Pays Less Taxes Retirement plans that lower your tax this year

The IRS published these for 2026.

• 401(k) employee deferral: $24,500. Age 50 or older can add $8,000. Ages 60 to 63 can add $11,250 instead.
• Total into a 401(k) or SEP IRA, counting what the business adds: $72,000, before catch-up amounts.
• SEP IRA: up to 25% of pay, with the same $72,000 top.
• SIMPLE IRA employee deferral: $17,000 for most plans.
• Traditional or Roth IRA: $7,500, plus $1,100 at age 50 or older.
• Pay counted for these plans tops out at $360,000.

A Solo 401(k) fits an owner with no employees other than a spouse. You contribute twice: once as the employee, up to $24,500, and once as the employer, up to 25% of your pay.

Example: a made-up S corp owner paid a $70,000 salary defers $24,500 and has the company add $17,500. That's $42,000 off taxable income. In the 22% bracket, that's about $9,240 less federal income tax this year.

For an S corp owner, the employee part has to come out of a paycheck, so it has to happen by the last payday of the year.

A SEP IRA takes only employer contributions, up to 25% of pay. It's easy to open, and you can open and fund it as late as your tax filing deadline, including extensions.

For a sole owner, the 25% is figured on profit after half of the self-employment tax, so it works out to about 20% of net earnings.

If you have employees, each eligible one gets the same percentage you do. That can make it expensive once you have a team.

Here's a made-up sole owner with $100,000 of profit, in the 22% bracket.

• With a SEP IRA: about $18,590 goes in. Federal income tax drops by about $4,090.
• With a Solo 401(k): the same $18,590 as the employer, plus $24,500 as the employee, for about $43,090. Federal income tax drops by about $9,480.

The Solo 401(k) lets the same owner put away more than twice as much this year. These round figures leave out the small change to the QBI deduction. Your numbers will differ, and we run both on the call.

A SIMPLE IRA fits a small employer that wants a low-cost plan. Employees can defer up to $17,000 in 2026, and the business either matches up to 3% of pay or puts in 2% for everyone eligible.

A defined benefit or cash balance plan fits a high-income owner, often 50 or older, who wants to put away much more than $72,000 a year. It needs an actuary each year, so it costs more to run.

A small business that starts a new plan for its employees may also claim the startup credit, up to $5,000 a year for the first three years, depending on how many employees it has. Adding automatic enrollment can add $500 a year for three years.

A traditional deposit lowers this year's tax, and you pay tax on withdrawals later. A Roth deposit doesn't lower this year's tax, but qualified withdrawals later are tax-free. Many owners use some of each.

A health savings account works alongside any of these plans. For 2026 the limit is $4,400 for self-only coverage and $8,750 for family coverage, plus $1,000 at age 55 or older. It needs an HSA-eligible health plan.

IRA and HSA deposits for a year can be made until the tax filing deadline in April of the next year.

If I wait until spring, have I missed my chance for this year? Not always. A SEP IRA, an IRA and an HSA can still be funded after December 31 for this year. A Solo 401(k) has earlier steps, so tell us soon if you want one.

Can I have a 401(k) at another job and a Solo 401(k) too? Yes, but the $24,500 employee limit is shared across both. The employer part of the Solo 401(k) has its own room.

Do I have to put in the same amount every year? No. With a Solo 401(k) or a SEP IRA, you can change the amount each year, or skip a year.