Retirement contributions
Explore: well supported, often missed.
Money you put into a pre-tax retirement account comes off this year's taxable income, then grows without tax until you take it out. For a business owner, the choice of plan and the timing of contributions can make a large difference in how much you can put away.
In 2026, you can defer up to $24,500 of your own pay into a 401(k), and the company can add more on top. In an S corp, the company's share is figured on your W-2 salary, not on profit.
How it works
Money put into a 401(k), SEP or IRA before tax lowers this year’s taxable income. A 401(k) lets you defer up to $24,500 of your own pay in 2026, and the company can add more. In an S corp, the company’s share is figured on your W-2 salary, not on profit.
An example: the Harpers
Mark Harper is looking into maxing out his 401(k) deferral before December 31 in the Cratchit demo. Moving $24,500 of his pay into the plan lowers the Harpers' taxable income by the same amount.
Cratchit estimates that saves them about $8,108 in tax this year, and shows what's left to contribute before the payroll deadline.
What makes it hold up
- A written plan set up with a provider before the deadline
- Payroll deferrals taken out by December 31
- Company contributions made by the return’s due date
- If the company has employees, the plan has to cover them too
Risks
Low. The common mistakes are missing deadlines and leaving eligible employees out of the plan. A very low S corp salary also caps what the company can put in.
Questions to ask your CPA
- Which plan fits: a safe harbor 401(k) or a SEP?
- How much can go in this year at my current salary?
- What would covering employees cost?
Common questions
Should I choose a 401(k) or a SEP?
A 401(k) lets you contribute both as an employee and as the employer, so it usually allows more at moderate incomes. A SEP is simpler but only takes employer contributions. With employees, a safe harbor 401(k) is often the cleaner choice.
What are the deadlines?
Your own 401(k) deferrals have to come out of payroll by December 31. The company's contribution can usually be made up to the due date of the business's return, including extensions.
Pre-tax or Roth?
Pre-tax lowers this year's tax; Roth contributions are taxed now and come out tax-free later. If you expect a higher tax rate in retirement, or want tax-free money later, Roth can be worth it.
What if my business has employees?
Most plans have to cover eligible employees too, which adds cost. Your CPA or plan provider can show what covering them would mean.
Cratchit runs every strategy in this library against your real numbers, rates it, and keeps the records that make it hold up. Take a guided tour with the Harpers, a sample family.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.