Retirement Plans for Bookkeeping Businesses: Solo 401(k), the SSTB Limitation, and the Threshold Strategy

Bookkeeping businesses are SSTBs under IRC 199A. This means the QBI deduction phases out above $266,950 (single) or $533,900 (MFJ) under OBBBA thresholds. For bookkeepers with taxable income below the threshold, both the QBI deduction and retirement plan contributions are available. For bookkeepers above the threshold, retirement plan contributions become the primary tax planning strategy because QBI is unavailable.

How does the threshold strategy work?

What if the bookkeeper has employees?

A bookkeeping firm with employees can’t use the Solo 401(k). The most cost-effective alternatives:

• SIMPLE IRA: $16,500 employee deferral (2025; $17,600 for an employer with 25 or fewer employees) + 3% match. The 3% match applies only to participating employees. If junior bookkeepers do not participate (common at lower salary levels), the employer cost is just the owner’s own 3% match.
• Safe Harbor 401(k): $23,500 deferral (2025) + 3% non-elective for all eligible employees. Higher owner contribution ceiling but higher compliance costs and a mandatory employer contribution for all eligible employees.

For the SSTB threshold strategy, the SIMPLE IRA’s $16,500 to $17,600 deferral (2025) may not be enough to push taxable income below the phase-out range. The Safe Harbor 401(k)‘s $23,500 (2025) deferral + employer contribution provides more room.

Can I set up a retirement plan if I have variable self-employment income?

Yes, and several plan types accommodate variable income well. A SEP-IRA allows contributions of up to 20% of net self-employment income (the effective rate for a self-employed owner) with no required annual contribution, so you can skip a year or reduce contributions when income drops. A solo 401(k) provides the same flexibility for employer contributions, plus an employee deferral of up to $23,000 (2024) regardless of income level (as long as you have at least that much in compensation). A SIMPLE IRA requires a fixed employer match or contribution each year, making it less ideal for variable income. The key is choosing a plan that does not lock you into contributions you cannot afford in a lean year.

When does a bookkeeper have to fund a Solo 401(k)?

If you’re a solo bookkeeper with a Solo 401(k) already in place, you have to elect your employee deferral by December 31, but the money can go in as late as your return due date with extensions. The employer profit-sharing piece runs to that same date, which for a sole proprietor who files Form 4868 for 2025 is October 15, 2026.

If you’re only now opening a plan, last year isn’t lost. A sole proprietor with no employees can adopt a Solo 401(k) after year-end and still make first-year deferrals, but those are due by the unextended return date, April 15, 2026 for 2025. That helps with the threshold strategy, since by then you know where 2025 taxable income landed.

• A bookkeeping firm with staff on a SIMPLE IRA has to make the plan effective by October 1 of the year it starts. Deferrals withheld from pay go in no later than 30 days after the end of that month.

• IRA contributions for 2025 are due April 15, 2026 for most people, and an extension doesn’t move that date.

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This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.