LLC Retirement Plans Guide — Solo 401(k), SEP-IRA & Defined Benefit Plan Limits (2026)

1. Choose the right plan type for your LLC structure Decision framework: (1) Disregarded SMLLC, no employees, net profit under $200K/year → SEP-IRA or Solo 401(k). SEP-IRA is simpler; Solo 401(k) allows larger contributions at moderate income levels due to the employee elective deferral component. (2) Disregarded SMLLC or S-Corp LLC, no non-spouse employees, want maximum contribution → Solo 401(k). Employee deferral ($23,500 in 2026) + employer profit-sharing (up to 25% of W-2 or ~20% of net SE) can reach $70,000 total. (3) High-income LLC owner ($250K+ net profit), age 50+, want to shelter maximum income → Defined Benefit Plan alone or in combination with a Solo 401(k). Can shelter $150,000–$275,000+/year. (4) Multi-member LLC or LLC with non-owner employees → SEP-IRA (all eligible employees must receive proportional contributions) or traditional 401(k) with a TPA. Solo 401(k) is not available with non-spouse employees.
2. Open a Solo 401(k) or SEP-IRA account at a brokerage For a Solo 401(k): open at Fidelity (their 'Self-Employed 401(k)'), Charles Schwab ('Individual 401(k)'), or Vanguard ('Individual 401(k)'). Each provides a plan adoption agreement and plan document at no cost. Use your LLC's EIN (not your SSN) as the plan's employer identifier. For a SEP-IRA: open at Fidelity, Schwab, Vanguard, Betterment, or Wealthfront. Complete IRS Form 5305-SEP (one page, self-administered model) or use your brokerage's equivalent. The SEP-IRA is opened and funded by the tax return due date for the year — the same-year-open and same-year-fund simplicity is the SEP's biggest advantage. For both plan types, designate your investment options (index funds are recommended for most LLC owners — low cost, broadly diversified, tax-efficient).
3. Calculate your maximum contribution for the year Solo 401(k) for disregarded SMLLC owner: (a) Employee elective deferral: up to $23,500 (2026), or 100% of net SE income if less. Age 50+: add $7,500 catch-up = $31,000. (b) Employer profit-sharing: up to 20% of net self-employment income (after SE deduction and SE half-deduction adjustment — use IRS Pub 560 Rate Worksheet to get the exact percentage, which works out to 20% of net profit before deductions for self-employed). (c) Total combined: capped at $70,000 (2026); $77,500 with 50+ catch-up. Example: $120,000 net LLC profit. SE deduction = $8,478. Adjusted net = $111,522. Employer contribution = $111,522 × 20% = $22,304. Plus employee deferral $23,500. Total = $45,804. SEP-IRA: same employer contribution formula but no employee deferral component. Max = min(25% of adjusted net SE, $70,000). At $120K net profit: ~$22,304.
4. Make the employee elective deferral election by December 31 For a Solo 401(k), the employee elective deferral must be formally elected in writing by December 31 of the contribution year — even if you do not fund it until April 15. Log into your brokerage account and complete the deferral election form specifying the dollar amount or percentage you plan to contribute. The employer profit-sharing contribution does not require a December 31 election — it can be determined and funded any time before the tax return filing deadline (April 15, or October 15 with extension). For a SEP-IRA, there is no December 31 election requirement — the contribution decision can be made any time up to the return due date. This is one of the SEP's practical advantages: you can fund it on April 14 after seeing your final net profit.
5. Fund the contribution and deduct it on your tax return Transfer the contribution amount from your LLC bank account (or personal bank account) to your Solo 401(k) or SEP-IRA account at the brokerage. For a disregarded SMLLC: deduct Solo 401(k) and SEP-IRA contributions on Schedule 1 of Form 1040 (above-the-line deduction — reduces AGI without itemizing). For an S-Corp LLC: the employer profit-sharing contribution is paid by the S-Corp and deducted as a business expense on Form 1120-S (reduces net income passing through to you on K-1); the employee elective deferral is taken from your W-2 salary. The combined deduction reduces both income tax and, for the self-employed employer contribution, the SE tax base. A $20,000 Solo 401(k) employer contribution at a 24% income tax rate saves $4,800 in income tax in the contribution year.
6. Evaluate a Defined Benefit Plan if net profit consistently exceeds $250,000 A Defined Benefit Plan (DBP) allows contributions far in excess of the Solo 401(k) limit because the target is a specific annual retirement benefit (up to $275,000/year), and the required contribution is actuarially calculated to fund that benefit over your remaining working years. The older you are and the higher your income, the larger your required (and deductible) contribution. Example: LLC owner, age 55, $400,000 net profit — a DBP might allow a $200,000+ annual deductible contribution, compared to a Solo 401(k) maximum of $70,000. Combining a DBP with a Solo 401(k) is common for maximum tax sheltering. Tradeoff: the DBP requires a TPA ($1,500–$3,000/year), has minimum contribution requirements each year regardless of income, and is complex to administer. Engage a TPA or pension actuary to model whether the tax savings justify the overhead for your situation.

FAQ

Common questions

IRC §401(k) (401(k) plan rules — elective deferral mechanics and limits). IRC §402(g) (Elective deferral limit — $23,500 in 2026; indexed annually for inflation). IRC §415(c) (Annual additions limit to defined contribution plans — $70,000 in 2026). IRC §408(k) (SEP-IRA — simplified employee pension rules; contribution limit = lesser of 25% of compensation or $69,000 adjusted). IRC §404(a)(8) (Self-employed individual deduction for SEP contribution — 25% of net earnings from self-employment). IRC §401(a)(4) (Nondiscrimination rules — plans must not discriminate in favor of highly compensated employees). IRC §415(b) (Defined benefit plan annual benefit limit — $275,000 in 2026). IRC §404(o) (Combination plans — limits on combined deductions when maintaining both a defined benefit and defined contribution plan). IRS Publication 560 (Retirement Plans for Small Business — SEP, SIMPLE, and qualified plans). IRS Notice 2025-81 (2026 retirement plan contribution limits — cost-of-living adjustments).

Direct filing portal: https://www.irs.gov/forms-pubs/about-form-5500-ez