Tax preparers spend filing season walking clients through SEP-IRA contribution limits, Solo 401(k) plan documents, and the deadline distinctions that can cost someone a full year of tax-deferred savings. Then a large number of those same preparers go home to a practice with no retirement plan at all -- or one they set up years ago without comparing the options or revisiting it since. This guide is for the preparer as client.
The guide covers the three plans most relevant to independent and small-office preparers (SEP-IRA, Solo 401(k), and SIMPLE IRA), how to compare them at typical practice income levels, how S-Corp salary planning intersects with contribution maximums, and the SSTB/QBI dimension that makes traditional pre-tax contributions worth examining carefully if your income is near the Section 199A phase-out range. The action calendar at the end maps the key deadlines by plan type.
All contribution limits cited in this guide are subject to annual IRS cost-of-living adjustment; verify current limits at IRS.gov before acting. SSTB phase-out thresholds and other figures should also be verified at IRS.gov. This guide is informational and does not constitute financial or tax advice. Consult a financial advisor or CPA before making retirement plan decisions for your practice.
The Practitioner Blind Spot: Why Tax Preparers Delay Their Own Retirement Plans
The irony is not subtle. A preparer who correctly walks a self-employed client through a Solo 401(k) setup in October, calculates the contribution room down to the dollar, and files the plan document before December 31 may be doing that work for a practice that has never established a plan of its own. Knowledge and action are not the same thing, and the gap is especially persistent when you are the expert.
A few patterns explain the delay. Filing season leaves little time for personal financial decisions. The same familiarity with the rules that makes the task feel manageable also makes it easy to defer -- there is always next year, and you know exactly what you are deferring. And unlike a client who is relying on your guidance, there is no external accountability.
The compounding cost of delay: a brief illustrative example
Consider a preparer who delays establishing a Solo 401(k) for five years at a point in their career when they could contribute approximately $20,000 per year (a rough figure at a moderate income level, not a projection or guarantee). Over five years, that is roughly $100,000 in contributions that did not go in, plus the deferred tax benefit on each year's contribution, plus any investment growth on those funds. The dollar figure in any specific case depends on actual income, tax rate, investment returns, and other variables. The general point is that delay has a real cost, and that cost compounds. This example is illustrative only and does not represent a guarantee of any particular outcome.
The counterpart to the delay pattern is also worth noting: preparers who do establish plans often pick the most convenient option at the time (frequently a SEP-IRA opened in April) without running a comparison against the Solo 401(k). For some income levels and practice structures, that convenience comes at a meaningful cost in contribution room. The comparison in Section 6 of this guide addresses that directly.
BEFORE YOU CHOOSE A PLAN: ENTITY STRUCTURE MATTERS
Your entity structure (sole proprietor, LLC, or S-Corp) directly affects which plans are available, what the contribution formulas look like, and how retirement contributions interact with self-employment tax. If you have not reviewed your entity choice recently, start with the business entity guide for tax preparers. The retirement plan comparison in this guide notes where entity type changes the math.
SEP-IRA, Solo 401(k), and SIMPLE IRA: Plain-Language Summary
Three plan types cover the retirement planning landscape for virtually all independent and small-office tax prep practices. Here is a plain-language summary of each before the detailed sections.
| Feature | SEP-IRA | Solo 401(k) | SIMPLE IRA |
|---|---|---|---|
| Best for | Variable income; late decisions; sole proprietors | Solo operators wanting maximum contributions; Roth option | Practices with full-time employees |
| Contribution type | Employer only | Employee deferral plus employer profit-sharing | Employee deferral plus mandatory employer match |
| Plan establish deadline | Tax return due date (including extensions) | December 31 -- no extension | October 1 of the plan year |
| Roth option | No | Yes (employee deferral portion only) | No |
| Admin complexity | Very low | Low to moderate (Form 5500-EZ above $250,000) | Moderate |
| Employees covered? | Yes (must cover eligible employees) | Solo operators only (no common-law employees) | Yes (designed for small employers with staff) |
All limits and deadlines are subject to IRS rules; verify current-year figures at IRS.gov before acting. This table is a planning reference, not a substitute for advice from a qualified financial advisor or CPA.
