The Owner's Plan

Every spring I get some version of the same email.

"My CPA just told me I owe 31,000 dollars. Is there anything I can do?"

And by the time that email lands in April, the honest answer is usually: a little. You can open a SEP IRA and fund it before the filing deadline. That helps. But it's the consolation prize. The bigger, better tool had a window that closed while you were busy running the business, and nobody reminded you.

This week's Deep Dive is about that bigger tool, and the window that's open right now.

If you're self-employed, a freelancer, a consultant, or you own a small business with no full-time employees besides you and maybe your spouse, you can probably shelter more income this year than you think. Often twice as much as the SEP your accountant would suggest in April. The difference comes down to which plan you pick and whether a few things happen before December 31.

Call it the Owner's Plan.

Here's the idea that makes the whole thing work.

When you work for yourself, the IRS lets you contribute to a retirement plan wearing two different hats.

Hat one: you as the employee. An employee can defer part of their pay into a 401(k). For 2026 that's up to 24,500 dollars. If you're 50 or older, add another 8,000. If you're 60 to 63, the catch-up is 11,250 instead.

Hat two: you as the employer. The business can make a profit-sharing contribution on top. For an S corporation, that's up to 25 percent of the W-2 salary you pay yourself. For a sole proprietor or single-member LLC, the math works out to roughly 20 percent of your net self-employment earnings.

Add both hats together, and the total cap for 2026 is 72,000 dollars, plus any catch-up.

A SEP IRA only lets you wear the employer hat. A Solo 401(k) lets you wear both. That's the whole difference, and at most income levels it's a big one.

Let's use a real-shaped example.

You're a single consultant, 45 years old, running a single-member LLC. Your net profit for 2026 is 150,000 dollars.

First, self-employment tax. You pay about 21,200 dollars of it, and half of that, about 10,600, comes off your income for retirement plan purposes. That leaves about 139,400 dollars of net self-employment earnings.

With a SEP IRA: you can contribute 20 percent of that, about 27,900 dollars.

With a Solo 401(k): you can make the same 27,900 employer contribution, plus 24,500 as an employee deferral. Total: about 52,400 dollars.

Nothing about the business changed. The Solo 401(k) just shelters about 24,500 dollars more.

What does that do to your tax bill? Using the 2026 federal brackets, the standard deduction, and the 20 percent qualified business income deduction, the SEP saves you about 4,900 dollars in federal income tax. The Solo 401(k) saves about 9,200. That's before state taxes, which can add a few thousand more in a high-tax state.

One wrinkle most articles skip. Retirement contributions tied to the business reduce your qualified business income, so you lose a slice of that 20 percent QBI deduction. That's already baked into the numbers above. It shrinks the savings a bit. It doesn't come close to erasing them.

If you're 50 or older, add the 8,000-dollar catch-up and the gap gets even wider. If you're 60 to 63, wider still.

Where the gap closes: at high incomes. A sole proprietor's Solo 401(k) hits the 72,000 cap at roughly 250,000 dollars of net profit. A SEP doesn't get there until 20 percent of your earnings alone reaches 72,000, which takes about 375,000 dollars of net profit. Above that line, both plans top out at the same number, catch-ups aside. Below it, the Solo 401(k) shelters more, and in the middle of that range it's not even close.

This is where people get confused, and where they get burned. There isn't one deadline. There are three, and which one applies depends on what you already have.

If you already have a Solo 401(k):

If you don't have a Solo 401(k) yet:

Good news here, thanks to two recent laws. The 2019 SECURE Act lets a business set up a new plan as late as its tax filing deadline, including extensions, and still make employer contributions for the prior year. Then SECURE 2.0 went further for sole proprietors specifically. If you're the only owner and only employee of an unincorporated business, you can set up a brand new Solo 401(k) by your tax return due date, without extensions, and still make employee deferrals for that first year. You can see a plain-language breakdown of that rule from Schneider Downs.

So if you're a sole proprietor reading this in February, you're not out of luck.

But I wouldn't wait. Here's why. Plan providers get slammed in December and again in March. Some don't support the retroactive setup cleanly. And if you're an S corp, the payroll deadline is real and it's December 31. Open the plan in November. Then you have options instead of a scramble.

Once the plan is open, a few details separate a decent setup from a great one.

Put your spouse on payroll, if the work is real. If your spouse genuinely works in the business and earns income from it, they can participate in the same Solo 401(k) and wear both hats too. That's potentially another 24,500 dollars of deferrals for the household. The work has to be real and the pay reasonable. Same rules I walked through for hiring your kids last week.

Consider the Roth side. Most Solo 401(k) plans let your employee deferrals go in as Roth, meaning no deduction today, but tax-free growth and withdrawals later. And SECURE 2.0 now allows employer contributions to be designated Roth too, though not every provider supports it yet. If this is a lower-income year for you, or you think your tax rate will be higher later, splitting some of your contribution into Roth can be smart. You don't have to choose all or nothing.

