If you’re running your business as a solo C corporation, one of the smartest financial moves you can make is contributing to a Solo 401(k). One of our clients recently asked if deferring $70,000 into a Solo 401(k) is a good strategy for savings.
Our answer: it can be a powerful strategy- if you’re in a position to commit to long-term savings. Today we will break down how Solo 401(k)s work when you’re the only employee of your C Corp, and why they’re especially effective when used with discipline.
What Is a Solo 401(k)?
A Solo 401(k) is a retirement plan designed for self-employed individuals with no employees (other than a spouse). It lets you contribute to your retirement in two ways:
- As an employee: You can defer part of your W-2 salary, just like a regular 401(k) participant.
- As an employer: Your company can make additional contribution based on your compensation.
Together, these contributions allow for significantly higher limits than a traditional IRA.
How Much Can You Contribute?
In 2025, the total Solo 401(k) contribution limit is $69,000 if you’re under 50. Up to $76,500 if you’re over 50 and making catch-up contributions. However reaching that number depends on a few important rules — especially if you operate as a C corporation.
Contribution breakdown for C Corps:
- Employee deferral: You can contribute up to $23,000 from your W-2 wages ($30,500 if over 50)
- Employer contribution: Your C Corp can contribute up to 25% of your W-2 wages
Key Note: Contributions are calculated on W-2 wages, not owner distributions or dividends. You must be paying yourself through payroll to contribute.
The Tax Advantage: Defer Now, Pay Later
This strategy works because it allows you to defer taxes now while your income is high, and potentially pay a lower tax rate when you withdraw the funds in retirement.
For example:
- Your C Corp pays you $100,000 in wages.
- You defer $23,000 as an employee.
- The corporation contributes 25%, or $25,000.
- That’s $48,000 total going into your Solo 401(k) — and it’s all tax deferred.
Your C Corp still pays a flat 21% corporate tax , but the contributions reduce taxable income for the business. Later, when you withdrawal the money in retirement, it’s going to be taxed at your individual rate, which could be lower depending on your situation.
Is This Always The Best Strategy?
Not necessarily. Depending on your desires and how much you can contribute will determine which strategy is best for you. It’s a great fit for you if:
- You don’t need the funds in the near future
- You’re looking for long-term tax deferral
- You want to maximize your retirement savings
- You’re willing to stick to a disciplines savings strategy
It may maximibe a great fit if:
- You expect to need the funds before retirement
- You’re not running payroll or paying yourself W-2 wages
- Your personal tax rate in retirement may be higher than 21%
The decision should be based on your long-term financial goals, not just this year’s tax savings.
A Work of Advice from Experience
Business owners who consistently contribute to a Solo 401(k) and invest in prudent diversified funds often build substantial retirement wealth over time. But be aware that that kind of success requires intentional planning, not just maxing out contributions in a single year.
“Over the years, I’ve found that business owners with a disciplined approach tend to build greater wealth through this deferral process.” — John Matras, CPA
Consider All of Your Options
If you’re a one-person C corporation, a Solo 401(k) can be a great tax and retirement tool. While it may seem as simple as putting in $70,000, you need to understand how contributions work, how taxes play out over time, and whether or not you’re in a good position to leave the money untouched until retirement.
If you need help planning Solo 401(k) contributions, reach out – we are here to here to help!
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