Retirement Plan Options for Business Owners (2026 Guide)

Updated September 2026 with current contribution limits and SECURE 2.0 changes.

You may be familiar with the retirement plans available to employees, but there is a lot of confusion about retirement plans for the self-employed and for business owners. The great news is that if you are self-employed or own a business, you can create retirement plans for yourself and any employees you have. Offering a plan can even benefit your business by attracting quality people who are in it with you for the long haul.

Either way, a huge advantage of having a retirement plan is that you can begin saving for the future. The earlier you start saving, the better, but there is by no means a "wrong" time to start investing or contributing to a plan.

Choosing a plan is one piece of a bigger picture. If you are also wondering how your retirement savings fit alongside your business, your taxes, and your exit plans, take a look at our post on whether business owners need both an accountant and a financial planner.

What are the main retirement plan options for small business owners?

The plans below are the ones most often used by self-employed people and small business owners. The limits shown are for 2026 and are adjusted by the IRS most years, so confirm the current numbers before you contribute.

• SEP IRA. Employer contributions only, up to the lesser of 25% of pay or $72,000. Low cost and simple to set up.
• SIMPLE IRA. For businesses with 100 or fewer employees. Employees can defer up to $17,000, with an employer match or contribution required.
• Individual (solo) 401(k). For owners with no employees other than a spouse. You can contribute as both employee ($24,500) and employer, up to $72,000 in total before catch-up contributions.
• Traditional 401(k), including safe harbor. For businesses with employees who want the most flexibility. Employees can defer up to $24,500.
• Profit-sharing plan. Employer contributions only, up to the lesser of $72,000 or 100% of pay, and you can skip a year when business is slow.
• Defined benefit plan. Can allow the largest deductible contribution, with an annual benefit of up to $290,000. Best suited to a small group of high-earning owners.

Older terms you may still hear include payroll deduction IRA plans and Keogh plans, which is the name for a qualified plan set up by a self-employed individual or partnership.

If you would like help selecting the right plan for you, you can contact us for a complimentary consultation.

Related reading. Roth IRA vs 401(k) - What's the Difference and Why Does it Matter?

What are the benefits of having a retirement plan for your business?

Having a retirement plan can help you attract qualified employees who want to stay with your company. This is true whether you have 2 or 200 employees.

Also, in the case of qualified plans and some nonqualified plans, a retirement plan can provide significant tax benefits for both employer and employee. These benefits may include tax-deductible employer contributions and a tax deferral for employees until funds are distributed from the plan.

How do you choose the right retirement plan for your small business?

If you own a small business, especially if you have come from the corporate world, you know your needs are different from those of a large corporation. With so many plans to choose from, each with its own advantages and disadvantages, you want to get clear on your goals before selecting one.

Is your goal to maximize the amount you save for your own retirement? Do you want to offer a plan funded by employer contributions, employee contributions, or a combination? Do you want the flexibility to skip employer contributions in a slow year? Are you concerned about the cost of administering a plan? Would you like to minimize the cost of getting started?

Answers to these questions can help you determine which plan, or combination of plans, is best for your business.

SEP IRA

The most common plan that I use with my self-employed clients is a SEP. A SEP allows you to set up an IRA (a "SEP-IRA") for yourself and each of your eligible employees. You contribute a uniform percentage of pay for each employee, although you do not have to make contributions every year, which gives you flexibility when business conditions vary. For 2026, contributions for each employee are limited to the lesser of 25% of pay or $72,000 (up from $70,000 in 2025). If you are self-employed, the calculation for your own contribution is a little different and works out to a lower percentage of your net earnings, so it is worth running the numbers with your tax professional. Most employers, including those who are self-employed, can establish a SEP.

Some advantages of SEPs are that they have low start-up and operating costs and can be established using a simple two-page form. The plan generally must cover any employee aged 21 or older who has worked for you in at least three of the last five years and who earns $800 or more in 2026. Since SECURE 2.0, a SEP can also accept Roth contributions if your plan allows it.

SIMPLE IRA

Many of my small business owner clients choose to set up a SIMPLE IRA. A SIMPLE IRA plan is available if you have 100 or fewer employees. For 2026, employees can elect to make pre-tax contributions of up to $17,000 (up from $16,500 in 2025), plus a $4,000 catch-up contribution if age 50 or older, or $5,250 if age 60 to 63.

SECURE 2.0 added higher limits for some employers. If you have 25 or fewer employees, your employees can defer up to $18,100 in 2026. If you have 26 to 100 employees, they can also use the higher limit as long as you make either a 4% matching contribution or a 3% employer contribution.

You must either match your employees' contributions dollar for dollar up to 3% of each employee's compensation, or make a fixed contribution of 2% of compensation for each eligible employee. (The 3% match can be reduced to 1% in any two of five years.) Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan. SIMPLE IRAs can now accept Roth contributions as well.

SIMPLE IRA plans are also very easy to set up. You fill out a short form to establish a plan and make sure that SIMPLE IRAs are set up for each employee. Plan administrative costs are very low.

