Opening A Solo 401(K)

Opening A Solo 401(K)

3 Reasons S-Corps Need To Open A Solo 401(K)

Tax season can be a complicated and confusing time, but it can also serve as a wake-up call for ways you should be planning for your financial future. Perhaps you read about a type of tax-advantaged account that would have reduced your tax liability for this past year, but it’s too late to get that going. Well, the next best time to get started is now, and one of those accounts that you may have read about is a solo 401(k), especially if you are an S-Corp.

What is a solo 401(k)?

Most people have heard of a 401(k) retirement savings plan, but what exactly is a solo 401(k)? The 401(k) plans you’re likely aware of are the retirement accounts that large corporations set up and contribute to, allowing their employees to contribute pre-tax earnings as well. But, if you are self-employed or run a small business, you may not have that option, so solo 401(k) plans are the equivalent for you.

What do you need to do as an S-Corp?

S-Corps are one of the operating frameworks under which self-employed workers or small business owners may conduct their business, and for such S-corps, it’s especially important to find the best retirement savings plan because you won’t have a larger corporation doing it for you.

So, if you do have an S-Corp, consider the following three reasons why a solo 401(k) might be ideal for you:

Big savings come tax season: When you work for a large corporation and participate in the 401(k) program, one of the big reasons to do so is that the funds you send straight from your paycheck to your 401(k) don’t get taxed, saving you money while building towards retirement. Solo 401(k) plans are the same way, as S-Corp owners will have the opportunity to put up to $56,000 of their pre-tax earnings into this fund.

Save for the future: While reducing your tax burden is always advantageous, a bigger reason to start your solo 401(k) is because of the compounding effect it will have over the years. Participating and contributing heavily into your solo 401(k) not only sets aside the money that you’ll need for retirement, but it also is one of the surest ways to see that money grow on its own over the years.

For tax purposes, you can fund your 401(k) right until the tax deadline: As you prepare your tax return for the previous year, you may find that you wish you had stocked more money away for tax benefits. Luckily, if you own an S-Corp, then you have right until the tax deadline to fund your solo 401(k), though it does already have to be established before the end of the previous calendar year to take advantage of the tax benefits.


If you’re interested in learning how to save for your future, and the tax implications are enough to make your head spin, you can always contact the experts at Tobin & Collins to learn more. We’re here to max tax season easier for you!

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