Can an S Corp Have a Solo 401(k)? (2025)

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• An S corporation can have a Solo 401(k), also known as a one-participant 401(k) plan.
• To be eligible, the business must be an S corporation with no employees, or only the business owner and spouse.
• There are no income or age restrictions for setting up a Solo 401(k).
• You can contribute both as an employee (up to $22,500 or $30,000 if 50+) and as an employer (up to 25% of compensation).
• Employer contributions are tax-deductible as a business expense.
• You can borrow up to $50,000 or 50% of your plan balance, whichever is less.
• For 2025, the combined contribution limit is $66,000, or $73,500 with catch-up contributions.
• If your plan balance exceeds $250,000, you must file Form 5500 with the IRS.
• Alternatives to a Solo 401(k) include SEP IRAs, traditional or Roth IRAs, and defined benefit plans.
• Spouses working for the S corporation can also participate in the Solo 401(k).

Yes, an S corporation can have a Solo 401(k) plan, also known as a one-participant 401(k) plan. This type of retirement plan is ideal for small business owners who are either the sole employee or the primary employee of their S corporation.

The Solo 401(k) allows business owners to contribute to their retirement in two ways: as the employee and the employer. It’s a flexible and tax-advantaged way to save for retirement while reducing taxable income.

Eligibility for a Solo 401(k) Plan

To set up a Solo 401(k), certain eligibility criteria must be met. Here’s a breakdown of the requirements:

1. Eligible Business Type: You must operate as an S corporation, which is a tax designation for small businesses. This is essential to ensure that your company can take advantage of the tax benefits of a Solo 401(k).
2. No Employees (or Spouse Only): The Solo 401(k) is designed for businesses that are either solo-owned or have a very small number of employees. You must be the only employee or have your spouse as the only employee. If you hire employees other than your spouse, you are no longer eligible for this type of retirement plan.
3. No Income or Age Restrictions: There are no income limits or age restrictions for a Solo 401(k). As long as you meet the other eligibility criteria, you can participate in the plan regardless of your earnings or age.

Benefits of a Solo 401(k) Plan

The Solo 401(k) offers several benefits for small business owners, especially for those running an S corporation. Some of the key advantages include:

1. Contributions as Both Employee and Employer: One of the most significant benefits is the ability to contribute both as an employee and as an employer. As an employee, you can contribute up to the 2025 limit of $22,500, or $30,000 if you are 50 or older. As an employer, your S corporation can contribute up to 25% of your compensation, adding additional funds to your retirement savings.
2. Employer Contributions Are Deductible: Employer contributions to the Solo 401(k) are deductible as a business expense. This can reduce your taxable income and lower your overall tax burden for the year.
3. Loan Options: With a Solo 401(k), you may be able to borrow from your account, subject to certain conditions. You can typically borrow up to $50,000 or 50% of your account balance, whichever is less. This offers business owners access to capital if needed for personal or business expenses.
4. High Contribution Limits: The Solo 401(k) allows for a higher contribution limit compared to other retirement plans, like a SEP IRA. This is especially beneficial for business owners who want to maximize their retirement savings in a short amount of time.

Contribution Limits for 2025

For the 2025 tax year, the contribution limits for a Solo 401(k) are substantial. Here’s a breakdown of how much you can contribute:

1. Employee Contribution: You can contribute up to $22,500 as an employee for the 2025 tax year. If you are 50 years or older, you are eligible for a catch-up contribution of an additional $7,500, bringing your total employee contribution to $30,000.
2. Employer Contribution: As the employer, your S corporation can contribute up to 25% of your compensation, which is generally considered net earnings from self-employment. This can significantly increase your overall contribution.
3. Combined Limit: The total combined contribution limit (employee and employer contributions) for 2025 is $66,000 for those under 50, and $73,500 for those aged 50 or older, including the catch-up contribution.

It’s important to note that the employee contribution is separate from the employer contribution, which means you can take full advantage of both.

How to Set Up a Solo 401(k) for Your S Corporation

Setting up a Solo 401(k) for your S corporation is a relatively straightforward process, but it requires careful attention to detail. Here are the key steps to get started:

1. Choose a Plan Provider: Many financial institutions and retirement plan providers offer Solo 401(k) plans. When selecting a provider, ensure they can administer the plan in a way that fits your needs, such as offering loan options, allowing for easy tracking of contributions, and providing low administrative fees.
2. Set Up the Plan: Once you choose a provider, you will need to complete the plan documentation. This will include information about your business, your income, and your expected contributions. The provider will then guide you through the necessary steps to set up the account.
3. Make Contributions: After setting up the Solo 401(k), you can begin making contributions. Contributions as an employee can be made through salary deferrals, while employer contributions are made by your S corporation directly into the plan.
4. File Required Forms: If your Solo 401(k) balance exceeds $250,000, you will need to file Form 5500 with the IRS each year. This form provides information about the plan and its participants. If your balance is below this threshold, filing is not required.

