An example
For a 51-year-old structural engineer with an S corporation, the 2026 figures work out like this:
- Cash balance plan, first year
- $168,000
- Solo 401(k) alongside
- $45,000
- Both plans
- $213,000
- A Solo 401(k) on its own
- $80,000
- Federal income tax saved
- $39,100
Federal income tax only, compared with making no retirement contributions. State tax saved depends on where you live: see savings by state. An illustration from the same calculation as the estimate, not a quote.
Engineers and architects are generally not a specified service business for the 20% qualified business income deduction, so the deduction is not lost at higher incomes. A contribution reduces qualified business income, which trims the deduction a little. How the deduction interacts with contributions
Why engineering and architecture are treated differently
The QBI deduction excludes specified service businesses once income passes a threshold. Congress built that list by borrowing an older one from IRC 1202, which includes engineering and architecture, and then wrote that the list applies without regard to the words engineering and architecture. Health, law, accounting and consulting stay on it. Engineering and architecture come off.
So a physician or consultant earning $553,500 or more of taxable income as a married couple gets no QBI deduction at all, while an engineer at the same income can still have one. For an engineer or architect, the limit that matters above the threshold is a different one: the deduction cannot exceed 50% of the W-2 wages the business pays, or 25% of those wages plus 2.5% of the original cost of its depreciable property if that is more.
Work that is really advice to clients, rather than engineering or design, can be consulting. For most practices whose receipts come from design, drawings and inspections, that is a small part.
How a contribution affects the deduction
A contribution for the owner lowers qualified business income as well as taxable income, under Treas. Reg. 1.199A-3. Because the deduction is a share of qualified business income, a contribution can shrink the deduction too. How much depends on where your income sits.
| Your situation | Effect of $1 contributed |
|---|---|
| Taxable income below $403,500 (married) or $201,750 (single), before and after | Taxable income falls by about 80 cents. The deduction is 20% of qualified business income, and the contribution lowers that by 20 cents. |
| Above the phase-in, S corporation paying you a salary | Often the full dollar, while 50% of your salary rather than 20% of qualified business income sets the deduction. |
| Above the phase-in, sole proprietor with no employees | The full dollar. With no W-2 wages paid and little depreciable property, the deduction is already close to zero. |
| Inside the phase-in range | Somewhere in between, as the wage limit phases in. |
For an S corporation owner, the salary does double duty. It is the pay the cash balance plan is based on, and it sets the wage limit on the QBI deduction. Both argue against a very low salary, while payroll tax argues for one; see S corporation owners.
The rules in full are in the QBI deduction and retirement contributions.
Practice structure
Many engineers and architects start a practice alongside a salaried job, doing plan review, stamping drawings or expert work on the side. That side income can support a plan in your own business. Your salary cannot, and the 401(k) deferral limit is shared between the two; see a W-2 job and a side business.
A practice with a drafter, designer or CAD technician on the payroll has an employee, and a one-person plan no longer fits once that person meets the plan's age and service conditions. See hiring your first employee. Teaming with other firms as a subconsultant does not by itself create employees, but owning a large share of a firm that has staff can bring its employees into the count.