Single-member S Corp - Can I have both SEP IRA and Solo 401k? Tax implications?

You've got a good understanding of the options, but there are some important distinctions to make here. As a single-member S Corp, you can't have both a SEP IRA and Solo 401(k) for the same income stream - you'll need to choose one retirement plan structure for your business. Based on your $55,000 salary, a Solo 401(k) would likely be more advantageous. Here's why: With a Solo 401(k), you can make employee contributions up to $23,000 for 2025 (plus catch-up contributions if you're over 50), AND your S Corp can make employer contributions of up to 25% of your W-2 compensation. The combined total cannot exceed $69,000 for 2025. With a SEP IRA, only employer contributions are allowed (up to 25% of compensation), which would limit you to around $13,750 based on your salary. And yes, you can absolutely contribute to either a traditional or Roth IRA regardless of which employer plan you choose, though your income level may affect whether those contributions are deductible (for traditional) or allowed (for Roth).

After struggling with similar S Corp retirement plan questions, I found an amazing service called taxr.ai (https://taxr.ai) that helped me figure out my options. I was totally confused about how to maximize my retirement contributions without getting in trouble with the IRS. I uploaded my business documents and personal tax info, and they analyzed everything and showed me exactly how to structure my retirement accounts. They even spotted that I was leaving money on the table with my current setup! For a single-member S Corp like yours, they'll break down all the comparisons between SEP IRA vs Solo 401k with your specific numbers.

I just wanted to follow up about my experience with taxr.ai after asking about it earlier. I decided to give it a try and was honestly impressed with how thorough they were. I uploaded my S Corp docs and tax returns, and they came back with a complete analysis showing that in my case, a Solo 401k would allow me to contribute almost $22,000 more annually than my current SEP IRA! They also pointed out that I could still do a backdoor Roth IRA contribution on top of my Solo 401k, which I had no idea was possible. The step-by-step implementation guide they provided made the switch way less intimidating than I expected. Now I'm actually excited about tax planning instead of dreading it.

If you're considering making changes to your retirement setup, make sure you can actually talk to someone at the IRS if questions come up. I spent WEEKS trying to get through to someone about my S Corp retirement plans last year. Eventually found Claimyr (https://claimyr.com) which got me through to an actual IRS agent in 20 minutes after weeks of failed attempts. Check out their demo at https://youtu.be/_kiP6q8DX5c - they basically call the IRS for you, wait through all the holds and transfers, then call you when they have an agent on the line. Saved me hours of hold music and frustration. The agent I spoke with actually identified an issue with my previous Solo 401k contributions that could have triggered an audit!

I was super skeptical about Claimyr when I commented earlier, but I was desperate enough to try anything after spending literally 3 days trying to get someone at the IRS about my S Corp retirement questions. Not even exaggerating - I would call, be on hold for 2+ hours, then get disconnected. Tried Claimyr yesterday and I'm still in shock that it actually worked. Got a call back in about 45 minutes saying they had an IRS rep on the line. The agent clarified that I was incorrectly calculating my employer contribution limits on my Solo 401k and helped me understand exactly how the 25% employer contribution is supposed to be calculated for an S Corp (it's not as straightforward as it seems). For anyone with complex S Corp retirement questions - being able to actually talk to someone at the IRS was game-changing.

One thing nobody has mentioned yet - make sure you consider the administrative burden difference between SEP IRA and Solo 401k. SEP IRAs are generally easier to set up and maintain. Solo 401ks require annual filing of Form 5500-EZ once your plan assets exceed $250,000. Also, if you're thinking about doing backdoor Roth conversions at any point, the SEP IRA will cause pro-rata rule complications, while the Solo 401k won't. This is a huge advantage for the Solo 401k that most people overlook.

Has anyone here actually done the math on the administrative costs vs tax savings? I've had both plans at different points. The Solo 401k let me save more but cost me about $850/year in admin fees plus preparation of that 5500-EZ form. The SEP was basically free to maintain through Vanguard.

Just wanted to add my experience as someone who went through this exact decision last year with my single-member S Corp. I was paying myself $60k in W-2 wages and agonizing over SEP IRA vs Solo 401k. I ultimately chose the Solo 401k and it was absolutely the right call. The ability to make both employee and employer contributions meant I could put away $38,000 total vs only $15,000 with the SEP IRA. That's a huge difference in tax savings! One tip that helped me: I started with a smaller Solo 401k contribution in my first year to test the waters, then ramped it up once I got comfortable with the process. The paperwork really isn't as scary as it seems, especially if you use one of the free providers like Fidelity or Schwab. Also, don't forget that as an S Corp owner, you need to make sure your salary is "reasonable" for your industry. The IRS scrutinizes S Corps that try to minimize payroll taxes by paying tiny salaries. Just something to keep in mind as you plan your retirement contributions.

