Can an S Corp Have a Solo 401k? Eligibility, Rules & Limits
POINTS
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S corps can have Solo 401(k)s without eligible employees.
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Contributions are based on W-2 wages, not distributions.
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The 2026 employee limit is $24,500.
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Owners can contribute as employees and employers.
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Eligible employees can end Solo 401(k) status.
S corporation owners can establish retirement plans through their businesses.
A Solo 401(k) allows an owner to make contributions in both an employee and employer capacity.
For S corporations, those contributions are tied to the owner’s compensation rather than the company’s distributions.
Do I Need An EIN For A Solo 401(k)?
Setting up a Solo 401(k)? Find out when you need an EIN, whether you can use your business EIN or SSN, and how to get the right EIN for your retirement plan.
Get The Solo 401(k) EIN ChecklistHow a Solo 401(k) Works for an S Corp
An S Corp can establish a Solo 401(k) plan just like any employer.
| Step | What Happens | Example |
|---|---|---|
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1. Your S Corp Pays You
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You receive a W-2 salary from your S Corp. | You pay yourself $100,000 |
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2. You Contribute as the Employee
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You put part of your salary into your Solo 401(k). | You contribute $24,500 |
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3. Your S Corp Contributes as the Employer
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Your company can make an additional contribution based on your W-2 salary. | Up to $25,000 at a $100,000 salary |
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4. Both Contributions Go Into Your 401(k)
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Your employee and employer contributions build your retirement savings. | $49,500 total |
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5. Your Distributions Are Separate
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Money you take as an S Corp distribution does not count as compensation for 401(k) contributions. | A $100,000 distribution doesn’t increase your contribution limit |
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6. Your Money Is Invested
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The money in the Solo 401(k) can be invested according to your plan’s options. | Stocks, bonds, mutual funds, etc. |
In this plan, the corporation sets up a retirement trust or account, often via a custodian that holds the employee retirement accounts.
The owner-employee then makes contributions in two capacities:
| Role | Contribution | How It Works |
|---|---|---|
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Employee
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Elective Deferral | You choose to put part of your W-2 salary into your Solo 401(k). It can be Traditional (pre-tax) or Roth, if your plan allows. You can elect up to 100% of compensation, subject to the annual IRS limit. |
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Employer (S Corp)
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Employer Contribution | Your S Corp contributes additional money to your Solo 401(k) on your behalf. The contribution can generally be matching or nonelective (profit-sharing) and is based on your W-2 compensation. For an S-corp owner-employee, the employer contribution can generally be up to 25% of compensation. |
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Eligibility for an S Corp Solo 401(k)
An S Corp Solo 401(k) is designed for a business with no eligible employees other than the owner and, optionally, the owner’s spouse.
1. The Owner Must Be an Employee
The S Corp owner must work for the business and receive W-2 compensation.
This allows the owner to participate in the Solo 401(k) as both an employee and the employer.
2. A Spouse Can Participate
A spouse who works for the S Corp can also participate in the Solo 401(k).
If both spouses receive compensation from the business, each spouse can make contributions based on their own compensation and applicable contribution limits.
3. Other Employees Can Affect Solo 401(k) Eligibility
A Solo 401(k) is intended for businesses with no eligible common-law employees other than the owner and spouse.
If the S Corp hires an employee who becomes eligible under the plan, that employee generally must be included.
At that point, the plan is no longer simply a one-participant 401(k), and additional 401(k) requirements may apply.
4. Part-Time Employees
Don’t assume that an employee is automatically excluded because they work part-time.
401(k) eligibility rules can require certain long-term, part-time employees to be included.
The specific requirements depend on the employee’s age, service, hours worked, and the terms of the plan.
5. Related Businesses
If the owner has other businesses, controlled-group and related-business rules may affect Solo 401(k) eligibility.
How Much Can an S Corp Owner Contribute?
For an S Corp owner, contributions are calculated from the owner’s W‑2 wages.
| Solo 401(k) — S-Corp Owner | Amount |
|---|---|
| Employee contribution | $24,500 |
| Age 50+ catch-up | +$8,000 |
| Age 60–63 catch-up | +$11,250 |
| Employer contribution | Up to 25% of W-2 wages |
| Overall limit | $72,000 |
| Overall limit, age 50+ | $80,000 |
| Overall limit, age 60–63 | $83,250 |
| S-Corp distributions | Don’t count |
Because the employer share is 25% of wages, the owner’s maximum contributions depend on their salary.
Example: To reach the $72,000 contribution limit for someone under 50, an owner would need about $190,000 in wages.
The calculation is $24,500 in employee deferrals plus 25% of $190,000 ($47,500), for a total of $72,000. If wages are lower, the maximum allowable contribution is lower as well.
