Best Retirement Plans for Solo-Owned S Corporations (2026)

If you run a construction business as a solo-owned S corporation, your retirement plan is not just a savings decision. It is one of the largest deductions available to you, and the difference between choosing well and choosing by default can be tens of thousands of dollars a year.

The catch is that your salary controls almost everything. In an S-corp, employer contributions are calculated on your W-2 wages, not on total business profit. Set your salary too low to save payroll tax and you quietly cap how much you can put away. That trade-off is the whole game.

Here are the realistic options for 2026, and how to think about which one fits.

SEP-IRA

The simplest option. Employer contributions only, up to 25% of your W-2 wages, capped at $72,000 for 2026.

Best for: a high-income year where you want a large deduction with minimal administration. There is no annual filing, setup takes an afternoon, and you can establish and fund it as late as your extended filing deadline. For a contractor who had an unusually strong year and wants to act after the year has closed, that flexibility is genuinely useful.

Watch for: the 25% ceiling. To hit the full $72,000 you would need roughly $288,000 in W-2 wages, which is far above what most solo S-corp owners pay themselves. At a $120,000 salary, your SEP maximum is $30,000.

Solo 401(k)

Almost always the stronger choice for a solo owner, because it stacks two contribution types.

• Employee deferral: up to $24,500 in 2026, regardless of salary level
• Employer contribution: up to 25% of W-2 wages on top
• Combined cap: $72,000, or $80,000 if you are 50 or older
• Ages 60 to 63: the enhanced catch-up of $11,250 applies, taking the combined total to $83,250

Why it beats a SEP at normal salary levels: that $24,500 deferral does not depend on your wages. At a $120,000 salary, a SEP gets you $30,000. A Solo 401(k) gets you $30,000 plus $24,500, for $54,500. Same salary, $24,500 more sheltered.

Watch for: more administration. Once plan assets pass $250,000 you have an annual Form 5500-EZ filing. And the plan generally needs to be established by year end, so this is a decision to make in November, not the following March.

SIMPLE IRA

Employee deferrals of $17,000 in 2026 ($18,100 for certain plans), plus a required employer match of up to 3% of compensation. Catch-up is $4,000 at 50+, or $5,250 for ages 60 to 63.

Best for: modest salaries where you want to save meaningfully without 401(k) administration, or where you have a couple of employees and want something easy to run.

Watch for: the ceiling is much lower, and the employer match is mandatory once you have eligible employees. If your income is climbing, you will outgrow it.

Profit-sharing plan

Employer contributions of up to 25% of compensation, with real flexibility on how much you put in each year. Often paired with a 401(k) rather than used alone, and some designs allow participant loans if you need access to funds before retirement.

Best for: contractors with genuinely uneven years, which is most of construction. You can contribute heavily after a strong year and lightly after a hard one.

Defined benefit or cash balance plan

Worth mentioning because most contractors do not know it exists. If you are consistently profitable, over 45, and behind on retirement savings, a defined benefit plan can allow contributions well beyond $72,000 a year, sometimes several times that.

Watch for: real commitment. These require an actuary, annual funding obligations regardless of how the year went, and meaningful setup and maintenance costs. In an industry with cash-flow swings, that obligation needs careful thought. But for a high-earning owner in their fifties, nothing else comes close.

The salary problem nobody mentions

Every S-corp owner hears the same advice: keep your salary reasonable but not excessive, because distributions avoid payroll tax. That advice is correct as far as it goes, and incomplete.

A lower salary saves roughly 15.3% in payroll tax on the amount you shift to distributions. But it also shrinks the 25% employer contribution you can make, which is a deduction against income taxed at a higher rate than that. Push your salary too low and you can save payroll tax while losing a bigger income tax deduction.

The right salary is the one that satisfies the reasonable compensation standard and supports the retirement contribution you actually intend to make. Those two numbers should be set together, not separately.

How to choose

• Modest salary, want simplicity: SIMPLE IRA
• Want the biggest deduction per dollar of salary: Solo 401(k)
• High-income year, deciding after the fact: SEP-IRA
• Uneven years: 401(k) with profit sharing
• Over 45, profitable, behind on savings: look at a defined benefit plan

The short version

Most solo S-corp contractors are better off in a Solo 401(k) than a SEP-IRA at the salary levels they actually pay themselves. The plan you choose should be decided alongside your salary, not after it. And if you want a plan in place for this year, the calendar matters more than the paperwork.

This article is general information about how these rules work, not advice for your situation. The right answer depends on your entity, your income and your circumstances. Talk to a CPA before acting on it.

Disclaimer: This content is provided for educational purposes only and is not legal, tax, accounting, or financial advice. Every situation is unique, so consult your own attorney, CPA, or financial advisor before making decisions based on this information.