SEP-IRA: The Simplest Plan for Variable-Income Practices
A Simplified Employee Pension (SEP-IRA) is the most administratively straightforward retirement plan available to self-employed tax preparers. There is no separate plan document to maintain beyond the IRS Form 5305-SEP (or the financial institution's equivalent), no annual IRS filing requirement while assets remain below the threshold, and no December 31 establishment deadline to worry about. A SEP-IRA can be opened and funded as late as the tax return due date, including extensions.
Contribution formula
For sole proprietors and single-member LLC owners (Schedule C filers), the SEP-IRA contribution is calculated as 25% of net self-employment income after deducting the employer-equivalent portion of self-employment tax. In practice, this works out to approximately 20% of net Schedule C profit before the SE tax deduction. The effective contribution rate is lower than it appears at first glance because the deduction for one-half of SE tax is taken before the 25% rate is applied.
The maximum SEP-IRA contribution is capped by the IRC Section 415 annual additions limit, which applies to both SEP-IRA and Solo 401(k) combined contributions in a given year. For 2026, that limit is approximately $70,000 to $72,000 (verify at IRS.gov before acting; subject to annual IRS cost-of-living adjustment). Only employer contributions are allowed in a SEP-IRA; there is no employee elective deferral component.
When a SEP-IRA makes sense
The SEP-IRA is the right first choice when simplicity and timing flexibility are the priority. If your income varies significantly year to year (common in tax prep practices that depend on a seasonal client roster), the SEP-IRA lets you contribute proportionally to what you actually earned. If you are making this decision in March or April while preparing returns, a SEP-IRA is still available; a Solo 401(k) for that year is not, because the December 31 plan establishment deadline has passed.
The SEP-IRA's limitation becomes relevant at moderate income levels. Because the SEP-IRA has no employee elective deferral component, the only way to reach a large contribution is through the employer profit-sharing formula. At lower income levels, this produces a smaller absolute contribution than a Solo 401(k) would allow. The break-even comparison in Section 6 illustrates this numerically.
Employees: an important caveat
If you have employees who have worked for you in three of the last five years, earned at least $750 (as adjusted by the IRS; verify current figure at IRS.gov) in compensation, and are at least 21 years old, a SEP-IRA requires you to make contributions on their behalf at the same percentage rate you contribute for yourself. For a solo practice with no employees, this is not an issue. For a practice with even one qualifying employee, the cost of covering them shifts the economics considerably.
Solo 401(k): Higher Contribution Room and a Critical December 31 Deadline
A Solo 401(k) (also called an individual 401(k) or owner-only 401(k)) is available to self-employed individuals and business owners who have no full-time common-law employees other than themselves and, if applicable, their spouse. It is the most powerful contribution vehicle for most solo tax prep practices because of its dual-contribution structure.
Two contribution roles in one plan
As a Solo 401(k) participant, you fill two roles: employee and employer. As the employee, you can make an elective deferral up to the annual employee contribution limit. For 2026, this limit is approximately $23,500 for participants under age 50, and approximately $31,000 for participants age 50 and older (the difference reflects the $7,500 catch-up contribution; all figures are subject to annual IRS cost-of-living adjustment and should be verified at IRS.gov before acting).
As the employer, you can make an additional profit-sharing contribution. For Schedule C filers, the employer contribution is calculated on the same net-SE-income basis as a SEP-IRA (approximately 20% of net Schedule C profit in practice). For S-Corp owners, the employer contribution is limited to 25% of W-2 compensation. The combined total of employee deferral plus employer profit-sharing is subject to the same IRC Section 415 annual additions limit that governs the SEP-IRA: approximately $70,000 to $72,000 for 2026 (verify at IRS.gov; subject to annual IRS cost-of-living adjustment).
The December 31 plan establishment deadline: this is not the tax return deadline
CRITICAL DEADLINE: SOLO 401(k) PLAN DOCUMENT MUST EXIST BY DECEMBER 31
Unlike a SEP-IRA, the Solo 401(k) plan document must be established by December 31 of the tax year you want the plan to be effective. Employee elective deferrals must also be made by December 31. Only the employer profit-sharing contribution can be made up to the tax return due date including extensions. If you miss December 31, you cannot create a Solo 401(k) retroactively for that year. This deadline distinction is one of the most consequential pieces of retirement planning knowledge a tax preparer can act on for their own practice.
