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Last Updated on August 11, 2026 by Robert Green
Profitable traders eligible for trader tax status (TTS) often use an S-Corp trading company to unlock employee benefits, including retirement plan contributions. The S-Corp pays officer compensation to the trader-owner, creating the earned income needed for employee elective deferrals and employer retirement-plan contributions.
A Solo 401(k) is usually the best retirement plan for a profitable TTS S-Corp. It combines an employee elective deferral with an employer profit-sharing contribution. That often allows a larger retirement contribution with less officer compensation than a SEP IRA.
SECURE 2.0 Adds Two Important Roth Provisions For These Plans
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A Solo 401(k) may permit Roth treatment for employer profit-sharing contributions.
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Beginning in 2026, catch-up contributions must be Roth for certain higher-paid participants.
Roth Treatment Is No Longer Limited To Employee Deferrals
Previously, most Roth Solo 401(k) planning focused on the employee elective deferral. SECURE 2.0 expanded the Roth option to include employer matching and nonelective or profit-sharing contributions.
This gives a TTS S-Corp owner-employee several choices:
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Traditional or Roth employee elective deferrals.
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Traditional employer profit-sharing contributions.
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Roth employer profit-sharing contributions, if the plan permits them.
A traditional employer contribution generally provides current tax deferral. The S-Corp makes the contribution, and the trader-owner does not include it in current taxable income.
A Roth employer contribution works differently. The S-Corp may still qualify for its otherwise allowable employer-contribution deduction, but the trader-owner includes the contribution in current taxable income. In exchange, qualified Roth distributions may be tax-free later.
The plan must account separately for designated Roth contributions and related earnings. Generally, a qualified tax-free distribution requires both completion of the applicable five-tax-year participation period and a distribution after age 59½, death, or disability.
The decision depends on current and expected future tax rates, cash flow, age, retirement horizon, state taxes, and the value of long-term Roth growth. Traders in high-tax years may prefer traditional contributions. Traders seeking more Roth accumulation may consider the Roth option.
The Employer Contribution Can Be The Larger Opportunity
For 2026, the maximum employee elective deferral is $24,500. The regular Solo 401(k) contribution limit for a participant under age 50 is $72,000.
After making the maximum employee deferral, up to $47,500 of employer profit-sharing contribution room may remain, assuming sufficient officer compensation.
| 2026 Solo 401(k) component | Maximum amount |
|---|---|
| Employee elective deferral | $24,500 |
| Employer profit-sharing room after maximum employee deferral | $47,500 |
| Total for a participant under age 50 | $72,000 |
The employer contribution can therefore be almost twice the employee elective deferral. If the plan supports Roth employer contributions, Roth treatment may apply to the larger side of the Solo 401(k), not just the employee deferral.
An S-Corp employer profit-sharing contribution is generally limited to 25% of officer compensation. A $47,500 employer contribution ordinarily requires $190,000 of officer compensation:
$47,500 ÷ 25% = $190,000
Catch-Up Contributions For 2026
Traders age 50 or older may make catch-up contributions in addition to the regular $72,000 limit.
The regular catch-up contribution is $8,000 for 2026. A participant who attains age 60, 61, 62, or 63 during 2026 may make the higher $11,250 catch-up contribution.
SECURE 2.0 also introduced a mandatory Roth rule for certain catch-up contributions beginning in 2026.
For 2026, catch-up contributions generally must be Roth if the participant received more than $150,000 of FICA wages during 2025 from the employer sponsoring the plan, assuming the plan allows catch-up contributions. For a typical TTS S-Corp owner-employee, check Social Security wages in Box 3 of the 2025 Form W-2.
The mandatory Roth rule applies only to the catch-up contribution. An affected trader may still make the regular $24,500 employee elective deferral and the employer profit-sharing contribution as traditional contributions. Only the additional $8,000 catch-up contribution—or $11,250 for someone attaining age 60 through 63—must be Roth.
A trader who does not want any Roth contribution may skip the catch-up contribution. If the plan does not support Roth catch-up contributions, an affected trader generally cannot make a catch-up contribution under that plan.
The Roth catch-up wage threshold is indexed for inflation, so traders should confirm the applicable threshold each year.
This mandatory Roth catch-up rule is different from the optional Roth employer-contribution provision:
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Roth employer profit-sharing contributions are optional and available only if the plan permits them.
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Roth catch-up contributions are mandatory for an affected higher-paid participant if the plan allows catch-up contributions.
Check Whether Your Solo 401(k) Supports These Features
Do not assume that every Solo 401(k) provider supports Roth employer contributions. Some low-cost brokerage plans permit Roth employee deferrals but do not yet permit Roth employer profit-sharing contributions.
Provider support is evolving, and brokerage custody alone does not establish that the plan document and recordkeeping system support Roth employer contributions.
Before using this strategy, ask the plan provider:
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Does the plan permit Roth employer profit-sharing contributions?
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Does it support Roth catch-up contributions for higher-paid participants?
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Will it maintain separate Roth accounting?
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Will it handle the required Form 1099-R reporting?
The participant’s Roth designation must be made no later than the time the contribution is allocated to the participant’s account, and the designation is irrevocable. The contribution must also be fully vested when allocated.
Plan For The Current Tax Bill
A Roth employer contribution is taxable to the trader-owner for the year in which it is allocated to the account. This timing can cross tax years. For example, if an S-Corp makes and allocates a Roth employer contribution in 2027 for a contribution deductible on its 2026 tax return, the trader-owner generally includes the contribution in taxable income for 2027, the allocation year.
The Roth employer contribution is not treated as regular payroll wages for federal income tax withholding, Social Security, Medicare, or federal unemployment-tax purposes.
That means there may be taxable income without any related payroll withholding. Traders may need to increase withholding on other wages or make estimated-tax payments to avoid an underpayment penalty.
The Roth employer contribution is reported on Form 1099-R. For 2026 reporting, the contribution is reported in Boxes 1 and 2a, with Code G in Box 7a.
Coordinate the contribution with the Solo 401(k) provider, payroll administrator, and tax advisor before year-end. Do not wait until tax-return preparation to determine whether the plan supports the contribution or how it will be reported.
Clarification To Green’s 2026 Trader Tax Guide
The retirement plans chapter of Green’s 2026 Trader Tax Guide discusses Solo 401(k) plans for profitable TTS S-Corps. We updated the online PDF version to clarify the discussion of Roth employer contributions and the mandatory Roth catch-up rule beginning in 2026.
Bottom Line
SECURE 2.0 gives profitable TTS S-Corp traders another retirement-planning choice. If the Solo 401(k) permits it, the trader may designate employer profit-sharing contributions as Roth rather than traditional contributions.
This can be significant because the 2026 employer profit-sharing room may be as much as $47,500 after a maximum $24,500 employee deferral, assuming sufficient officer compensation.
Traditional treatment generally provides current income exclusion and tax deferral. Roth treatment creates current taxable income but may provide qualified tax-free distributions later.
Beginning in 2026, certain higher-paid owner-employees must also make their catch-up contributions as Roth contributions. Check the plan document and provider support before relying on either SECURE 2.0 Roth provision.
For more information, see Retirement Solutions in our Tax Center.
CPAs Star Johnson and Adam Manning of Green, Neuschwander & Manning, LLC contributed to this blog post.
