Retirement plan contributions are among the most powerful tax deductions available to Florida small business owners — reducing taxable income by $15,000–$70,000 per year depending on the plan type and your income. Florida's lack of state income tax means these contributions only reduce federal tax, but federal income tax rates can reach 37% for high earners. Here's how to choose the right retirement plan and maximize 2026 contributions.
A Simplified Employee Pension (SEP-IRA) allows self-employed Florida business owners to contribute up to 25% of net self-employment income (after the SE deduction), with a 2026 maximum of $70,000. Contribution deadline: your tax return due date including extensions (so up to October 15, 2026 for 2025 SEP contributions). No Roth option. No employee contributions — only employer. Easy administration — just open an account at a brokerage and file. If you have employees, you must contribute the same percentage for eligible employees — this is the main drawback of SEP-IRAs for employers with staff.
Health coverage and your tax strategy
The Solo 401(k) (also called Individual 401(k)) is available to self-employed individuals with no full-time employees other than a spouse. 2026 contribution limits: employee elective deferral up to $23,500 (plus $7,500 catch-up if 50+) + employer profit-sharing up to 25% of compensation = total $70,000 (or $77,500 with catch-up). The ability to make both employee and employer contributions makes the Solo 401(k) superior to the SEP-IRA for lower-income self-employed workers — you can hit the limit at a lower income level. Roth Solo 401(k) option available at most custodians.
A SIMPLE IRA is designed for small employers with up to 100 employees. Employee contribution limit: $16,500 in 2026 ($19,500 with catch-up). Employer must contribute either: 3% matching contribution, or 2% non-elective contribution for all eligible employees. Simpler administration than a 401(k) plan. The mandatory employer contribution for all employees makes SIMPLEs more expensive than SEP-IRAs when employee participation is high. A 2-year restriction on rolling funds out of the SIMPLE plan applies.
Defined benefit (DB) plans allow the highest contribution limits — potentially $100,000–$300,000+ per year for high-income Florida business owners over 50. The annual benefit limit in 2026 is $275,000. DB plans require an actuary to calculate contributions. They are complex and expensive to administer ($2,000–$5,000/year in actuarial fees), but for high-income Florida professionals (physicians, attorneys, consultants) with substantial taxable income and few employees, the tax savings can dwarf the administrative cost. DB plans work well in combination with a 401(k) profit-sharing plan.
S-corp owner-employees contribute to retirement plans through their W-2 wages. The elective deferral is limited to W-2 compensation — another reason to pay a reasonable salary (higher salary = higher possible elective deferral). The employer (S-corp) profit-sharing contribution is deductible on the corporate return. SEP-IRA contributions for an S-corp owner are calculated based on W-2 wages, not business net income — which can limit contributions compared to a sole proprietor using the same plan type. Solo 401(k) is generally preferred for S-corp owner-employees.
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