The optional Roth feature
Many Solo 401(k) plan providers allow participants to designate all or part of their employee elective deferral as a Roth contribution. Roth deferrals are made with after-tax dollars, grow tax-free, and qualified distributions in retirement are not taxed. This feature does not exist in a SEP-IRA or a SIMPLE IRA. The Roth option is valuable for preparers who expect to be in a higher tax bracket in retirement than they are now, or who want tax diversification across pre-tax and after-tax retirement accounts. An important planning note is addressed in Section 8: Roth Solo 401(k) contributions do NOT reduce MAGI.
Form 5500-EZ filing requirement
Once the total assets in your Solo 401(k) plan exceed $250,000 at the end of any plan year, you must file Form 5500-EZ with the IRS for that year. This is an annual information return; it does not create a tax liability, but failing to file triggers penalties. For most new Solo 401(k) participants, this requirement is years away, but it is worth knowing before the account balance reaches the threshold. Verify current filing thresholds and requirements at IRS.gov.
SIMPLE IRA: Designed for Practices with Employees
A Savings Incentive Match Plan for Employees (SIMPLE IRA) is specifically designed for small employers with 100 or fewer employees. It allows both employee elective deferrals and requires a mandatory employer contribution. For 2026, the employee elective deferral limit is approximately $17,000 (subject to annual IRS cost-of-living adjustment; verify at IRS.gov before acting). A catch-up contribution is available for participants age 50 and older; verify the current catch-up amount at IRS.gov.
Mandatory employer match: two options
The SIMPLE IRA requires the employer to contribute on behalf of participating employees through one of two methods:
- Matching contribution: Match each participating employee's deferral up to 3% of compensation. This is a dollar-for-dollar match. If an employee defers 3% of pay, you match 3%. An employee who defers nothing receives nothing.
- Non-elective contribution: Contribute 2% of compensation for every eligible employee, regardless of whether they contribute themselves. This approach guarantees contributions for all eligible employees, including those who do not elect to participate.
When a SIMPLE IRA makes sense -- and when it does not
The SIMPLE IRA is appropriate when you have qualifying employees who should participate in the plan alongside you. The administrative burden is lower than a full 401(k), and the mandatory employer contribution is predictable. The plan can be established as late as October 1 of the plan year (verify the current deadline at IRS.gov).
For a truly solo operator with no employees, the SIMPLE IRA offers fewer advantages than either a SEP-IRA or a Solo 401(k). The contribution limit is lower than both the SEP-IRA maximum employer contribution and the combined Solo 401(k) total, and the mandatory employer match requirement adds a layer of obligation that does not benefit a solo practice. If you have no employees and are evaluating plans solely on contribution capacity, the Solo 401(k) or SEP-IRA will generally serve you better.
Solo 401(k) vs. SEP-IRA: Contribution Comparison at Typical Practice Income Levels
The following examples illustrate the contribution difference between a Solo 401(k) and a SEP-IRA at two income levels common in independent tax prep practices. These are illustrative examples only, not financial advice or guarantees. Actual contribution amounts depend on your specific income, entity structure, SE tax deduction, and current IRS limits. Consult a financial advisor or CPA before making plan decisions.
The examples below assume a sole proprietor filing Schedule C, under age 50. The employee deferral and employer profit-sharing figures use 2026 approximate limits (subject to annual IRS cost-of-living adjustment; verify at IRS.gov). The SE tax deduction adjustment is applied in computing net SE income for the employer contribution formula.
Example A: $60,000 net Schedule C profit (under age 50)
| Component | SEP-IRA | Solo 401(k) |
|---|---|---|
| Net Schedule C profit | $60,000 | $60,000 |
| Less: approx. SE tax deduction (half of SE tax) | ($4,239) | ($4,239) |
| Net SE income for employer contribution formula | $55,761 | $55,761 |
| Employer contribution (25% of net SE income) | ~$13,940 | ~$13,940 |
| Employee elective deferral | Not available | Up to ~$23,500 |
| Maximum total contribution | ~$13,940 | ~$37,440 |
Example B: $100,000 net Schedule C profit (under age 50)
| Component | SEP-IRA | Solo 401(k) |
|---|---|---|
| Net Schedule C profit | $100,000 | $100,000 |
| Less: approx. SE tax deduction (half of SE tax) | ($7,065) | ($7,065) |
| Net SE income for employer contribution formula | $92,935 | $92,935 |
| Employer contribution (25% of net SE income) | ~$23,234 | ~$23,234 |
| Employee elective deferral | Not available | Up to ~$23,500 |
| Maximum total contribution | ~$23,234 | ~$46,734 |
SE tax deduction estimates use the 92.35% net earnings multiplier and the 15.3% combined rate. The employer contribution formula produces approximately 20% of net Schedule C profit in practical terms. All figures are illustrative examples, not guarantees. At high income levels, the employer profit-sharing contribution approaches the IRC 415 annual additions limit (~$70,000-$72,000 for 2026, verify at IRS.gov), at which point the SEP-IRA and Solo 401(k) employer-side limits converge. The Solo 401(k) advantage is most pronounced at moderate income levels where the employee deferral fills contribution room that the employer formula alone cannot reach.
