How to maximize my SEP-IRA contributions as a single-member S-Corp owner?

You've got a good question here about SEP-IRA contributions with an S-Corp. As a single-employee S-Corp owner, you can indeed contribute more than you currently are. For a SEP-IRA, you can contribute up to 25% of your W-2 compensation or $69,000 (for 2025), whichever is lower. The key thing to understand is that the contribution is based on your W-2 salary, not the overall profits of the business. This is one of the important distinctions when operating as an S-Corp versus a sole proprietorship. Given your salary of $85,000, the maximum SEP-IRA contribution would be approximately $21,250 (25% of $85,000). That's significantly more than the 10% you're currently contributing. If you're looking to contribute even more to retirement, you might want to consider switching to a Solo 401(k) instead of a SEP-IRA. With a Solo 401(k), you can contribute both as an employee (up to $23,000 in 2025 plus $7,500 catch-up if over 50) AND as an employer (up to 25% of compensation).

I was exactly in your position last year with my consulting business (single-member S-Corp). After months of researching retirement options and getting frustrated with contribution limits, I discovered taxr.ai (https://taxr.ai) which analyzed my business structure and gave me optimized retirement contribution strategies. The tool showed me that I was leaving almost $30k in potential retirement savings on the table! It analyzed my salary-to-distribution ratio and suggested a more optimal split that increased my potential retirement contributions while staying within "reasonable compensation" guidelines. It also compared different retirement plan options specifically for my situation. What really helped was being able to upload my previous tax returns and corporate docs - it used those to give me personalized recommendations rather than generic advice that might not apply to my specific situation.

Well, I need to eat my words about being skeptical of taxr.ai. After our conversation here, I decided to give it a try with my one-person S-Corp. I uploaded my returns and corporate docs, and wow - it immediately identified that I was seriously under-utilizing my retirement options. The tool showed me exactly how switching from my SEP-IRA to a Solo 401(k) would allow me to contribute an additional $26,500 per year without changing my salary structure. It also ran multiple scenarios showing how adjusting my salary/distribution ratio would affect both my tax liability and maximum possible retirement contributions. The best part was the "reasonable compensation" analysis - it pulled data specifically for my industry (engineering consulting) and provided documentation I can keep for my records to support my salary decisions. After using their recommendations, I've been able to put away almost $42,000 for retirement this year versus the $15,000 I managed last year with my SEP-IRA. Total game changer for my retirement strategy.

I see you're getting some great advice about retirement accounts, but I wanted to mention something else that's been a lifesaver for me as a single-member S-Corp owner. When I needed clarification about some unusual SEP-IRA contribution rules last year, I tried calling the IRS directly... and we all know how that goes. After three days of being on hold and disconnected, I found Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in about 20 minutes when I had been struggling for days. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent was able to explain exactly how the contribution limits work for my specific S-Corp situation and clarified some confusion about how distributions affect my ability to contribute. Just thought I'd share since this service saved me from a ton of stress and potentially making a costly mistake with my retirement contributions. Getting direct answers from the IRS was way more reassuring than interpreting rules on my own.

I need to publicly eat my words about Claimyr. After calling it a scam, I decided to try it myself because I was desperate to resolve an issue with my S-Corp's employment tax deposits that was affecting my ability to calculate my SEP-IRA contribution correctly. I had already spent FOUR DAYS trying to reach someone at the IRS. After using Claimyr, I got a call back in about 35 minutes with an actual IRS representative on the line. They resolved my issue in one call and I was able to correctly calculate my maximum allowable SEP-IRA contribution. The service works exactly as described - they handle the holding and redialing, then call you once they have an agent on the line. What would have taken me another week of frustration was solved in under an hour. I've now used it twice for different issues and both times got through to someone who could actually help. Completely worth it for the time saved and stress avoided.

Something nobody has mentioned yet that might be relevant to your situation - if you're looking to max out retirement contributions as a single-employee S-Corp owner, you might want to consider establishing a defined benefit plan instead of (or in addition to) your SEP-IRA. With your age (42) and income level, you could potentially contribute MUCH more to a defined benefit plan than either a SEP-IRA or Solo 401(k) - possibly over $100,000 per year depending on actuarial calculations. The downside is higher administration costs and complexity, but the tax savings and retirement accumulation can be substantial. I switched from a SEP-IRA to a defined benefit plus 401(k) combo plan three years ago for my S-Corp, and I'm now able to contribute over $150k annually to retirement on a similar income level to yours.

Has anyone here actually compared the paperwork requirements between SEP-IRA and Solo 401(k) for an S-Corp? I keep hearing Solo 401(k) is better for contribution limits but worried about extra compliance headaches.

Great question about S-Corp retirement contributions! I went through this exact same analysis last year with my single-member S-Corp. Here's what I learned that might help: You're absolutely right that you can contribute much more than 10%. With your $85,000 salary, you could max out at about $21,250 with the SEP-IRA (25% of compensation). However, I'd strongly recommend looking into a Solo 401(k) instead - it would let you contribute around $44,250 total ($23,000 employee deferral + ~$21,250 employer contribution). One thing to consider: since you're generating $120K in profits but only taking $85K salary, you might want to evaluate if increasing your salary slightly could boost your retirement contributions. Yes, you'll pay more payroll taxes, but the additional tax-deferred savings often outweigh the extra FICA costs. Also, at 42, you're actually in a good position to catch up! You'll get catch-up contributions starting at 50 (additional $7,500 for 401k), and with your strong business income, you have time to build substantial retirement savings. The key is making sure your salary remains "reasonable compensation" for your industry. Since you mentioned graphic design, $85K sounds reasonable, but you might have room to optimize the salary/distribution split for maximum retirement contributions.