Retirement Plans for Cleaning Business Owners: Solo 401(k), SEP, and Plans with Employees
Cleaning businesses are not SSTBs, so the QBI deduction is available at all income levels. Retirement contributions reduce taxable income but do not reduce QBI (qualified business income is calculated before the deduction). That said, the tax savings from retirement contributions are substantial on their own, and for cleaning business owners earning $80,000-$150,000 in net profit, the combination of QBI and retirement plan deductions can cut the effective tax rate significantly.
A solo cleaning operator (no employees other than a spouse) can use the Solo 401(k): $24,500 employee deferral (2026) plus 20% of net self-employment income (or 25% of W-2 salary for S-Corp owners) as an employer contribution, up to a combined $72,000. A cleaning company with employees (cleaners, supervisors, office staff) cannot use the Solo 401(k) and must choose between a SEP IRA (employer-only contributions, the same rate for everyone: effectively 20% of net self-employment income for the owner and 25% of pay for each eligible employee), a SIMPLE IRA (employee deferrals up to $17,000 for 2026, or $18,100 for employers with 25 or fewer employees, plus mandatory employer match or 2% non-elective), or a Safe Harbor 401(k) (higher deferral limits, mandatory employer contribution, more complex administration). The cleaning industry’s high employee turnover (cleaners frequently leave within 6-12 months) makes the SIMPLE IRA attractive because the mandatory match is only on participating employees, and many short-tenure employees never enroll. The Safe Harbor 401(k) is better for owners who want to maximize their own contributions and are willing to pay the 3% non-elective contribution on all eligible employees.
What’s the best plan for a solo cleaner?
The Solo 401(k) is the best plan for a solo cleaning operator. For current guidance, see IRS Retirement Plans for Small Business. It allows the highest contribution at every income level because it combines employee deferrals (a flat dollar amount) with employer contributions (a percentage of income).
What about a cleaning company with employees?
Once the cleaning company hires employees (W-2 cleaners, not 1099 contractors), the Solo 401(k) is no longer available. The employer contribution requirement of any plan now extends to all eligible employees, which creates a cost.
SIMPLE IRA: The employer matches employee contributions dollar-for-dollar up to 3% of compensation, or makes a 2% non-elective contribution on all eligible employees. Eligible employees: those who earned at least $5,000 in any two prior years and expect to earn $5,000 this year. Many cleaning employees who work part-time or leave within the first year never become eligible, which limits the employer cost.
Safe Harbor 401(k): The employer makes a 3% non-elective contribution on all eligible employees (or a 4% match). Higher deferral limits than SIMPLE ($24,500 vs $16,500). More expensive to administer ($1,500-$3,000/year for a TPA) but allows the owner to defer more.
What about employee turnover?
Cleaning businesses have high turnover. Many cleaners work for 3-6 months and leave. The retirement plan costs are concentrated on employees who stay long enough to become eligible:
- SIMPLE IRA eligibility: $5,000 in any two prior years. A cleaner hired this year is not eligible until next year at the earliest. Many short-term cleaners never reach eligibility.
- Safe Harbor 401(k) eligibility: Can be set at 1 year of service (1,000 hours). Part-time cleaners working 20 hours/week (1,040 hours/year) barely qualify; those who leave within a year never do.
The high-turnover reality means that the actual employer cost is often lower than the theoretical cost (calculated on all employees), because many employees never become eligible or never enroll.
Related guides:
- Cleaning Business Commercial Vs Residential
- Cleaning Business Entity Structure Scorp
- Cleaning Business Estimated Taxes
- Cleaning Business Franchise Tax Deductions
- Cleaning Business Tax Deductions
What are the catch-up contribution rules for business owners over 50?
Business owners aged 50 and older can make additional catch-up contributions beyond the standard limits for most qualified retirement plans. For 401(k) plans including solo 401(k)s, the catch-up contribution is an additional $7,500 for 2025 on top of the standard $23,500 employee deferral limit. SEP IRAs don’t have catch-up provisions because contributions are employer-only and already allow up to 25% of compensation or $70,000. SIMPLE IRAs permit a $3,500 catch-up for those 50 and older, and starting in 2025, participants aged 60-63 get an enhanced catch-up of $5,000 under the SECURE 2.0 Act.
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Yarik Yarosh, CPA. "Retirement Plans for Cleaning Business Owners: Solo 401(k), SEP, and Plans with Employees." Blue Cloud CPA, September 5, 2026, updated September 23, 2026. https://bluecloudcpa.com/guides/cleaning-business-retirement-plans
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.