The additional deduction from a higher Solo 401(k) contribution also has a meaningful income tax effect at typical practice income levels. A preparer contributing an additional $20,000 to a Solo 401(k) versus a SEP-IRA (as in Example A above) reduces taxable income by $20,000 before any other consideration. At a 22% marginal rate, that is approximately $4,400 in current-year income tax deferred. The QBI interaction described in Section 8 adds another layer to this calculation.
S-Corp Tax Preparers: W-2 Salary, Retirement Contributions, and the Tension Between Two Goals
For tax preparers operating as S-Corps, the retirement plan decision is inseparable from the W-2 salary decision. The two interact in a way that creates a genuine tension worth understanding before you set your salary for the year.
How W-2 salary sets the Solo 401(k) contribution base for S-Corp owners
An S-Corp owner-employee participates in the Solo 401(k) through the corporation, not as a Schedule C filer. This changes the contribution formula. The employee elective deferral is based on W-2 compensation (up to the annual employee limit: approximately $23,500 for under-50 participants in 2026, subject to annual IRS adjustment; verify at IRS.gov). The employer profit-sharing contribution is limited to 25% of W-2 compensation (not net SE income as in the Schedule C context). Total contributions remain subject to the IRC 415 annual additions limit (approximately $70,000 to $72,000 for 2026; verify at IRS.gov).
This means that if your W-2 salary is $50,000, your maximum employer profit-sharing contribution is $12,500 (25% of $50,000). If you could contribute $20,000 on the employer side instead, you would need a W-2 salary of $80,000. The retirement contribution ceiling moves directly with W-2 compensation.
The tension: minimizing W-2 vs. maximizing retirement contributions
S-Corp owners reduce payroll taxes (FICA) by keeping W-2 salary as low as the IRS "reasonable compensation" requirement permits. A lower salary means a smaller FICA tax base, which is the primary reason to elect S-Corp status in the first place. But a lower salary also means a lower employer-side retirement contribution ceiling. The two goals pull in opposite directions.
The practical resolution is to model both sides of the equation simultaneously rather than optimizing for one independently. In some scenarios, a moderately higher W-2 salary that enables a substantially larger retirement contribution produces a better net tax outcome -- because the additional FICA on the incremental salary is more than offset by the income tax deduction on the larger retirement contribution. In other scenarios, the FICA savings from a lower salary outweigh the retirement contribution benefit. The outcome depends on your specific income level, marginal tax rate, state taxes, and the applicable retirement contribution limits.
Advisory: S-Corp Reasonable Compensation and Retirement Planning
The optimal W-2 salary level for an S-Corp tax preparer involves the interplay between FICA minimization, retirement contribution maximization, and QBI planning. Optimal salary level depends on your specific situation; consult a tax advisor familiar with S-Corp reasonable compensation requirements before setting or adjusting your salary for retirement planning purposes. Setting your salary solely to maximize retirement contributions without considering the reasonable compensation standard is an audit exposure. Setting it solely to minimize payroll taxes without considering the retirement contribution interaction may leave meaningful deduction opportunity on the table.
For a complete treatment of the S-Corp reasonable compensation standard and the broader entity-structure question, see the business entity guide for tax preparers.
The SSTB/QBI Dimension: How Pre-Tax Contributions Can Preserve Your Section 199A Deduction
For tax preparers whose modified adjusted gross income (MAGI) approaches the SSTB phase-out range under Section 199A, the choice between traditional (pre-tax) and Roth retirement contributions is not just a long-term tax strategy -- it has an immediate impact on the current year's return.