The new catch-up rule probably doesn't hit you. Starting in 2026, higher earners whose prior-year FICA wages topped 150,000 dollars must make their catch-up contributions as Roth, according to IRS guidance reported by PlanSponsor. The rule keys off W-2 wages. If you're a sole proprietor with self-employment income and no W-2, it generally doesn't apply to you. If you're an S corp owner paying yourself a big salary, it might. Confirm with your plan provider.

Watch the 250,000-dollar line. Once your Solo 401(k) holds more than 250,000 dollars at year end, you have to file a short annual return called Form 5500-EZ, due July 31. The penalties for missing it are steep. Put it on the calendar now, even if you're nowhere near the number yet.

Know when you've outgrown it. A Solo 401(k) is for owner-only businesses. Hire full-time employees and the plan has to change. Even long-term part-timers can count now under the newer rules. If you're planning to hire next year, talk to a provider about what that does to your plan before you post the job.

Look at the 2027 numbers before you set January payroll. Forecasters at 401(k) Specialist expect the 2027 employee deferral limit to rise to 25,500 dollars, with the IRS announcement due any day. Bump your deferral percentage when it's official.

Most owners don't have a retirement problem. They have a cash flow visibility problem. They don't know what their profit is until their CPA tells them in March, so they can't decide how much to put away in November.

So the system starts with knowing the number.

The monthly profit snapshot. I set up a Make.com scenario that pulls year-to-date profit from my bookkeeping software on the first of every month and drops it into a Google Sheet. The sheet runs the Solo 401(k) math automatically: estimated net self-employment earnings, max employer contribution, max deferral, and how much room I have left. In November, a second step emails me a one-page summary titled "Year-end retirement decision," with the December 31 deadlines at the top.

The sanity check. Before I commit to a number, I paste my year-to-date profit and my plan into Galaxy.ai with this prompt:

"I'm a sole proprietor, age 45, with projected 2026 net profit of 150,000 dollars. Calculate my maximum Solo 401(k) employee deferral and employer contribution for 2026, show the self-employment tax adjustment, estimate my federal tax savings including the effect on my QBI deduction, and compare it to the maximum SEP IRA contribution. Then list every deadline I need to hit."

I run it through two models and compare. When they agree, I'm confident. When they don't, that's exactly the question I bring to my CPA.

The CPA call. I record my year-end planning call with my accountant using Fathom, with their okay. Every decision gets written down: how much I'm deferring, Roth versus pre-tax, when the employer contribution goes in. Next November, I start from that summary instead of from scratch.

This week: Pull your year-to-date profit. Estimate your full-year number honestly. Don't forget a slow December.

By November 20: Decide between Solo 401(k) and SEP. If you're under about 375,000 of net profit with no employees, the Solo 401(k) almost always wins.

By November 30: Open the plan if you don't have one. Most major brokerages offer Solo 401(k) plans with no setup fee.

By December 31: Sole proprietors, sign your deferral election. S corp owners, run the payroll that includes your deferral.

By your tax deadline: Deposit the employer contribution and any remaining sole proprietor deferral. And get your 2027 deferral percentage set while you're at it.

Business owners are the most generous people I know when it comes to paying everyone else. Payroll goes out on time. Vendors get paid. The tax bill gets paid, eventually.

The owner is the one who gets paid last, and usually with whatever's left.

The Owner's Plan flips that. It's the one place in the tax code where the business writes you a check, you get a deduction for it, and the money grows for decades untouched. You just have to set it up before the year ends.

Want the whole thing ready to run?

I built The Owner's Plan Kit so you can set this up this month. It includes the Solo 401(k) versus SEP calculator (sole prop and S corp versions, with the self-employment tax and QBI math built in), the three-deadline map, a deferral election form template, the S corp December payroll checklist, the Roth versus pre-tax decision worksheet, a Form 5500-EZ reminder setup, my Galaxy.ai contribution prompt, and the Make.com monthly profit snapshot blueprint.

Reply to this email with the word OWNER and I'll send it over.

About the room.

The Grid Inner Circle is where owners bring their real numbers and we build the plan together, on screen. Next session, members are running their year-to-date profit through the Solo 401(k) calculator live, and we're walking through opening a plan at a brokerage start to finish, so nobody's guessing in December.

Monthly is 29 dollars. The lifetime seat is 499 dollars, paid once, with every future session, template, and live build included for as long as the Circle runs. If you're an owner doing year-end math right now, it's one decision you'll never see a renewal on. The founding price disappears when the founding seats do.

Reply with the word LIFETIME and I'll send you the details and the link.

See you Sunday.

Alex Rivera, Wealth Architect at Wealth Grid

This is education, not tax, legal, or financial advice. Contribution limits, deadlines, and the effect on your QBI deduction depend on your entity type and situation. The 2027 limits are projections until the IRS publishes them. Confirm your plan with a tax professional and your plan provider.