Confirm who the plan must cover.
A one-participant 401(k) generally covers an owner without employees, or the owner and spouse. Hiring employees who meet plan eligibility requirements changes coverage and may introduce testing. Do not exclude eligible staff simply because the provider calls the plan “Solo.”
Gather employee and ownership facts and existing plan documents. Related-business or employee questions can require a plan specialist; an income-tax engagement is not automatically plan administration.
References: IRS one-participant 401(k) plans
Use the 2026 limits for the right category.
For 2026, the regular elective-deferral limit is $24,500. The general age-50-or-older catch-up is $8,000; for those attaining ages 60–63 in 2026 the higher catch-up is $11,250 instead. The annual-additions dollar limit is $72,000 excluding catch-ups, subject also to compensation and plan rules.
These are separate limits, not amounts every owner can contribute. Deferrals generally share a per-person limit across plans; employer/additions limits and aggregation rules need separate analysis. Higher-paid participants may face Roth catch-up requirements in 2026 using prior-year FICA wages and the applicable $150,000 threshold. Confirm application to the employer and participant.
References: IRS Notice 2025-67: 2026 retirement limits · IRS one-participant 401(k) plans
Distinguish S-corporation wages from distributions.
An S-corporation employee’s retirement contributions are based on W-2 compensation rather than shareholder distributions. Self-employed sole-proprietor calculations instead use an adjusted earned-income computation. Do not apply an S-corporation wage example to Schedule C net profit.
Compensation must also be reasonable for the work performed; retirement capacity alone does not determine a defensible wage.
References: IRS S-corporation retirement contributions · IRS S-corporation compensation
Illustration: contribution capacity, not a recommendation.
Assume a 2026 S-corporation employee under age 50, $100,000 of eligible plan compensation, no other elective deferrals, no eligible employees other than the owner, and a plan permitting the stated contributions. A $24,500 employee deferral plus a $25,000 employer contribution at 25% totals $49,500, below the $72,000 additions limit.
The illustration assumes eligible compensation and ignores plan-specific limits, other plans, aggregation issues and deadlines. It does not establish reasonable compensation, deduction eligibility or an owner’s available cash. Ask the plan adviser to calculate the actual permitted amounts.
References: IRS one-participant 401(k) plans · IRS Notice 2025-67: 2026 retirement limits
Traditional and Roth are different tax choices.
Traditional elective deferrals generally reduce current federal taxable income; designated Roth deferrals are included in current income and qualified Roth distributions are generally tax-free. Both share the applicable elective-deferral limit. State treatment can differ.
Discuss the plan’s available features, expected tax position, holding/qualification rules and implementation with the relevant advisers. Adoption, deferral-election, deposit and reporting deadlines are different requirements; confirm them before transferring funds. Employer Roth features and catch-up rules should not be assumed identical to ordinary employee deferrals.
References: IRS designated Roth accounts
Questions before the next step.
Can I contribute from S-corporation distributions?
Distributions are not retirement-plan compensation. Use the plan’s eligible compensation rules and the correct S-corporation employee analysis.
Can I start a Solo plan if I have staff?
Employee eligibility must be reviewed. The label does not remove coverage and testing responsibilities for eligible employees.