IRS guidance and most tax advisors treat tax preparation and accounting services as Specified Service Trades or Businesses (SSTBs) under Section 199A. The specific characterization of your practice may depend on your service mix; consult a qualified tax advisor if SSTB status is uncertain for your practice. For preparers whose practices are classified as SSTBs, the QBI deduction phases out as MAGI rises above the applicable threshold and disappears entirely above the full phase-out level. For 2026, the SSTB phase-out range starts at approximately $201,750 for single filers and $403,500 for married filing jointly. Verify current thresholds at IRS.gov; these thresholds were recently amended by the One Big Beautiful Bill Act signed July 4, 2025, and are adjusted annually.
Traditional pre-tax contributions reduce MAGI and may preserve QBI deduction eligibility
Traditional (pre-tax) SEP-IRA and Solo 401(k) contributions are deductible above the line on Schedule 1. They reduce adjusted gross income, which is one of the primary components of MAGI for Section 199A purposes. If your MAGI before retirement plan contributions sits above the SSTB phase-out threshold, a sufficiently large traditional contribution can reduce MAGI below the threshold and preserve some or all of the QBI deduction.
As a concrete illustration: a single filer with MAGI of $215,000 before retirement plan contributions is in the SSTB phase-out range. A $20,000 traditional Solo 401(k) contribution reduces MAGI to $195,000, which falls below the 2026 phase-out threshold (approximately $201,750; verify at IRS.gov). At $195,000 MAGI, the full 20% QBI deduction is potentially available on qualifying business income, subject to the W-2 wage limitation if applicable. This example is illustrative only, not a guarantee of any specific outcome. Consult a tax advisor for analysis specific to your situation.
The QBI interaction also means that for preparers near the phase-out threshold, the effective value of a traditional retirement contribution is greater than the face value of the income tax deduction alone. The deduction not only reduces taxable income directly; it also preserves a QBI deduction that would otherwise phase out. Running both sides of the calculation together (retirement plan deduction plus QBI deduction preservation) changes the analysis compared to looking at either in isolation.
IMPORTANT: ROTH SOLO 401(k) CONTRIBUTIONS DO NOT REDUCE MAGI
Roth Solo 401(k) employee deferrals are made with after-tax dollars. They do not reduce adjusted gross income or MAGI. If reducing MAGI below the SSTB phase-out threshold is a planning goal, Roth contributions do not accomplish it. Only traditional (pre-tax) employee deferrals and employer profit-sharing contributions to a Solo 401(k), or contributions to a SEP-IRA or SIMPLE IRA, reduce MAGI. This distinction can make a material difference for preparers whose income is in the phase-out range.
The tradeoff when MAGI is clearly above the full phase-out level
If your MAGI is well above the full phase-out threshold and no realistic contribution amount would bring it below the threshold, the QBI deduction is not recoverable for that year regardless of contribution size. In that situation, traditional contributions still reduce current-year taxable income directly, which remains valuable -- but the QBI dimension does not add an incremental benefit on top of the retirement deduction itself. The Roth vs. traditional tradeoff at that income level reverts to the standard long-term analysis of current vs. future tax rates.
For a comprehensive treatment of the Section 199A deduction mechanics, the SSTB classification question for tax prep practices, and the W-2 wage limitation that applies above the threshold, see the QBI deduction guide for self-employed tax preparers.
Setup Mechanics: Where to Open Each Plan and What to Know Before You Start
All three plan types are available through major brokerage firms and financial institutions. The setup process is straightforward for all three, with a few important differences in documentation and compliance requirements.
SEP-IRA: the simplest setup
Open a SEP-IRA at any brokerage or financial institution that offers IRA accounts. The institution will provide IRS Form 5305-SEP (or their own IRS-approved equivalent) as the plan document. You complete the form, sign it, and maintain it with your practice records. No filing with the IRS is required to establish the plan. The institution manages the account; you direct investment selections within the account. Contributions are made directly to the SEP-IRA account by the tax return due date including extensions. There is no separate plan document filing requirement beyond the 5305-SEP on file at the institution.
Solo 401(k): plan document required by December 31
A Solo 401(k) requires a written plan document that satisfies IRS requirements. Most brokerage firms and financial institutions that offer Solo 401(k) accounts provide a prototype or pre-approved plan document as part of the account opening process. The plan document must be executed (signed) by December 31 of the plan year. Employee elective deferrals must be designated and contributed by December 31. The employer profit-sharing contribution may be made up to the tax return due date including extensions. If your Solo 401(k) plan assets exceed $250,000 at the end of any plan year, you must file Form 5500-EZ with the IRS for that year. Verify current Form 5500-EZ requirements and thresholds at IRS.gov.
