💡 Confused about how much you can contribute to retirement as a self-employed business owner or S Corp shareholder?
In this video, Stephen Morris from Advise RE breaks down retirement plan rules for business owners, including the critical differences between Schedule C income and S Corporation wages. Whether you’re using a Solo 401(k) or a SEP IRA, this video will walk you through:
✅ What You’ll Learn in This Video:
✔ How retirement contributions work for Schedule C, Partnerships, and S Corps
✔ Key contribution limits for SEP IRAs and Solo 401(k)s
✔ The difference between employer and employee contributions
✔ Why S Corp owners must run payroll to get retirement deductions
✔ Important IRS deadlines to know for retirement plan compliance
✔ Common mistakes business owners make — and how to avoid them
📊 Example Scenarios Covered:
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How a $100K income leads to a $25K SEP contribution
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How to structure W-2 payroll to contribute $35K+ to a Solo 401(k)
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Why a $500K S Corp owner can’t defer whatever they want
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How to avoid losing your entire retirement deduction due to late payroll
🧠Ideal for:
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Self-employed professionals
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Real estate investors
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S Corp owners and partners
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Small business owners looking to lower their tax bill while saving for retirement
📆 Pro Tip: Solo 401(k) employee deferrals must be made by December 31, but employer contributions can be made up to your tax filing deadline. For S Corps, if you miss payroll by year-end — your plan might be invalid.
TRANSCRIPT:
Welcome back everybody to another edition of AdviseRE. Stephen Morris here, and today we’re going to be talking about retirement plans—specifically, what IRS limitations apply, how you can defer your taxes, and what technical rules you need to be aware of. Let’s dive right in.
Retirement plans generally require some level of employment or self-employment income to trigger eligibility. What does that mean exactly?
Self-employed income includes anything reported on a Schedule C that is not passive—meaning you’re actively involved in the business. If you’re a partner in a partnership, income generated through your services is considered ordinary income, subject to self-employment tax, and therefore eligible for retirement contributions.
Let’s begin with one of the most basic plans: the SEP IRA. SEP contributions are typically limited to 25% of your self-employment earnings. So, if you earn $100,000 as a self-employed person or through a partnership, your maximum SEP IRA contribution would be $25,000.
Importantly, it’s the business that contributes to the SEP IRA—not the individual. This contribution is deductible as a business expense. While for a sole proprietor this may feel like the same pocket, technically it’s an employer contribution made on your behalf.
Unlike a 401(k), the SEP IRA does not allow employee contributions—only employer contributions are allowed. That distinction is important, especially for sole proprietors and partners.
Now let’s talk about the Solo 401(k), which is different. It offers two layers of contribution: an employee deferral and an employer deferral.
On the employee side, you can defer roughly $23,000 (subject to inflation). This amount is taken pre-tax from wages. For example, if you pay yourself $50,000 and contribute $23,000 to your Solo 401(k), your W-2 would reflect only $27,000 in Box 1.
On the employer side, the business can contribute up to 25% of wages. So in the $50,000 example, the employer could contribute $12,500. Combined, the total contribution is $35,500—a significant tax-deferred amount, especially when compared to the traditional IRA limit of only $7,000.
The maximum combined deferral for Solo 401(k) is around $66,000–$67,000 (depending on inflation). To hit that cap, you’d need wages of roughly $265,000–$270,000.
Timing is also important. Employee deferrals must be elected by December 31 of the tax year. Employer contributions, however, can be made up to the tax filing deadline (with extension)—typically September 15 for partnerships and S corps, or October 15 for sole proprietors.
Now let’s shift gears to the S Corporation scenario. With Schedule C filers and partnerships, all income is subject to self-employment tax and easily eligible for contributions. But with S corps, it’s different.
S corp owners often mistakenly assume that all business income qualifies for retirement savings. However, contributions are limited to payroll wages, not overall income. Many S corp owners underpay themselves (e.g., $50,000 salary on $500,000 net income), yet attempt to make $100,000 in retirement contributions—far exceeding IRS limits.
For an S corp owner to defer $37,500, they must:
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Pay themselves $100,000 in wages before year-end
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Elect to contribute $22,500 as an employee deferral
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Allow the employer to contribute 25% of wages ($25,000)
This structure enables the full $37,500 contribution, but it only works if payroll is run before December 31. If you miss this window, you lose the opportunity to make contributions.
This applies to both Solo 401(k) and SEP IRA plans within S corps. For a SEP, if you want to contribute $50,000, you’ll need to set payroll at $200,000—and do it before year-end. Only then can the employer contribute the 25% after the filing deadline and earn the deduction.
To summarize:
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Schedule C and partnerships allow more flexibility, as contributions are based on net income.
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Solo 401(k) employee contributions must be made by Dec 31, while employer contributions can be made later.
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S corps must run payroll before year-end to make any valid contributions.
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Working with a CPA ensures you calculate the right payroll, avoid excess contributions, and hit tax deadlines.
Retirement plans are a powerful tax tool—but only when used properly. If you have questions or want help planning your year-end strategy, feel free to reach out to us. We’d be happy to help.
Thanks so much for watching!
