S-Corp Retirement Contribution Calculator

When you own an S-Corp and operate a Solo 401(k) (also known as an Individual 401(k)), you wear two hats: you are both the employee and the employer. This allows you to make contributions to your retirement plan from two different buckets, subject to annual IRS limits.

Here are the critical thresholds for the 2026 tax year:

Note: If you hold another job where you contribute to a 401(k), your $23,500 employee deferral limit applies across all plans combined. However, the employer profit-sharing limits apply per unrelated employer.

For sole proprietors and single-member LLCs, retirement contributions are based on total net business profit. S-Corps operate under entirely different rules. In an S-Corp, your retirement contribution capacity is tethered exclusively to your W-2 salary.

This creates a classic financial planning dilemma:

1. The urge to lower your salary: S-Corp owners are required by the IRS to pay themselves a "reasonable salary" for the work they perform. Because W-2 wages are subject to a 15.3% FICA tax (split between employer and employee), many business owners try to keep their salary as low as legally justifiable. The remaining profit is taken as a distribution, which bypasses FICA taxes.
2. The penalty of a low salary: Because employer profit-sharing contributions are strictly capped at 25% of your W-2 salary, an artificially low salary severely bottlenecks your ability to fund your retirement.

For example, if your business nets $200,000 and you only pay yourself a $40,000 W-2 salary, your maximum employer contribution is just $10,000 (25% of $40,000). Even if you max out your employee 401(k) contribution at $23,500, your total retirement savings is capped at $33,500—leaving you tens of thousands of dollars short of the $70,000 overall limit.

To reach the maximum $70,000 contribution in 2026 (assuming you are under 50 and max out your $23,500 employee deferral), you need an employer contribution of $46,500. Because the employer contribution cannot exceed 25% of your salary, you would need a minimum W-2 salary of $186,000 to max out your Solo 401(k).

To fully utilize this calculator, it helps to understand the mechanics of the two contribution buckets and how they impact your business's bottom line.

Bucket 1: The Employee Deferral

As an employee of your S-Corp, you can elect to defer a portion of your paycheck into your 401(k). In 2026, this limit is $23,500 (or $31,000 if you are 50 or older).

Unlike the employer contribution, the employee deferral is not limited to a small percentage of your pay. You can legally defer up to 100% of your W-2 salary into your 401(k), up to the dollar limit. This means if your W-2 salary is exactly $23,500, you could theoretically put the entire amount into your retirement account (though you must leave enough to cover your share of FICA taxes).

These deferrals reduce your personal taxable income for the year, though they are still subject to FICA taxes on your W-2. If you prefer tax-free growth, you can direct these deferrals to a Roth Solo 401(k), though this will not yield a current-year tax deduction.

Bucket 2: Employer Profit Sharing

As the employer, your S-Corp can make a profit-sharing contribution to your 401(k) account. This contribution is a deductible business expense, which lowers the net profit of the S-Corp that passes through to your personal tax return.

The strict rule here is that the employer contribution cannot exceed 25% of your W-2 compensation. Furthermore, the combination of your employee deferral and the employer profit-sharing contribution cannot exceed the $70,000 overall limit for 2026 (excluding catch-ups).

Because these contributions lower your taxable business income, maximizing them is one of the most powerful ways to build wealth while sheltering money from the IRS. When it comes time to retire, utilizing a tax-efficient retirement withdrawal strategy will help you access these funds while minimizing your future tax burden.

This calculator determines your optimal contribution limits and tax impacts using a specific sequence of IRS formulas. Here is the math powering your results.

1. Employee Contribution Formula

Your employee deferral is limited by either the IRS maximum or your actual W-2 salary.

Employee Contribution = Minimum of (W-2 Salary × Deferral Percentage) OR (Annual Deferral Limit + Catch-Up)

Where:

• W-2 Salary = The gross wages you pay yourself through payroll.
• Deferral Percentage = The portion of your salary you elect to contribute (up to 100%).
• Annual Deferral Limit = The IRS maximum for the year ($23,500 in 2026).
• Catch-Up = Additional allowed contribution if age 50+ ($7,500 in 2026).

2. Employer Contribution Formula

The employer contribution is constrained by three different factors: the 25% salary rule, the overall plan limit, and the actual available profit of the business.

Employer Contribution = Minimum of (Salary Limit) OR (Overall Limit Room) OR (Available Profit)

Where:

• Salary Limit = W-2 Salary × 25%.
• Overall Limit Room = Total IRS Limit ($70,000) - Employee Contribution.
• Available Profit = S-Corp Net Income - W-2 Salary.

3. FICA Tax Formula

Your W-2 salary is subject to Federal Insurance Contributions Act (FICA) taxes, which cover Social Security and Medicare. In an S-Corp, the business pays half (7.65%) and the employee pays half (7.65%), but since you own the business, you effectively bear the full 15.3% burden.

Total FICA Tax = (Social Security Taxable × 12.4%) + (W-2 Salary × 2.9%)

Where:

• Social Security Taxable = Your W-2 salary, capped at the annual wage base limit (~$180,000 in 2026).
• W-2 Salary = Your total wages (Medicare tax applies to all wages with no cap).
• 12.4% = The combined employer/employee Social Security tax rate.
• 2.9% = The combined employer/employee Medicare tax rate.

To see how drastically your W-2 salary impacts your retirement savings timeline, let’s look at a hypothetical S-Corp owner in 2026.

Sarah is 45 years old. Her business generates $150,000 in net profit before her salary. She wants to max out her retirement accounts, but her accountant has advised her to keep her salary low to save on FICA taxes. Let's compare two compensation strategies.

Option A: The "Low Salary" Strategy

Sarah sets her W-2 salary at $50,000 and takes the remaining $100,000 as a distribution.

• Employee Deferral: She maxes this out at $23,500.
• Employer Contribution: Capped at 25% of her salary, which is $12,500.
• Total Retirement Contribution: $36,000.
• FICA Taxes Paid: $7,650 (15.3% of $50,000).

Option B: The "Optimized" Strategy

Sarah raises her W-2 salary to $100,000 and takes the remaining $50,000 as a distribution.

• Employee Deferral: She maxes this out at $23,500.
• Employer Contribution: 25% of her salary allows her to contribute $25,000.
• Total Retirement Contribution: $48,500.
• FICA Taxes Paid: $15,300 (15.3% of $100,000).

The Verdict: By increasing her W-2 salary, Sarah pays an additional $7,650 in FICA taxes. However, she unlocks the ability to shelter an additional $12,500 in her Solo 401(k). Because that $12,500 avoids her marginal income tax rate (which is likely higher than the FICA tax rate), Option B often results in greater long-term wealth accumulation.

When planning your retirement needs, remember that money inside a tax-advantaged account compounds much faster than money in a taxable brokerage.