Most Direct Care owners set their S-corp salary once, usually the year they elected S-corp status, and then leave it alone. The retirement plan gets chosen on a different day, often by a different person, for different reasons.
Those two decisions are really one decision. Your salary is the number your retirement plan is built on. Set them together and you decide, on purpose, how much of this year's profit goes into retirement while reducing your current taxable income.
November is the month to do it, because the last payroll of the year is the last chance to change part of it.
In an S-corp, you pay yourself two ways: a W-2 salary through payroll, and distributions of the profit that's left. Distributions avoid payroll tax, which is why so much S-corp advice is about keeping salary as low as the IRS allows.
That advice is half the picture. Retirement plan contributions are calculated on your W-2 salary, not on your distributions. A distribution, however large, creates zero retirement contribution room.
So the salary question isn't only "how low can it reasonably go?" It's "what salary gets me the retirement contributions I want, at a payroll tax cost that makes sense?" Those can point to very different numbers.
One guardrail first: your salary has to be reasonable compensation for the work you do in the practice. Everything below is about choosing well inside that reasonable range, not about stretching it in either direction.
A 401(k) gives an S-corp owner two separate buckets.
Your own deferral. As the employee, you can defer up to $24,500 of salary in 2026. If you're 50 or older, you can add a catch-up of $8,000. If you're 60 to 63, the catch-up is $11,250 instead.
The practice's contribution. As the employer, the S-corp can add a profit-sharing contribution of up to 25% of your W-2 salary.
Both buckets together are capped at $72,000 for 2026. Catch-up contributions sit on top of that cap, so your applicable limit depends on your age.
One 2026 change for catch-ups. If your 2025 Social Security wages from the practice were more than $150,000, your 2026 catch-up contributions generally must go in as Roth. Roth dollars go in after tax, so a catch-up for a higher earner may no longer lower this year's taxable income. Your base deferral and the practice's contribution can still be pretax.
Here's what the two buckets look like at three salaries.
| W-2 salary | Your deferral | Practice contribution (25%) | Total |
|---|---|---|---|
| $80,000 | $24,500 | $20,000 | $44,500 |
| $120,000 | $24,500 | $30,000 | $54,500 |
| $190,000 | $24,500 | $47,500 | $72,000 (the cap) |
Illustration only, not a client. Assumes an owner under 50, W-2 compensation before deferrals counted as eligible compensation, and a plan document that permits these contributions.
At the same practice earnings before owner compensation, payroll taxes and retirement contributions, the only lever that moved is the salary line. Moving it from $80,000 to $190,000 opens about $27,500 more tax-deferred room.
The trade-off is payroll tax, on both sides. Each extra dollar of salary carries the Social Security and Medicare tax withheld from you and the matching share the practice pays. Social Security tax stops at the 2026 wage base of $184,500; Medicare doesn't stop. A higher salary also leaves less S-corp profit, which can change your qualified business income (QBI) deduction. Add any required staff contributions and the plan's fees, and you have the full comparison. That's the calculation worth running before December, not after.
For an owner whose practice is consistently profitable and who wants to save more than their applicable 401(k) limit, a 401(k) runs out of room. That's where a cash balance plan comes in.
A cash balance plan is a defined benefit plan that works alongside your 401(k). The contribution isn't a flat percentage. An actuary sets it based on your age and your compensation, and for owners in their late 40s and up it can allow contributions well above the 401(k) ceiling.
The salary link is even stronger here. The benefit the plan can promise is tied to your compensation, so a salary set too low can quietly cap how much the cash balance plan lets you put away.
But one higher year-end paycheck doesn't necessarily unlock the contribution you want. Your compensation history, your staff costs and the combined deduction limits for running both plans all matter. Cash balance funding also has its own deadlines; minimum funding is generally due 8½ months after the plan year ends. Have an actuary model both plans together before changing payroll or committing to contributions.
A cash balance plan is a multi-year commitment with real administration costs, so it fits a practice with steady profit, not one still filling its panel. If you have staff, both the profit-sharing and cash balance contributions usually have to include them too. That's often fine, and sometimes it's the point, but it belongs in the math.
Timing is where this decision gets made or missed.
That's why November is the month. There's still time to change the salary, still time to run the deferral through payroll, and enough of the year's numbers in to know what profit you're actually working with.
None of these steps is complicated alone. The value is doing them together, in that order.
Rooted Family Health is Dr. Chris Imperial's practice. We identified $32,925 in federal tax savings for his practice in 2025.
That figure came from his full tax plan, not from this one strategy. But it starts the same way this post does: with a few decisions made on purpose, in the right order, before the year closes instead of after.
You don't need to overhaul everything in November. Pick one move: look at your salary and your retirement plan side by side, on the same page, before the last payroll.
If you'd like to do that with us, Book a Free Tax Strategy Session and we'll walk through your salary, your plan and the year-end deadlines with your actual numbers.
DPC Circle members: this is the topic of our Monthly Deep Dive on Wednesday, November 11, at 12 PM ET. Not a member yet? Join the DPC Circle to access the session.
This post is general information, not tax advice for your situation. Retirement plan rules depend on your entity, your staff and your plan documents, so talk with your CPA before changing your payroll or adopting a plan.
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