages from the S-corp can participate on the same terms, roughly doubling household savings capacity. Each spouse gets their own deferral limit and their own employer contribution.

Once total plan assets in all one-participant plans an employer maintains exceed $250,000 at year-end, the plan must file Form 5500-EZ annually. Below that threshold, no filing is required unless it is the plan’s final year.⁵

SEP IRA

A Simplified Employee Pension is the easiest S-corp plan to set up. The corporation makes all contributions on the employer side; there are no employee deferrals. For 2026, the business can contribute up to 25% of an owner-employee’s W-2 wages, capped at $72,000. Only compensation up to $360,000 counts, so the cap ties out at $288,000 of wages.³

Contributions are flexible year to year. The company can fund 0% to 25% of wages, which suits businesses with uneven cash flow. The catch is uniformity: whatever percentage the owner receives, every eligible employee must receive the same percentage. Employees qualify at age 21 with three of the last five years of service and at least $800 in current-year compensation, and all contributions vest immediately.⁶

The SEP’s biggest advantage is timing. You can establish and fund it as late as the business tax return due date including extensions.⁶ For a calendar-year S-corp on extension, that runs to September 15. No other plan can be created retroactively for a closed year. The drawback is the flip side of its simplicity: no employee deferrals, so the owner cannot reduce personal taxable wages, and the equal-percentage rule can get expensive fast when payroll is large relative to the owner’s salary.

SIMPLE IRA

A Savings Incentive Match Plan suits S-corps with up to 100 employees that want both employee and employer contributions without the paperwork of a full 401(k). The business cannot maintain any other employer-sponsored retirement plan at the same time.

For 2026, employees can defer up to $17,000. Participants 50 and older get a $4,000 catch-up for a total of $21,000. Under SECURE 2.0, those turning 60, 61, 62, or 63 during the year qualify for a $5,250 catch-up, reaching $22,250.⁷

The corporation must pick one of two employer formulas each year: dollar-for-dollar match on employee deferrals up to 3% of each participant’s W-2 wages, or a flat 2% contribution for every eligible employee whether they defer or not. Employees must be notified of the chosen formula before the annual election period.⁸

Deadlines are strict. New employers can establish a SIMPLE IRA any date from January 1 through October 1. If you previously maintained one, the new plan year has to start on January 1. Businesses formed after October 1 can set up the plan as soon as administratively feasible.⁹ Reading this in November with nothing in place? A SIMPLE IRA is off the table for the current year.

SECURE 2.0 also lets employers offer employees the option of routing salary reduction contributions into a Roth IRA instead of a traditional IRA under a SEP or SIMPLE. Employer contributions to a Roth SEP or Roth SIMPLE are reported on Form 1099-R rather than Form W-2 and are not subject to income tax withholding at the time of contribution.¹⁰

Defined Benefit Plans for High Earners

When an S-corp owner wants to shelter far more than $72,000 a year, a defined benefit plan is the only route that gets there. These operate like traditional pensions: an actuary calculates what the company must contribute each year to fund a promised retirement benefit, and the annual funding obligation is a deductible business expense.

For 2026 the maximum annual benefit payable at retirement age is $290,000.³ The contribution required to fund it depends on the owner’s age, years to retirement, and investment assumptions. A 55-year-old planning to retire at 65 needs much larger annual contributions than a 40-year-old because there are fewer years of compounding. Annual contributions above $200,000 are common for owners in their late 50s and early 60s.

The tradeoffs are cost and rigidity. Actuarial recalculations happen every year, and the company is legally obligated to fund the required amount regardless of business performance. Administrative fees run several thousand dollars annually. Defined benefit plans work best for businesses with stable, high income and owners within 10 to 15 years of retirement. Pairing one with a 401(k) is a common strategy to maximize both sides of the tax code.

Setup and Contribution Deadlines

Missing a deadline can cost a full year of tax-deferred savings. The three main plan types run on different timelines.

SEP IRA: can be established and funded as late as the business tax return due date including extensions, which is March 15 for a calendar-year S-corp or September 15 on extension. This is the only plan you can set up retroactively for a tax year that has already ended.⁶
SIMPLE IRA: must be established by October 1 for new plans; existing plans renew on January 1. Employee deferrals must begin during the plan year.⁹
Solo 401(k): plan documents must be executed by December 31 of the tax year for employee deferrals to count. Employer profit-sharing contributions can go in up to the tax return deadline including extensions, but the plan itself has to exist before year-end.

Compliance Traps

The same rules that govern any employer-sponsored plan apply to S-corp plans, and the penalties can wipe out years of tax savings.

Prohibited Transactions

A prohibited transaction is any improper dealing between the plan and a “disqualified person,” meaning the owner, family members, or the business itself. Borrowing from a SEP or SIMPLE IRA (IRA-based plans do not allow loans), using plan assets as loan collateral, or buying property from the plan are common violations. If an IRA owner engages in a prohibited transaction at any point during the year, the entire account stops being an IRA as of January 1 of that year, triggering a taxable deemed distribution of all assets.¹¹

Excess Contributions

Over-contributing to an IRA triggers a 6% excise tax on the excess for each year it stays in the account. For 401(k) plans, excess elective deferrals must be distributed by April 15 of the following year; missing that deadline subjects the excess to double taxation and can jeopardize the plan’s qualified status.¹² A 10% excise tax applies to nondeductible employer contributions to qualified plans, including SEP and SIMPLE IRAs. Accurate W-2 wage records and careful contribution tracking are what keep these penalties out of the picture.

Which Plan Fits

The decision path is shorter than it looks. No employees other than the owner (or a spouse)? A Solo 401(k) almost always wins on total contribution room, Roth availability, and the loan feature. Employees on payroll and the goal is minimal paperwork? A SEP IRA is simplest, as long as covering everyone at the same percentage is affordable. Want employees to share the cost through their own deferrals, and payroll is 100 or fewer? A SIMPLE IRA fits. Earning well into six figures and want to shelter far more than $72,000? Layer a defined benefit plan on top of a 401(k).

Whichever plan you choose, the salary decision comes first. Every contribution limit above is a percentage of, or a cap against, W-2 wages, and no plan structure can save more than the underlying paycheck allows.

1
Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues
2
Internal Revenue Service. IRS Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
3
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
4
Internal Revenue Service. One-Participant 401(k) Plans
5
Internal Revenue Service. Financial Advisors Are Assets in Your Clients One-Participant Plans More Than $250,000
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Internal Revenue Service. Simplified Employee Pension Plan (SEP)
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Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
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Internal Revenue Service. SIMPLE IRA Plan
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Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
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Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2
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Internal Revenue Service. Retirement Topics – Prohibited Transactions
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Internal Revenue Service. Goldilocks and Retirement Plan Contributions