Other Retirement Options to Consider

While the Solo 401(k) is an excellent option for many small business owners, there are other retirement plans to consider. Here’s a brief overview of some alternatives:

1. SEP IRA: The SEP IRA is another retirement plan option for business owners. It’s easier to set up and has lower administrative costs. However, the contribution limits are lower than a Solo 401(k), with a maximum employer contribution of 25% of your income, up to a total of $66,000 in 2025.
2. Traditional or Roth IRA: While these individual retirement accounts have lower contribution limits (up to $6,500 for individuals under 50 in 2025), they can still be a valuable part of your retirement strategy. Roth IRAs offer tax-free withdrawals in retirement, making them a great option for long-term growth.
3. Defined Benefit Plan: If you are looking to contribute larger sums toward retirement, a defined benefit plan may be a good option. These plans provide a guaranteed retirement benefit based on factors such as your salary and years of service. However, they require more paperwork and administrative work compared to other retirement plans.

Other Considerations

Here are some additional considerations when deciding whether a Solo 401(k) is the right plan for your S corporation:

1. Consult the IRS Website: The IRS provides detailed guidelines for Solo 401(k) plans, including contribution limits, filing requirements, and other important tax rules. It’s always a good idea to review the official IRS resources to ensure you’re in compliance with all regulations.
2. Use a Solo 401(k) Calculator: Many online tools allow you to estimate how much you can contribute to your Solo 401(k) based on your income and other factors. This can be a helpful way to plan your contributions and make the most of the available tax benefits.
3. Spouse Participation: If you are married and your spouse works for your S corporation, they can also participate in the Solo 401(k). This means you can double your contributions, making the plan even more beneficial for small business owners with spouses involved in the business.

Frequently Asked Questions

Here are some of the related questions people also ask:

What is a Solo 401(k) for an S Corporation?

A Solo 401(k) is a retirement plan for business owners with no employees or only their spouse as an employee. It allows the business owner to contribute as both the employee and the employer, offering higher contribution limits and tax advantages.

Can I set up a Solo 401(k) for my S Corporation if I have employees other than my spouse?

No, a Solo 401(k) is only available to business owners with no employees or only a spouse working for the business. If you hire other employees, you will need to explore different retirement plan options.

What are the contribution limits for a Solo 401(k)?

In 2025, the employee contribution limit is $22,500 (or $30,000 if you’re 50 or older). The employer can contribute up to 25% of compensation, with the total combined contribution limit being $66,000 (or $73,500 with catch-up contributions for those 50+).

Can I borrow from my Solo 401(k)?

Yes, you can borrow from your Solo 401(k) plan up to $50,000 or 50% of your account balance, whichever is less. There are specific rules and repayment terms that must be followed.

How do I set up a Solo 401(k) for my S Corporation?

To set up a Solo 401(k), choose a plan provider, complete the necessary plan documentation, make contributions as both the employee and employer, and file required forms with the IRS if your balance exceeds $250,000.

Are Solo 401(k) contributions tax-deductible?

Yes, employer contributions to the Solo 401(k) are tax-deductible as a business expense, which can reduce your taxable income.

Can my spouse contribute to the Solo 401(k) if they work for my S Corporation?

Yes, if your spouse works for your S Corporation, they can also contribute to the Solo 401(k) and benefit from the same contribution limits, effectively doubling the total contribution potential.

What happens if my Solo 401(k) balance exceeds $250,000?

If your Solo 401(k) balance exceeds $250,000, you are required to file Form 5500 with the IRS annually to report the plan’s details and ensure compliance with regulations.

What are the alternatives to a Solo 401(k) for S Corporation owners?

Alternatives include SEP IRAs, traditional or Roth IRAs, and defined benefit plans. Each option has different contribution limits and benefits, so it’s important to consider your specific needs when choosing a plan.

The Bottom Line

To answer the question, can an S corp have a solo 401k?—yes, an S corporation can absolutely set up and benefit from a Solo 401(k) plan. This plan offers numerous advantages for small business owners, including high contribution limits, tax-deductible employer contributions, and the ability to borrow from the plan if needed.

By contributing as both the employee and the employer, you can maximize your retirement savings while reducing your taxable income.

Before setting up a Solo 401(k), ensure that you meet the eligibility criteria, and consider consulting with a tax professional or retirement plan provider to make sure it’s the right choice for your business. If you’re the sole employee of your S corporation or only have your spouse working with you, the Solo 401(k) could be an excellent way to prepare for a secure retirement.