SIMPLE IRA: employer and employee accounts, plus notification requirements
A SIMPLE IRA requires separate IRA accounts for each participating employee, as well as a plan document. The employer uses either IRS Form 5304-SIMPLE (if employees choose their own financial institutions) or IRS Form 5305-SIMPLE (if all accounts are at the same institution). The plan must be established by October 1 of the plan year (verify the current deadline at IRS.gov). The employer is also required to provide written notification to eligible employees about the plan before the start of each year's 60-day election period. SIMPLE IRA maintenance involves coordinating deferrals, deposits, and the mandatory employer match for each eligible employee throughout the year.
Choosing a provider: what to look for
For solo operators, the most important factors in choosing a plan provider are low or zero account fees, a broad investment menu, and ease of administration. Major brokerage firms (Fidelity, Vanguard, Charles Schwab, and others) offer SEP-IRA and Solo 401(k) accounts with no account fees and access to a wide range of mutual funds, ETFs, and other investment options. For a SIMPLE IRA, the provider must also handle multi-participant accounts and the employer contribution deposit process. Fees and investment options vary; compare at least two or three providers before opening an account. Consult a financial advisor for guidance on investment selection within the plan.
Action Calendar: Key Deadlines by Plan Type
The deadlines below are the most consequential planning distinctions among the three plan types. Missing the December 31 plan document deadline for a Solo 401(k) costs an entire tax year of employee deferral room; no extension is available. Verify all current deadlines at IRS.gov before relying on these dates.
| Deadline | SEP-IRA | Solo 401(k) | SIMPLE IRA |
|---|---|---|---|
| Plan document established | By tax return due date (including extensions) | December 31 -- no extension | October 1 of plan year |
| Employee elective deferral contributed | N/A (no employee deferral in SEP-IRA) | December 31 -- no extension | Per payroll period (varies; see plan document) |
| Employer contribution made | By tax return due date (including extensions) | By tax return due date (including extensions) | Per payroll period (mandatory; cannot wait until filing) |
| Form 5500-EZ filing (if assets exceed $250,000) | N/A (no Form 5500 required for SEP-IRA) | July 31 following close of plan year | N/A (SIMPLE IRA uses separate IRA accounts; no Form 5500) |
| Employee election period (SIMPLE IRA) | N/A | N/A | 60-day election period before start of plan year; written notice required |
Verify all deadlines at IRS.gov. Contribution limits, filing thresholds, and deadline rules are subject to annual IRS adjustment and legislative change. This table is a planning reference only and does not substitute for professional tax or legal advice.
The practical planning sequence
Given the December 31 constraint for the Solo 401(k) plan document and employee deferral, the action sequence for a preparer who wants to maximize retirement contributions looks like this:
- Before December 31 of the current year: Decide whether to establish a Solo 401(k) for the current tax year. If yes, open the plan account, execute the plan document, and make or designate the employee elective deferral before December 31. The employer profit-sharing contribution does not need to be made until the tax return due date including extensions, but the plan must exist and the employee deferral must be committed by December 31.
- January through tax return due date (including extensions): Make or finalize the employer profit-sharing contribution to the Solo 401(k), or open and fund a SEP-IRA if a Solo 401(k) was not established before December 31. This is also the window for finalizing the SEP-IRA contribution amount once net income is known.
- During return preparation: Calculate the contribution deduction precisely using the finalized income figures, verify the contribution against the applicable limits (subject to annual IRS adjustment; verify at IRS.gov), and confirm that the contribution was actually deposited into the account before the deduction is claimed.
- Ongoing: Monitor Solo 401(k) plan assets annually. If plan assets exceed $250,000 at year-end, Form 5500-EZ is required by July 31 of the following year (verify current deadline at IRS.gov).
For related planning considerations including practice succession and what happens to retirement accounts and practice equity when you eventually sell or transition your practice, see the succession planning guide for tax preparers. For the foundational entity and SE tax decisions that affect retirement contribution formulas, see the entity structure guide and the start a tax business guide.
