Most small business owners are about to miss the most valuable tax move of the entire year. There is a solo 401(k) loophole sitting wide open right now that will pay you to save for retirement, unlock a 2025 deduction even though you fund the plan in 2026, and give you complete control over your money. But you only get it if your plan is set up before year end, so here’s how to take advantage of it while there’s still time.
The Solo 401(k) Is Your Best Wealth Building Tool
A properly structured solo 401(k) is the best tool a small business owner has to peel off profit each year and let it grow in a tax preferred way. You choose how much to contribute. You choose when to fund it. You choose whether it is traditional or Roth. You can put away $23,500 if you are under age 50 or $31,000 if you are 50 or older. You make that election now, then fund it anytime next year when it fits your cash flow. If you wait until next year to set up the plan, all you get is a small employer match based on your profit. That kills your flexibility and dramatically limits your deduction. Set it up now so you control the contribution and take the write-off.
Use the Tax Credit That Pays You to Start the Plan
This is the part nobody is talking about. Buried in the Secure Act is a credit tied to auto enrollment. Congress wanted employers to nudge workers into saving, so they offered a tax credit to anyone who automatically enrolls employees into the plan. As a solo 401(k) owner, you are the employer and the employee, which means you can auto enroll yourself. When you check that box, you receive a five hundred dollar tax credit each year for three years. That is fifteen hundred dollars in credits. Combine that with the deduction for the setup cost and you actually get paid to implement your own solo 401(k). In our office, we build auto enrollment into every solo 401(k) so you receive the credit. You simply let your accountant know when they file your return.
Know the Mechanics So You Don’t Leave Money on the Table
A solo 401(k) only works if you understand how the contributions are calculated. You have two lanes. The employee lane is $23,500 or $31,000 depending on your age, mentioned above. The employer lane is up to twenty five percent of your S corp W2 or a percentage of your sole prop income. Most business owners never use both lanes, so they miss up to $30,000 in deductions every single year. Setting the plan up now unlocks both lanes for 2026. Wait until next year and you’re stuck with whatever minimal employer match your accountant can justify. Get it set up now so you’re the one in control.
Hit the Deadlines That Make This Strategy Work
The legal deadline to establish a solo 401(k) is December 31. The real world deadline is earlier. The IRS shuts down its systems on December 26 for maintenance, and the days before Christmas are essentially frozen. The practical cutoff is December 15. If you want the deduction and the credit, your documents must be signed and your tax ID issued by that date. If you operate as an S corporation, you must also designate your 2026 retirement contributions on your year end W2. You can adjust it later, but you want it on record before payroll closes.
Claim Your Credit and Put the Solo 401(k) to Work
Once your plan is established, your accountant must file Form 8881 to claim the credit. If they miss it, the credit dies on the table. After the plan is live, you can use it exactly like the wealthy do. You can make traditional or Roth contributions. You can self-direct into crypto, real estate, gold, private loans, or small businesses. You can be your own trustee. You can avoid Wall Street fees entirely. You finally have a retirement plan that works for you, not the other way around.
The Bottom Line
If you want this deduction, this credit, and this level of control, you cannot wait. Get on my team’s calendar at KKOS Lawyers and get your solo 401(k) established before the window shuts. Miss the deadline and the strategy dies for the year. Once the plan is in place, move it to Directed IRA and start self-directing into real estate, crypto, private lending, and the deals that actually build wealth. This is the moment to take over your retirement instead of letting Wall Street do it for you.
