Your Business Is Your Retirement Plan? That’s the Million-Dollar Mistake. Open a Solo 401(k) Before December 31

Ask a founder how they plan to retire and you’ll often get a version of the same answer: “I’ll sell the business.” It’s a comforting story, and a dangerous one. The personal savings rate for U.S. households has slid from roughly 6.2% in Q1 2024 to 3.9% in Q1 2026, even as per capita disposable income climbed to $68,391. Higher income, thinner savings. Consumer sentiment sits at 44.8 as of May 2026, down from 61.7 the prior July. That is the environment in which a lot of self-employed people are quietly betting their retirement on a single, illiquid asset: their own company.

The fix is boring and powerful: open a Solo 401(k). And if you want it to count for the 2026 tax year, the plan generally has to exist by December 31, 2026.

Why “The Business Is My 401(k)” Breaks

Selling a business is an uncertain liquidity event. Buyers vanish, valuations compress, industries shift, health forces early exits, and a decade of “reinvesting in the company” leaves you with no tax-advantaged bucket to draw from. Inflation makes that worse. The CPI has moved from 322.169 in July 2025 to 333.979 in May 2026, quietly eroding whatever cash the business throws off. And with the 10-year Treasury near 4.49% as of July 2, 2026, the opportunity cost of parking profits in the operating account instead of a tax-sheltered plan is real.

The Solo 401(k), In One Paragraph

A Solo 401(k) is a one-participant 401(k) for a business with no employees other than the owner (and optionally a spouse). It lets you contribute in two capacities from the same self-employment income:

• Employee deferral (traditional or Roth): a flat dollar cap set annually by the IRS, plus catch-up contributions if you’re 50+ (and an enhanced catch-up for ages 60 to 63 under SECURE 2.0). Verify the current-year figure at IRS.gov before you fund.
• Employer profit-sharing: up to 25% of compensation (for an S-corp W-2 wage) or roughly 20% of net self-employment earnings (for a sole proprietor or single-member LLC), stacked on top of the employee deferral, up to the overall annual additions cap.

That two-bucket structure is why a Solo 401(k) usually beats a SEP-IRA at the same income. The SEP only gives you the employer piece. The Solo 401(k) lets you max the employee deferral first, then layer profit-sharing on top, which matters enormously at low-to-mid six-figure net income.

The December 31 Deadline (And What It Doesn’t Cover)

For a 2026 contribution, the plan document generally must be established by December 31, 2026. SECURE Act 2.0 lets sole proprietors adopt a plan after year-end for employer contributions up to the tax-filing deadline, but the employee deferral election still needs to be in place by year-end. Practical translation: don’t wait until you file your taxes in April to open the account. Custodians take time to onboard, and a missed election is a missed year.

Four Moves Before Year-End

1. Pick your custodian and open the plan now. Fidelity, Schwab, E*TRADE, and specialty providers offer prototype Solo 401(k)s. If you want Roth deferrals, in-plan Roth conversions, or a mega-backdoor Roth via after-tax contributions, confirm the plan document supports them. Many free “prototype” plans don’t.
2. Run the S-corp math. If you’re taxed as an S-corp, your employer profit-sharing is capped at 25% of your W-2 wage, not distributions. Setting the wage too low to save on payroll tax also shrinks your Solo 401(k) ceiling. A CPA should model this before December payroll runs.
3. Add your spouse if they work in the business. A spouse on legitimate payroll can make their own employee deferral and receive their own profit-share, effectively doubling household tax-advantaged capacity.
4. Choose Roth vs. traditional deliberately. With the top federal bracket still at 37% for 2026 and the fed funds upper bound at 3.75% as of July 7, 2026, high-earning owners often want the traditional deduction now; younger or lower-income owners frequently favor Roth deferrals.

If Roth conversions are on your radar for lower-income years, our Roth Window report walks through the framework.

Bottom Line

Your business might be your best asset, but it works better alongside a dedicated retirement account. Open the Solo 401(k) before December 31, fund what you can this year, and let the two-bucket structure do work your operating account never will.

Contact [email protected] for any questions or corrections.