Regulated and Substantiated Claims: Flagged for Verification
The following claims and figures in this guide require independent verification before relying on them in practice or filing decisions: (1) Solo 401(k) employee elective deferral limits (approximately $23,500 under-50, approximately $31,000 age 50+, including $7,500 catch-up for 2026): subject to annual IRS cost-of-living adjustment; verify current limits at IRS.gov before acting. (2) IRC Section 415 annual additions limit (approximately $70,000-$72,000 for 2026, governing both SEP-IRA and Solo 401(k) combined contributions): subject to annual IRS adjustment; verify at IRS.gov. ONE consistent figure governs both plan types as both are subject to the same IRC 415 statute. (3) SIMPLE IRA employee deferral limit (approximately $17,000 for 2026): subject to annual IRS cost-of-living adjustment; verify at IRS.gov. (4) SSTB phase-out thresholds (approximately $201,750 single / $403,500 MFJ for 2026): recently amended by the One Big Beautiful Bill Act signed July 4, 2025; verify current thresholds at IRS.gov before relying on them. (5) Roth Solo 401(k) contributions do NOT reduce MAGI: stated clearly and distinctly from traditional contributions throughout this guide. (6) All numerical contribution comparisons and examples: illustrative examples only; not financial guarantees or advice. Actual figures depend on specific income, entity structure, SE tax deduction, and current IRS limits. (7) Solo 401(k) plan document and employee deferral deadline (December 31): verify current deadline at IRS.gov. (8) SEP-IRA and SIMPLE IRA establishment deadlines: verify current deadlines at IRS.gov. (9) Form 5500-EZ filing threshold ($250,000 in Solo 401(k) plan assets) and due date: verify current threshold and deadline at IRS.gov. (10) S-Corp reasonable compensation: optimal salary level depends on individual circumstances; consult a qualified tax advisor. This guide is informational and does not constitute financial or tax advice. Consult a financial advisor or CPA before making retirement plan decisions for your practice.
Frequently Asked Questions
What is the best retirement plan for a self-employed tax preparer?
There is no single answer. A SEP-IRA is the simplest option and can be opened up to the tax return due date including extensions, making it well-suited for preparers who decide late or have variable income. A Solo 401(k) allows higher contributions at lower income levels because of the employee elective deferral component, and must be established by December 31. A SIMPLE IRA is designed for practices with employees and imposes a mandatory employer match. The right choice depends on your income level, entity structure, whether you have employees, and how much administrative complexity you are willing to manage. Consult a financial advisor or CPA for guidance specific to your situation.
Can an S-Corp tax preparer contribute to a Solo 401(k)?
Yes. An S-Corp owner-employee can participate in a Solo 401(k) through the corporation. The employee elective deferral is based on W-2 compensation, and the employer profit-sharing contribution is limited to 25% of W-2 compensation. This means the W-2 salary you set for yourself directly determines the maximum employer-side contribution, creating an important interaction between S-Corp salary planning and retirement contribution maximization. Consult a tax advisor familiar with S-Corp reasonable compensation requirements before setting your salary level.
Does a SEP-IRA contribution reduce my MAGI for QBI purposes?
Yes. Traditional SEP-IRA contributions are deductible above the line and reduce adjusted gross income, which in turn reduces modified adjusted gross income (MAGI). For tax preparers whose MAGI approaches the SSTB phase-out range under Section 199A, a sufficiently large SEP-IRA contribution may reduce MAGI below the phase-out threshold and preserve QBI deduction eligibility. Verify current SSTB phase-out thresholds at IRS.gov; recently amended by the One Big Beautiful Bill Act signed July 4, 2025. Consult a tax advisor for guidance specific to your situation.
What is the deadline to establish a Solo 401(k) plan?
The plan document for a Solo 401(k) must be established by December 31 of the tax year for which you want the plan to be effective. This is a hard deadline for the plan document itself; it cannot be extended to the tax return due date. Employee elective deferrals must also be made by December 31. Only the employer profit-sharing contribution can be made up to the tax return due date including extensions. If you miss the December 31 plan establishment deadline, you cannot have a Solo 401(k) for that year. Verify current deadlines at IRS.gov before acting.
Does a Roth Solo 401(k) contribution reduce my MAGI?
No. Roth Solo 401(k) contributions are made with after-tax dollars and do not reduce adjusted gross income or MAGI. Only traditional (pre-tax) Solo 401(k) employee deferrals and employer profit-sharing contributions reduce MAGI. If preserving the QBI deduction by reducing MAGI below the SSTB phase-out threshold is a planning goal, Roth contributions do not accomplish that. Traditional contributions do. This distinction matters for preparers whose MAGI is near the phase-out range.