Can An S Corporation Open A Solo 401k?

Any business structure may set up a Solo 401k if it meets the standard eligibility rules. An S corporation could establish a plan as long as only the owner and, if applicable, the owner’s spouse participate. Other employees who qualify under common-law rules would make the business ineligible. The IRS does not require an additional minimum ownership threshold for S corporations.

Here’s everything you need to know about opening a Solo 401k plan as an S corporation owner.

What Is an S Corporation?

An S corporation, short for Subchapter S corporation, is a type of business structure recognized by the IRS. It does not pay federal income tax at the corporate level; instead, taxable income, deductions, credits, and losses “pass through” to shareholders, who report them on their individual tax returns. Because of this pass-through treatment, S corporations generally avoid the double taxation that applies to C corporations.

✏️ Hypothetical Example: 

Suppose an S corporation earns $100,000 in taxable income. The business itself does not pay federal income tax on that amount. Instead, the $100,000 is passed through to the shareholder’s personal tax return, where it is taxed as part of their ordinary income.

Can you open a Solo 401k as an S corporation?

Yes. An S corporation owner can open a Solo 401k if the business meets the IRS requirements. The eligibility rules are the same across business types.

To qualify for a Solo 401k, the business must:

✅ Have self-employment activity that generates earned income.

✅ Have no employees other than the owner and, if applicable, the owner’s spouse.

📝 Note: Employees include part-time workers who meet IRS long-term part-time (LTPT) rules. Specifically, anyone age 21 or older who works at least 500 hours per year for two consecutive 12-month periods is considered eligible. If you hire such an employee, your S corporation would no longer qualify for a Solo 401k.

📌 Also read: Can an LLC open a Solo 401k?

Does Your S Corporation Have Multiple Shareholders?

An S corporation does not need to meet a minimum ownership percentage to qualify for a Solo 401k. Any shareholder-owner may participate if the business has no non-owner employees who meet IRS eligibility rules.

Key points to remember:

This means an S corporation with more than one shareholder could still open a Solo 401k, provided it remains free of common-law employees who qualify under the IRS rules.

Solo 401k Contribution Limits for S Corporations

For 2025, the maximum Solo 401k contribution is $70,000 (or $77,500 if you are age 50 or older and make catch-up contributions).

The contribution is made up of two parts:

📝 Note: Only W-2 wages count as eligible compensation for S corporation Solo 401k contributions. Shareholder distributions reported on Schedule K-1 do not qualify.

If contributions are mistakenly based on distributions instead of W-2 wages, the error may need to be corrected. The IRS provides correction procedures that typically involve removing the excess contribution and addressing any tax implications.

✏️ Hypothetical Example: Suppose you pay yourself $80,000 in W-2 wages through your S corporation. In 2025, you could contribute:

This brings your potential total to $43,500. If you are age 50 or older, you may add a $7,500 catch-up contribution, raising the total to $51,000.

When Is the Solo 401k Contribution Deadline for an S Corporation?

Solo 401k contributions have different deadlines depending on whether they come from the employee or the employer.

Employee contributions

Employer contributions

S corporations have until March 16, 2026 (the corporate tax filing deadline) to fund profit-sharing contributions. These must go into a traditional Solo 401k in pre-tax dollars. Employer contributions cannot be made to a Roth Solo 401k.

How to Open a Solo 401k as an S Corporation

The setup process is generally the same across business types:

Each provider has its own rules, investment options, and level of administrative support. Some plans include Roth contributions, others do not. Some make it easier to invest in real estate or private assets, while others focus on traditional brokerage accounts.

📌 Carry is a fully-managed Solo 401k plan with plan document and establishment services, ongoing administration support, and an integrated investment platform (you don’t need to open your own bank and brokerage accounts).

In Summary

Solo 401k plans can offer S corporation owners a flexible way to save for retirement while reducing taxable income. Contribution rules may feel technical at first, but once you understand the deadlines, compensation rules, and account setup process, managing a plan becomes more straightforward. 

Choosing the right provider can also make a difference, since features, investment options, and support vary across platforms.

📌 If you’d like to keep building your retirement knowledge, we’ve covered more topics you might find helpful:

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