Profit-sharing plan

Typically, only you, not your employees, contribute to a qualified profit-sharing plan. Your contributions are discretionary. There is usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you choose (although your contributions must be nondiscriminatory, and "substantial and recurring," for your plan to remain qualified). The plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses. Generally, each employee with a year of service is eligible to participate, although you can require two years of service if your contributions are immediately vested. The contribution limit for each employee for 2026 is the lesser of $72,000 or 100% of the employee's compensation (up from $70,000 in 2025).

401(k) plan

The 401(k) plan is the one most people are familiar with. With a 401(k) plan, employees can make pre-tax and/or Roth contributions in 2026 of up to $24,500 of pay (up from $23,500 in 2025). Employees age 50 or older can contribute an additional $8,000, and those age 60 to 63 can contribute an additional $11,250. Under SECURE 2.0, higher earners' catch-up contributions generally must be made as Roth contributions beginning in 2026, so check how your plan handles this. These deferrals go into a separate account for each employee and are not taxed until distributed, unless they are Roth contributions. Generally, each employee with a year of service must be allowed to contribute to the plan.

If you are self-employed with no employees other than a spouse, an individual 401(k), often called a solo 401(k), lets you contribute as both the employee and the employer. That can make it one of the highest-contribution options available to a small business owner.

Choosing the plan is only half the work. Whether you are the owner or an employee, the dollars still have to be invested well once they are inside the account, and that is where our 401(k) optimization guidance comes in for individuals looking to maximize their own retirement savings.

You can also make employer contributions to your 401(k) plan, either matching contributions or discretionary profit-sharing contributions. Combined employer and employee contributions for any employee in 2026 cannot exceed the lesser of $72,000 (up from $70,000 in 2025), not counting catch-up contributions, or 100% of the employee's compensation. In general, each employee with a year of service is eligible to receive employer contributions, but you can require two years of service if your contributions are immediately vested.

401(k) plans are required to perform somewhat complicated testing each year to make sure benefits are not disproportionately weighted toward higher paid employees. However, you do not have to perform discrimination testing if you adopt a "safe harbor" 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees' contributions (100% of employee deferrals up to 3% of compensation, and 50% of deferrals between 3% and 5% of compensation), or make a fixed contribution of 3% of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested.

Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs, but can also allow loans and Roth contributions. Because they are still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow lower deferrals than traditional 401(k)s, SIMPLE 401(k)s have not become popular.

Related Reading. 3 Benefits of a Self-Directed 401(k) or 403(b)

Defined benefit plan

A defined benefit plan is traditionally known as a pension. It is a qualified retirement plan that promises your employees a specified level of benefits at retirement (for example, an annual benefit equal to 30% of final average pay). As the name suggests, it is the retirement benefit that is defined, not the level of contributions to the plan. In 2026, a defined benefit plan can provide an annual benefit of up to $290,000 (or 100% of pay if less), up from $280,000 in 2025. Actuary services are generally needed to determine the annual contributions that you must make to the plan to fund the promised benefit. Your contributions may vary from year to year, depending on the performance of plan investments and other factors.

In general, defined benefit plans are too costly and too complicated for most small businesses. However, because they can provide the largest benefit of any retirement plan, and therefore allow the largest deductible employer contribution, defined benefit plans can be attractive to businesses that have a small group of highly compensated owners who are seeking to contribute as much money as possible on a tax-deferred basis.

Are there tax credits for starting a retirement plan for your small business?

Yes. SECURE 2.0 significantly expanded the startup credit for small employers. If you have up to 50 employees, the credit can cover 100% of your plan's ordinary startup costs, up to an annual cap. There is also an additional credit based on the employer contributions you make for employees, up to $1,000 per employee, which phases down over the first five years. The credit phases out for employers with 51 to 100 employees.

Also worth knowing, many new 401(k) plans are now required to automatically enroll eligible employees, with exceptions for very small businesses and newer businesses. If you are setting up a new 401(k), ask your plan provider how this applies to you.

Frequently asked questions

What is the best retirement plan for a self-employed person with no employees?

It depends on your income and goals. An individual (solo) 401(k) often allows the highest contributions for owners with no employees, while a SEP IRA is simpler and cheaper to set up and maintain. It is worth comparing the two with a financial planner and your tax professional.

What is the difference between a SEP IRA and a SIMPLE IRA?

A SEP IRA is funded only by the employer, and you can skip contributions in a year when business is slow. A SIMPLE IRA lets employees contribute from their own paychecks, and the employer is required to make either a match or a fixed contribution each year.

Do I have to offer a retirement plan to my employees?

Federal law does not require most small businesses to offer a retirement plan, although some states have their own requirements. Offering one can still help you attract and keep good people.

Can I contribute to my own retirement and my employees' retirement accounts at the same time?

Yes. In most plans, you participate as an owner alongside your employees, and your own contributions are subject to the same plan rules and limits.

At the end of the day

As with most any decision you make in life, each retirement plan option has its own set of pros and cons. The challenge is finding a plan that has the most benefits for the most people. Of course, if you are a sole proprietor or self-employed, it is easier to select a retirement plan than if you need to balance the needs of all of your employees as well as the needs of the business.

I would encourage you to consider establishing one, or more than one, of these retirement plan options so you can thrive and your employees can as well.

Limits shown are for 2026 and come from IRS announcements, including the 2026 retirement plan limits notice. Plan rules are detailed and your situation may differ, so review your options with your plan provider and tax professional before making a decision.

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