When the “Maximum” Isn’t the Maximum

How a solo S-corporation owner gets from roughly $70,000 to north of $300,000 in deductible retirement contributions

A Tax Alpha Companies playbook for CPAs

The conversation that happens every year

A profitable client — solo owner, S corporation, no employees, strong W-2 — tells you they are already maxing out. They make the full profit-sharing contribution, the number lands somewhere around $70,000, and someone has told them that is the ceiling.

For that client, it usually isn't.

The ceiling they've hit is the limit of a single plan. It is not the limit of what the code permits an owner-only business to deduct. The difference between those two numbers is frequently $200,000 or more per year, and it comes not from an exotic structure but from using three ordinary plan types in combination instead of one in isolation.

The three layers

The strategy is to stack rather than choose.

Layer 1 — 401(k) elective deferrals

The owner defers salary into a 401(k). For 2026, the elective deferral limit is $24,500, with a catch-up of $8,000 for those aged 50–59 and 64+, and an enhanced "super catch-up" of $11,250 for ages 60–63 under SECURE 2.0.

This is the owner's own money moved from taxable wages into the plan — the simplest layer, and the one most solo owners already have or can add easily.

Layer 2 — Profit sharing (employer contribution)

The S corporation makes an employer contribution, generally up to 25% of eligible compensation. Elective deferrals plus employer contributions plus forfeitures are capped by the §415(c) annual additions limit — $72,000 for 2026 (before catch-up, which sits outside the limit).

This is the layer most owners are already using, and it is where the "I've maxed out" belief usually originates. Reaching $72,000 feels like a ceiling because, within the defined contribution world, it is one.

Layer 3 — Defined benefit or cash balance plan

Here is where the arithmetic changes. A defined benefit plan is not subject to the §415(c) annual additions limit. It is governed instead by §415(b), which caps the annual retirement benefit the plan may provide — $290,000 for 2026 — and the contribution required to fund that benefit is determined actuarially.

That distinction is the whole strategy. The DB contribution is not a percentage of pay chosen by the owner; it is the amount an actuary calculates as necessary to fund the target benefit by retirement age. For a well-compensated owner in their fifties, that number routinely lands in the low-to-mid six figures.

Combine all three layers and a high-earning owner can commonly deduct north of $300,000 in a single year — several times what any standalone plan permits.

Why the absence of employees changes everything

The stacked design works cleanly for an owner-only business, and it is worth being precise about why.

Qualified plans are governed by rules designed to prevent owners from funding themselves while excluding rank-and-file employees: minimum coverage (§410(b)), nondiscrimination testing (§401(a)(4)), ADP/ACP testing for deferrals and matches, and top-heavy minimums (§416).

Each of those rules operates by comparing the owner's benefit to the benefits of non-highly-compensated employees. With no employees, there is no comparison group. Coverage is satisfied trivially, nondiscrimination testing has no failing population, and the top-heavy minimum is owed to no one. Essentially the entire contribution flows to the person funding it.

This is also why the strategy does not transplant cleanly to a business with staff. A ten-employee company can still do a DB/DC combination — many do, and cross-tested or new-comparability profit-sharing allocations can weight contributions meaningfully toward owners and key people — but the design becomes a testing exercise with real employee cost. The owner-only case is the clean one.

Why the S corporation structure matters

The entity form is not incidental.

An S corporation cleanly separates the owner's income into two streams: W-2 wages, which are compensation for plan purposes, and K-1 distributions, which are not. Only the W-2 side counts toward plan contributions.

That creates a design tension worth naming. S corporation owners are often advised to minimize W-2 wages to reduce payroll taxes. But plan contributions are driven by compensation, and compensation is capped at $360,000 for 2026 for plan purposes. An owner paying themselves a small salary to save employment tax may be capping their own retirement deduction at a fraction of what is available.

For a genuinely high-earning owner-operator, a substantial salary is both defensible as reasonable compensation and necessary to support the stack. The right salary number is the one that survives scrutiny and funds the plan — and it is a modeling question, not a default.

The age effect: this accelerates rather than decays

Most tax strategies weaken with age. This one strengthens.