Table: Sample calculations
| W-2 Wage | Max Employee Deferral | Max Employer Contribution (25%) | Total — Under 50 | Total — Age 50–59 | Total — Age 60–63 |
|---|---|---|---|---|---|
| $50,000 | $24,500 | $12,500 | $37,000 | $45,000 (+$8,000) | $48,250 (+$11,250) |
| $100,000 | $24,500 | $25,000 | $49,500 | $57,500 | $60,750 |
| $190,000 | $24,500 | $47,500 | $72,000 (cap) | $80,000 (cap) | $83,250 (cap) |
We are assuming the owner maximizes both deferral and employer contributions.
W-2 Salary vs. S Corp Distributions
For an S Corp owner, W-2 wages and distributions are treated differently.
- W-2 wages are compensation for services and count toward Solo 401(k) contributions.
- Distributions are shareholder payments and do not count as retirement-plan compensation.
| Key Difference | W-2 Salary | S Corp Distribution |
|---|---|---|
| What it is | Pay for services provided to the S Corp | Payment of corporate funds to the shareholder |
| Counts for Solo 401(k)? | Yes | No |
| 401(k) contribution basis | Based on W-2 compensation | Cannot be based on distributions |
| Payroll taxes | Yes | Generally no |
| Reported as | Form W-2 | S Corp shareholder distribution |
| Reasonable compensation? | Yes — must be reasonable for services performed | Cannot be used instead of reasonable compensation |
| Example | $80,000 W-2 salary → 401(k) contributions can be based on $80,000 | $20,000 distribution → adds $0 to 401(k) compensation |
Solo 401(k) contributions are based on W-2 wages, not S Corp distributions or K-1 income.
The W-2 salary must also reflect reasonable compensation for the services the owner provides.
How Much Does A 401(k) Grow Per Year?
See how much your 401(k) could grow each year based on returns, contributions, employer matching, and compounding.
Calculate 401(k) GrowthWhat If the S Corp Has Employees?
If the S Corp hires non-owner employees who meet plan eligibility
- age 21+, ≥1 year of service
the Solo 401(k) can no longer remain one-participant.
In that case:
- Plan must include employees: The company must allow eligible employees to join the 401(k) plan on the same terms.
- Testing and limits: A plan covering multiple employees must satisfy IRS nondiscrimination tests unless it is a safe-harbor plan.
- Loss of Solo advantages: Once employees are included, the 1-participant exemptions apply no more. The S Corp must treat the plan as a regular 401(k) going forward.
Before hiring employees who could become eligible under the age 21 and 1-year service rule, consider how their participation could affect the retirement plan.
A Solo 401(k) generally works best when the business is expected to remain owner-only. If hiring employees is likely, it may be worth choosing a SEP IRA or another retirement plan from the beginning.
Can Multiple S Corp Owners or a Spouse Participate?
The table below shows who can participate in a Solo 401(k) and when having multiple owners, a spouse, or employees may change the type of retirement plan required.
| Situation | Can They Participate? | Is It a Solo 401(k)? | Explanation |
|---|---|---|---|
| 1 owner, no employees | Yes | The owner is the only participant. | |
| Owner + working spouse | Yes | A spouse who works for the business can participate too. | |
| 2 unrelated owners | No | Two unrelated owner-employees means it is no longer a one-participant plan. | |
| Owner + regular employee | No | Eligible employees generally must be included. | |
| Owner has multiple businesses | Depends | The businesses may have to be treated as one employer. | |
| Spouses own separate businesses | Depends | Spousal ownership can create additional aggregation issues. |
An owner can generally share a Solo 401(k) with a working spouse, but adding an unrelated owner or eligible employee generally means the plan is no longer a one-participant 401(k).
Multiple businesses may also need to be combined under IRS aggregation rules.
How to Set Up a Solo 401(k) Through an S Corp
To establish a Solo 401(k), you need to follow these several steps
| Step | What You Do | Process |
|---|---|---|
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Check Eligibility
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Make sure you qualify | You generally must have no eligible employees, except possibly your spouse. |
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Set Your W-2 Salary
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Determine your S-corp salary | Your 401(k) contribution is based on your W-2 pay, not S-corp distributions. |
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Choose a Provider
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Pick a Solo 401(k) provider | Compare fees, Roth options, investments, loans, and plan features. |
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Open the Plan
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Complete the paperwork | Your S corporation sponsors the 401(k). |
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Open the Account
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Establish your 401(k) account | Follow the provider’s instructions to open the retirement account. |
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Set Up Payroll
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Add your 401(k) contribution to payroll | Your employee contribution comes from your W-2 salary. |
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Make Your Employee Contribution
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Put money in as the employee | For 2026, the basic elective-deferral limit is $24,500, subject to the applicable rules. |
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Make the Employer Contribution
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Have the S corp contribute | The S corp can generally make an employer contribution based on your eligible compensation. |
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Check Your Limits
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Make sure you didn’t overcontribute | Check the employee + employer limits and any applicable catch-up rules. |
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Keep Records
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Save your paperwork | Keep the plan documents, payroll records, contribution records, and statements. |
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Check Form 5500-EZ
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File if required | Generally required when the one-participant plan has $250,000+ in assets at year-end. |
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Review Every Year
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Recheck the plan | Update contributions and limits each year and reassess if you hire employees. |
For a calendar-year S Corp Solo 401(k), the main deadlines generally fall throughout the year: adopt the plan by December 31, deposit salary deferrals with each payroll and no later than year-end, and make employer profit-sharing contributions by the applicable tax-return deadline, including extensions.
