Retirement Plans for Cleaning Business Owners: Solo 401(k), SEP, and Plans with Employees

By Yarik Yarosh, CPA ·September 5, 2026 ·4 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

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.

✓Key takeaway

A solo cleaning operator (no employees other than a spouse) can use the Solo 401(k): $23,500 employee deferral (2025) plus 25% of net self-employment income as an employer contribution, up to a combined $70,000. 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, 25% of compensation for all eligible employees), a SIMPLE IRA (employee deferrals up to $16,000 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 is the best plan for a solo cleaner?

The Solo 401(k) is the best plan for a solo cleaning operator. 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 ($23,500 vs $16,000). More expensive to administer ($1,500-$3,000/year for a TPA) but allows the owner to defer more.

Hypothetical example

Round numbers. A cleaning company owner earns $120,000 in W-2 salary (S-Corp). The company has 8 cleaners earning an average of $28,000 each.

SIMPLE IRA:

Owner deferral: $16,000
Owner match (3%): $3,600
Employee matches (assuming 4 of 8 participate, average deferral 3%): 4 x ($28,000 x 3%) = $3,360
Total employer cost: $3,600 + $3,360 = $6,960
Owner total contribution: $19,600

Safe Harbor 401(k):

Owner deferral: $23,500
Employer 3% non-elective on owner: $3,600
Employer 3% non-elective on ALL 8 employees: 8 x ($28,000 x 3%) = $6,720
Total employer cost: $3,600 + $6,720 = $10,320
Owner total contribution: $27,100

The Safe Harbor 401(k) costs $3,360 more in employer contributions plus $1,500-$3,000 in administration fees. The owner shelters $7,500 more ($27,100 vs $19,600). At a 24% tax rate, the additional $7,500 saves $1,800 in taxes, which roughly offsets the additional cost.

Illustrative numbers only, not a real client and not advice for your facts.

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 owner choosing a retirement plan?

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Cite this page

Yarik Yarosh, CPA. "Retirement Plans for Cleaning Business Owners: Solo 401(k), SEP, and Plans with Employees." Blue Cloud CPA, September 5, 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.