Because the DB contribution is the amount actuarially required to fund a target benefit by retirement, the funding window is the driver. An owner at 45 has twenty years to fund the benefit. An owner at 57 has eight. Fewer years to fund the same benefit means a larger required annual contribution — and therefore a larger deduction.

The practical implication: an owner in their fifties who has been dutifully making profit-sharing contributions for a decade is often the single best candidate for this design, and frequently the one most convinced they have already optimized.

The costs and constraints — say them out loud

This is design work, not a form. The obligations are real and should be presented plainly:

• A funding commitment. A defined benefit plan creates an expected annual funding obligation. It is not a plan you fund in strong years and skip in weak ones. Contribution ranges provide some flexibility, and plans can be frozen or terminated, but this suits a business with durable, predictable profit — not a volatile one.
• Actuarial and administrative cost. DB and cash balance plans require annual actuarial valuation, a plan document, a trust, Form 5500 filing, and typically PBGC considerations. Setup and annual administration run into the thousands of dollars — immaterial against a six-figure deduction, but a real line item to disclose.
• Investment return assumptions matter. The plan's assumed rate of return affects required funding. Overperformance can create an overfunded plan and reduce future deductible contributions; underperformance increases required contributions.
• Timing. Plan establishment and funding deadlines drive whether a deduction lands in the intended year. A 401(k) generally must be in place before year-end for the owner to make elective deferrals for that year, while employer contributions and certain plan adoptions can occur up to the tax filing deadline including extensions. Confirm the specific deadlines for the plan type and year in question — this is where good strategies get delayed twelve months.
• Exit is not free. Terminating an overfunded plan carries consequences. Design with the end in mind.

One more layer, briefly

Qualified plans may hold life insurance, subject to the incidental benefit limits — broadly, a cap on the portion of contributions used for insurance premiums, with the plan required to be primarily for retirement rather than death benefits. For the right owner this can add asset protection and wealth transfer efficiency using pre-tax dollars. It also adds complexity, economic-benefit (Table 2001) income inclusion, and exit considerations. Worth exploring deliberately, not by default.

Who this fits

A strong candidate:

• Solo S-corporation owner, no non-owner employees (or a spouse only)
• Substantial, predictable W-2 income — commonly $400,000+
• Age 45 or older, with the effect strengthening through the fifties
• Already maxing a single plan and told that's the limit
• Can commit to multi-year funding

A poor candidate:

• Volatile or uncertain profitability
• Meaningful non-owner staff (possible, but a different and costlier design)
• Needs the cash for business growth
• Short runway to retirement with no interest in funding a plan
• Unwilling to carry the salary level the design requires

The practitioner's checklist

1. Confirm the entity is an S corporation and identify W-2 wages versus K-1 distributions.
2. Confirm the employee census — owner only, spouse, or others.
3. Test whether the current salary is large enough to support the target contribution and still defensible as reasonable compensation.
4. Model the DB/cash balance contribution actuarially against the owner's age and retirement target.
5. Confirm what the client is contributing today, and quantify the gap — this is the number that makes the case.
6. Confirm plan establishment and funding deadlines for the intended tax year.
7. Present setup, actuarial, and annual administration costs alongside the deduction.
8. Stress-test the multi-year funding commitment against realistic business performance.

Talk it through

If you have an owner-client who believes they've maxed out, the gap between what they're contributing and what they could be deducting is usually worth quantifying — and a short conversation is enough to know whether the design fits.

Ross Brannon · Tax Alpha Companies
C: 850-566-7999 · ross@taxalphacompanies.com
Schedule time with Ross

Contribution and benefit limits shown are 2026 figures and are indexed annually; verify current-year amounts against the applicable IRS guidance before relying on them.

This material is provided for educational and informational purposes only and does not constitute legal, tax, accounting, or investment advice. The strategies discussed are general in nature and may not apply to specific individual circumstances. Any examples are hypothetical illustrations and are not a guarantee of any particular result. Tax laws are complex and subject to change; readers should consult qualified tax and legal professionals before acting on any strategy discussed.