How to Make Retirement Contributions From an LLC? (Guide)
To make retirement contributions from an LLC, identify its tax classification, choose a suitable plan, and calculate contributions from eligible compensation. The owner’s income and the company’s employees determine which rules apply.
Quick Summary
- Choose a retirement plan using the LLC’s tax status, owner compensation, and employee coverage requirements.
- The combined traditional/Roth IRA limit is $7,500 in 2026, or $8,600 at age 50+, subject to compensation and income rules.
- The 2026 employee 401(k) deferral limit is $24,500; total annual additions are generally capped at $72,000 before catch-ups.
- SEP and SIMPLE plans have employee coverage rules; self-employed owners need the appropriate compensation calculation.
How to Make Retirement Contributions From an LLC
Start with the LLC’s federal tax classification and a list of eligible participants. A single owner can still have employees who must be covered, so compare their benefits alongside the owner’s contributions.
- Identify compensation: distinguish self-employment earnings from eligible employee wages and shareholder distributions.
- Check employee coverage: review the plan’s eligibility rules before choosing an owner-only arrangement.
- Adopt the plan: work with a financial institution or plan administrator to complete the plan documents and open the required accounts.
- Calculate and fund contributions: apply current limits, coordinate other plans, and confirm election and deposit deadlines.
Ask a tax or retirement-plan professional to check the calculation before funding the accounts. Request setup, investment, and annual administration fees when comparing providers.
1. Traditional or Roth IRA
Traditional and Roth IRAs share a combined $7,500 contribution limit for 2026, rising to $8,600 at age 50 or older. Your taxable compensation can reduce that maximum [1].
A traditional IRA contribution may be deductible, depending on income and workplace-plan coverage. Roth contributions use after-tax dollars, and Roth contribution eligibility also depends on income and filing status.
An IRA belongs to the individual rather than serving as the LLC’s employer retirement plan. The Internal Revenue Service (IRS) IRA comparison explains contribution timing and the different tax treatment.
Before contributing, check the individual’s eligible compensation and any income restriction. Having a business retirement plan does not automatically prevent an IRA contribution, although it can affect the traditional IRA deduction.
2. One-Participant (Solo) 401(k)
A one-participant 401(k) generally covers an owner with no employees other than a spouse. If other employees meet the plan’s eligibility rules, they must be included [2].
The 2026 employee deferral limit is $24,500, subject to compensation and plan restrictions. Total annual additions are generally limited to $72,000 or compensation, whichever is lower, before eligible catch-ups [3].
The owner can contribute as both employee and employer, but each portion has its own calculation. Deferrals to another employer’s 401(k) count toward the same individual employee-deferral limit.
Self-employed owners must calculate earned income under the applicable plan rules. Confirm the deferral election deadline with the administrator before year-end; a funding deadline does not necessarily extend the election deadline.
3. SEP IRA
A Simplified Employee Pension (SEP) is funded by employer contributions rather than ordinary employee salary deferrals. For 2026, contributions to an employee’s SEP IRA cannot exceed 25% of compensation or $72,000, whichever is lower [4].
For a self-employed owner, the deductible part of self-employment tax and the owner’s plan contribution affect the compensation calculation. Do not simply multiply net profit on Schedule C (Form 1040) by 25% [5].
The employer must adopt a written SEP agreement and establish accounts for eligible employees. Follow the plan’s eligibility and contribution formula for everyone covered [6].
A single-member LLC can have employees despite having only one owner. Include those workers when estimating the cost of a SEP contribution.
4. SIMPLE IRA
A Savings Incentive Match Plan for Employees (SIMPLE) IRA generally serves small employers with 100 or fewer employees and requires employer contributions. The regular 2026 employee deferral limit is $17,000; qualifying plans can have a higher limit, and age-based catch-ups may apply [7].
Employers generally choose matching or nonelective contributions, with higher employer requirements for some plans using enhanced limits. Confirm the applicable limit and contribution formula rather than assuming every SIMPLE IRA has the same maximum.
A first SIMPLE IRA generally must take effect between January 1 and October 1. A new employer formed after October 1 has an exception; an employer that previously maintained a SIMPLE IRA generally must start the replacement on January 1.
5. Defined-Benefit Plan
A defined-benefit plan promises a benefit, and an actuary calculates the contributions needed to fund it. The 2026 annual benefit cap is generally $290,000 or 100% of the participant’s highest-three-year average compensation, whichever is lower [8].
That benefit cap is not a flat annual contribution allowance for the LLC owner. Funding depends on the plan’s promised benefits and actuarial calculations, so ask an actuary to model contributions and employee coverage.
Setup, ongoing funding, and annual administration are more involved than for an individual IRA. Compare those obligations and administration fees with the business’s ability to fund the plan over time.
Check Employee Coverage, Tax Treatment, and Reporting
A working owner in an LLC taxed as a sole proprietorship or partnership generally uses self-employed compensation rules. The Publication 560 worksheets help calculate the contribution, while partnership LLC tax filing uses a different return structure from a sole proprietor.
An S corporation shareholder cannot base retirement-plan contributions on shareholder distributions. An employee-shareholder instead uses eligible Form W-2 compensation [9].
Keep plan adoption, deferral elections, and contribution deposits on separate calendars. A SEP can generally be established and funded by the business tax-return deadline, including extensions, while SIMPLE and employee deferrals follow different timing rules.
Confirm annual reporting with the administrator before treating a plan as maintenance-free. A one-participant plan generally files Form 5500-EZ when combined one-participant plan assets exceed $250,000, and a final-year return is required regardless of that exemption.
If an employer identification number is needed, use Form SS-4 or its official application route. Our guide to completing Form SS-4 for an LLC explains the business information involved.
Include retirement-plan setup among the next steps after forming an LLC when the business is ready to offer benefits. A self-directed IRA has separate investment and prohibited-transaction rules; review investing with a self-directed IRA through an LLC before involving retirement assets in company activity.
FAQs
Can an LLC owner contribute to a 401(k)?
An LLC owner can contribute to a 401(k) when the plan permits it and the owner has eligible compensation. The LLC’s tax status and employee coverage rules determine the calculation and plan obligations.
Can I have a Solo 401(k) if my LLC has employees?
A solo 401(k) generally covers an owner with no employees other than a spouse. If other employees meet the plan’s eligibility rules, they must be included, and the owner-only testing advantage can disappear.
Can an LLC contribute to the owner’s IRA?
An ordinary IRA belongs to the individual, so transferring LLC money does not create an employer-plan contribution. The owner must still satisfy personal compensation and income rules; SEP and SIMPLE IRAs use separate employer-plan rules.
Can a SEP or SIMPLE plan cover employees?
SEP and SIMPLE plans can cover eligible employees, and their employer-contribution rules differ. Apply the plan document’s eligibility and contribution formula before funding the owner’s account or workers’ accounts.
Choose a plan after checking tax status, compensation, employee coverage, and the current-year limits. Then have the provider confirm the documents, contribution calculation, fees, and deadlines before transferring funds.
References:
- https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
- https://www.irs.gov/retirement-plans/one-participant-401k-plans
- https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
- https://www.irs.gov/retirement-plans/plan-participant-employee/sep-contribution-limits-including-grandfathered-sarseps
- https://www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-contribution-and-deduction
- https://www.irs.gov/retirement-plans/sep-fix-it-guide-sep-plan-overview
- https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan
- https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-defined-benefit-plan-benefit-limits
- https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-contributions-s-corporation