If required, Form 5500-EZ is generally due July 31. A Gantt chart can help visualize these deadlines across the year.
Solo 401(k) vs. SEP IRA for an S Corp
A Solo 401(k) generally allows higher contributions than a SEP IRA.
With a SEP IRA, only the employer makes contributions, whereas a Solo 401(k) adds the owner’s elective deferrals on top.
So, an owner who earns enough to max out can contribute up to its limit or more in a Solo 401(k).
| What Matters? | Solo 401(k) | SEP IRA |
|---|---|---|
| How much can I contribute? | Usually more flexible. Up to $24,500 as employee + employer contributions, subject to the $72,000 overall limit in 2026. Catch-up contributions can go above that. | Up to $72,000 in 2026, generally based on employer contributions and subject to compensation limits. |
| Can I contribute from my paycheck? | Yes. You can make employee salary-deferral contributions. | No traditional salary deferral. The employer makes the contribution. |
| Roth option? | Yes, if the plan offers Roth contributions. | Possible, but Roth SEP arrangements are newer and less common. |
| Catch-up contributions? | Yes. $8,000 generally at age 50+ in 2026; $11,250 for ages 60–63. | No. |
| Can I take a plan loan? | Potentially yes, if the plan allows loans. | No. |
| How easy is it to maintain? | More paperwork and administration. A one-participant 401(k) generally has a Form 5500-EZ filing requirement once plan assets reach $250,000 or more. | Very simple. Generally much less administration. |
| What if I hire employees? | More complicated. Eligible employees generally need to be included, and testing/compliance requirements can apply. | Can get expensive. When you contribute, eligible employees generally must receive contributions under the SEP’s rules. |
| Best for… | Owners who want maximum contribution flexibility and features | Owners who want simplicity and low administration |
Which to choose?
Which one makes sense for you depends on whether you want more flexibility or less hassle.
Choose a Solo 401(k)
- Higher contribution flexibility
- Contribute as both employee and employer
- Roth contributions
- Catch-up contributions
- Option of a 401(k) loan, if the plan allows it
- More retirement-plan features and you’re comfortable with more paperwork
Choose a SEP IRA
- Simple, low-maintenance administration
- Keep your retirement plan easy to manage
- Flexibility to make or skip employer contributions from year to year
- A straightforward option for a business with variable or seasonal income
- Fewer plan-management requirements
Solo 401(k) FAQs for S Corp Owners
No. Solo 401(k) contributions are based on W-2 compensation from the S Corp. Shareholder distributions and K-1 income do not count.
It depends. If the employee meets your plan’s eligibility requirements, they generally must be included. A Solo 401(k) is generally limited to the owner and the owner’s spouse.
For an S Corp, the plan generally should be established by December 31. Employee contributions are made through payroll, while employer contributions generally can be made by the corporate tax-filing deadline, including extensions.
Generally, only if plan assets exceed $250,000 at year-end. Once the filing requirement applies, Form 5500-EZ generally must be filed each year.
Yes, if your plan allows them. Employee elective deferrals can generally be made as Roth contributions, while employer profit-sharing contributions are generally pre-tax.
Your contributions are based on your W-2 compensation from the S Corp. Paying yourself too little can limit your contributions and may create tax and compliance issues.
Yes. If both spouses work for the S Corp and receive eligible compensation, each can participate and have separate contribution limits.
Yes. However, your employee elective deferrals generally share one annual limit across 401(k) plans. For 2026, the limit is $24,500, before applicable catch-up contributions.
Yes. You can generally continue contributing as long as you have eligible compensation. However, required minimum distribution rules may require you to begin taking distributions at the applicable age.
It depends. A Solo 401(k) generally offers more flexibility and may allow Roth contributions and loans. A SEP IRA is generally simpler to administer.
Generally, yes. If your plan accepts rollovers, eligible retirement funds can generally be rolled into the Solo 401(k) without counting toward your annual contribution limit.
You may lose the ability to make certain contributions for that year. For an S Corp, establishing the plan by December 31 is generally the safest approach.
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