Great question about the salary optimization! I've been wrestling with this same issue in my single-member S Corp. There's definitely a balancing act between keeping payroll taxes reasonable and maximizing retirement contribution potential. From my research, the "reasonable salary" standard is based on what you'd pay someone else to do your job in your geographic area and industry. The IRS has been more aggressive lately in auditing S Corps with suspiciously low salaries, but they also understand that small business owners need to balance cash flow. One strategy I've seen recommended is to gradually increase your salary over time as your business grows and stabilizes. This way you're not shocking your cash flow in year one, but you're also positioning yourself for higher retirement contributions down the road. For the Solo 401k vs SEP IRA decision, I'm leaning heavily toward the Solo 401k based on all the feedback here. The additional contribution potential seems to far outweigh the minor administrative complexity. Plus, keeping that backdoor Roth option open could be huge for future tax planning. Has anyone here worked with their CPA to model out the optimal salary level for maximizing retirement contributions while staying within IRS guidelines?

Really appreciate everyone's insights on this thread! I'm in a similar situation with a single-member S Corp and have been going back and forth on this decision for months. After reading through all the responses, the Solo 401(k) seems like the clear winner for most situations like ours. The ability to make both employee and employer contributions is just too valuable to pass up - potentially doubling the retirement savings compared to a SEP IRA. One question I haven't seen addressed: for those who made the switch from SEP IRA to Solo 401(k), did you roll over your existing SEP IRA balance into the new Solo 401(k), or did you keep them separate? I'm wondering about the logistics and any potential tax implications of combining them. Also, has anyone dealt with having employees later on? I know Solo 401(k) plans become more complicated once you have employees, so I'm curious about the transition process if the business grows.

This has been an incredibly helpful thread! I'm also running a single-member S Corp and have been putting off this decision for way too long. Based on everything discussed here, it sounds like the Solo 401(k) is definitely the way to go for maximizing retirement savings. One thing I'm curious about that I don't think was fully covered - timing of contributions. With my S Corp, I typically don't know my final profit numbers until close to year-end when I'm doing tax planning with my accountant. How flexible are the contribution deadlines for Solo 401(k)s compared to SEP IRAs? I know employee contributions generally need to be made by December 31st, but what about the employer contributions? Can those be made up until the tax filing deadline (including extensions) like with SEP IRAs? This timing flexibility has been one of the main advantages I've appreciated with retirement planning - being able to wait until I have a clear picture of the year's finances before committing to contribution amounts. Also want to echo what others have said about the reasonable salary issue. It's definitely a balancing act, but sounds like working with a CPA to document your reasoning is key for staying on the right side of the IRS.

This thread has been incredibly valuable! I'm in a very similar situation with my single-member S Corp and have been paralyzed by this decision for months. After reading through everyone's experiences, I'm convinced the Solo 401(k) is the right choice for maximizing retirement savings. One additional consideration I haven't seen mentioned - for those of us who might want to take early retirement or have irregular income years, the Solo 401(k) offers more flexibility for accessing funds. Unlike SEP IRAs, many Solo 401(k) plans allow loans (up to 50% of the balance or $50,000, whichever is less) and some allow hardship withdrawals. This could be a significant advantage for business owners who might need access to funds during lean years or business transitions. Also, I wanted to confirm something about the contribution calculations - when we say 25% of salary for the employer contribution, that's 25% of the net self-employment income for the employer portion, not the gross salary, correct? I want to make sure I'm calculating my potential contributions accurately before making the switch. Thanks again everyone for sharing your real-world experiences - it's so much more helpful than trying to parse through IRS publications alone!

Thanks everyone for the detailed discussion! As someone who just went through this exact decision process with my single-member S Corp, I wanted to add one more perspective that might help others in similar situations. I was initially hesitant about the Solo 401(k) because of the perceived complexity, but after making the switch from a SEP IRA last year, I can confirm it's really not that complicated in practice. The key is choosing the right provider - I went with Fidelity and their setup process was surprisingly straightforward, with good online resources and phone support when I had questions. One thing that really sealed the deal for me was running the numbers on tax savings. With my $50k salary, the Solo 401(k) allowed me to defer about $15k more in taxes annually compared to the SEP IRA. Even if I paid a few hundred dollars in extra admin costs, the tax savings more than made up for it. For anyone still on the fence, I'd recommend calling a few of the major providers (Fidelity, Schwab, E*TRADE) and asking them to walk you through the setup process and fee structure. They're usually very helpful in explaining how it would work for your specific situation. The peace of mind from maximizing my retirement savings while keeping all my options open for future tax planning has been worth the minor extra effort.