A worked example

What the salary you pay yourself decides

Marta, 46, runs a consultancy netting $400k. She is thinking about electing S-corp status, taking a salary, and funding a solo 401(k).

“How much can I actually put away, and what does the salary I choose do to it?”

What the projection shows

The salary does three jobs at once, and they pull in different directions. It's the base that payroll tax applies to, it's the W-2 figure that caps the §199A deduction at half its value, and it's the compensation the 25% employer contribution is based on. So a quarter of every dollar cut from salary comes out of the retirement contribution room. The Structure panel prices each salary side by side without picking one. What counts as reasonable compensation is a §162 question for her CPA.