Best Retirement Plans for S-Corp Owners: How to Choose the Right Option for Your Business
If you’re an S-Corp owner trying to figure out which retirement plan makes sense for you, you’re not alone. Many small business owners delay setting up a retirement plan because it seems too complicated or expensive. Meanwhile, your friends with corporate jobs are taking advantage of 401(k) matches — and you might wonder what options you have as a business owner.
In this guide, we’ll walk through the main S-Corp retirement plan options, the pros and cons of each, and how to decide which one best fits your business and tax goals.
1. Traditional & Roth IRAs for Business Owners
These are the simplest retirement options available, and they’re a great place to start.
Traditional IRA
- Contributions are made with pre-tax dollars (if eligible).
- Your taxable income is reduced in the year you contribute.
- Funds grow tax-deferred, and you pay taxes when you withdraw in retirement.
Roth IRA
- Contributions are made with after-tax dollars.
- Growth and qualified withdrawals are tax-free.
- Contributions are limited if your income exceeds certain IRS thresholds.
Best for: Sole owners or new businesses looking to start small.
Not ideal when: You want to save more than the annual IRA limit (currently $7,000, or $8,000 if age 50+ for 2025).
2. SIMPLE IRA: A Straightforward Option for Small Teams
A SIMPLE IRA (Savings Incentive Match Plan for Employees) is designed for businesses with up to 100 employees who want an easy, affordable retirement plan.
Key features:
- Lower setup and administration costs than a 401(k).
- Employers must either match employee contributions (up to 3%) or make a fixed 2% contribution for all eligible employees.
- Minimal compliance and reporting requirements.
Best for: S-Corp owners with a few employees who want to offer a benefit without heavy administration.
Not ideal when: You want to contribute significantly more than the SIMPLE IRA limits allow ($16,000 for 2025, plus $3,500 catch-up).
3. SEP IRA: A Flexible Option for Solo Owners or Small Staff
A SEP IRA (Simplified Employee Pension) works well if you’re self-employed or have just a few employees.
Highlights:
- You can contribute up to 25% of your W-2 wages (for S-Corp owners) or up to $70,000 in 2025 — whichever is less.
- Contributions are made by the employer only (no employee deferrals).
- If you have employees, you must contribute the same percentage for each eligible worker as you do for yourself.
Best for: Solo S-Corp owners or owner-operators with minimal staff.
Not ideal when: You have multiple employees and large contributions would be costly to match across the board.
4. 401(k) Plans: Maximum Flexibility and Contribution Potential
If your business is growing and you want higher contribution limits, a 401(k) or Solo 401(k) offers the most flexibility.
Advantages:
- Combine employee deferrals and employer contributions for a potential total of up to $70,000 in 2025 (plus catch-up).
- Option to include Roth 401(k) contributions for tax-free growth.
- Ability to design matching formulas and profit-sharing options.
- Tax credits (under the SECURE Act) help offset startup and admin costs for new plans.
Best for: Profitable S-Corps ready to maximize retirement savings and offer benefits to attract employees.
Not ideal when: You’re just starting out and prefer something simpler and lower-cost for now.
Compliance & Administrative Reminders
Retirement plans come with important IRS and Department of Labor (ERISA) compliance rules.
You’ll need to:
- Deposit employee contributions promptly after payroll (typically within 7 business days for small plans).
- File Form 5500 annually if you have a 401(k) or other covered plan.
- Maintain plan documents, notices, and records of contributions.
If you have employees, you’ll work with a record-keeper, custodian, and often a third-party administrator (TPA) to handle testing and filings.
Common mistakes:
- Delayed contribution deposits
- Missing annual filings
- Using shareholder distributions (instead of W-2 wages) as the basis for plan contributions — not allowed for S-Corps
Timing & Tax Planning Opportunities
- Employee deferrals (401(k) plans): Must be deposited as soon as administratively feasible.
- Employer contributions (SEP, SIMPLE, or 401(k) match/profit-sharing): Can generally be made up to your tax filing deadline — including extensions.
- For calendar-year S-Corps, that’s usually September 15 if an extension is filed.
This flexibility means you can finalize contributions after year-end once you know your business profits — maximizing deductions while staying compliant.
Which Plan Fits Your S-Corp?
| Business Type | Recommended Plan | Why It Works |
|---|---|---|
| Solo S-Corp owner | Solo 401(k) or SEP IRA | High contribution potential with minimal admin |
| 1–25 employees | SIMPLE IRA | Easy setup and lower costs |
| Growing or established S-Corp | 401(k) | Highest flexibility, Roth options, tax credits |
| New business / modest profits | Traditional or Roth IRA | Simple and effective starting point |
Before choosing, consider:
- Number of employees
- Profit level and consistency
- Willingness to handle compliance
- Whether you want to offer employee benefits
Final Thoughts
Retirement planning as an S-Corp owner doesn’t need to be complicated. The key is to start where you are and pick a plan that fits your current stage. You can always upgrade later as your business and income grow.
At Morgan Tax Group, we help S-Corp owners and small businesses design retirement strategies that align with your tax plan — so you can reduce your tax burden and save for the future confidently.
💡 Need help choosing or setting up your plan?
Schedule a consultation today — we’ll walk you through your options and handle the setup from both the tax and compliance sides.
