How Can I Save For Retirement As a Small Business Owner?

When you work for yourself, nobody is setting up a 401(k) for you. There is no HR department, no automatic enrollment, and no employer match showing up quietly in your account every two weeks. It is entirely on you. And that’s actually a good thing, because you have more flexibility and, potentially, the ability to save significantly more for retirement than most people who work regular jobs.

The tricky part is figuring out which plan makes sense. There are a handful of options available for self-employed individuals and small business owners, and the differences between them can be significant. Here’s a breakdown of the most common options, and why one of them tends to stand above the rest for solo business owners.

Your Main Options

SEP-IRA (Simplified Employee Pension)

The SEP-IRA is popular because it’s incredibly simple to set up and there is virtually no paperwork to maintain. Contributions are employer-only (meaning all contributions are treated as coming from the business), and you can contribute up to 25% of your net self-employment income, capped at $72,000 (plus catch-up contributions if you qualify) for 2026. If your income fluctuates, this plan is flexible - you can contribute a lot in a good year and nothing in a lean one.

The catch: You cannot make salary deferral contributions the way you can with a 401(k). That means at lower income levels, you will often end up being able to save less than you could with a Solo 401(k). And there is no Roth option.

SIMPLE IRA

The SIMPLE IRA is designed for small businesses that actually have employees. If you have a handful of staff and want a straightforward retirement plan without the complexity of a full 401(k), this can work. The contribution limits are significantly lower, with max deferrals for 2026 at $17,000 to $18,100, depending on the number of employees (plus catch-up contributions if you qualify).

The catch: You, as the business owner, are required to either make a contribution to each employee’s account, or provide a minimum match for participating employees. This could present a challenge if your income fluctuates and you have some negative earning years.

Defined Benefit (Pension) Plan

Defined benefit plans can allow very high earners - often in their 50s or older - to sock away $100,000 or more per year on a tax-deferred basis. The contribution limits are determined by an actuary based on your age and income, and the tax deductions can be substantial. The downside is complexity and cost: you need an actuary to manage the plan every year, and there are ongoing filing requirements. For most solopreneurs, this level of infrastructure is more than they need. But for someone with very high income who is behind on retirement savings, it is worth a conversation.

There are different types of defined benefit (pension) plans. Each has it’s own features and drawbacks with varying levels of complexity. Although these are generally associated with the traditional monthly pension payout, 

The Solo 401(k): Usually the Best Option for Solopreneurs

If you are self-employed with no full-time W-2 non-spouse employees, the Solo 401(k) [also called an individual 401(k) or self-employed 401(k)] is worth serious consideration. Here’s why.

You contribute in two ways.

As both employer and employee, you can make two types of contributions. First, you can defer up to $24,500 (plus catch-up amounts) as an employee contribution in 2026. On top of that, you can make an employer profit-sharing contribution of up to 25% of your net self-employment income. The combined total can reach $72,000 in 2026 (up to $83,500 if you’re age 60-63).

It beats the SEP-IRA at lower income levels.

This is where the math gets interesting. Because the Solo 401(k) lets you make employee salary deferrals on top of employer contributions, you can often reach a higher contribution dollar amount at moderate income levels compared to a SEP-IRA. For example, someone with $80,000 in net self-employment income can contribute significantly more to a Solo 401(k) than a SEP-IRA - even though the theoretical maximum is the same. The salary deferral piece does a lot of the heavy lifting.

Roth is on the table.

Many Solo 401(k) plan documents allow you to designate contributions as Roth, meaning you pay tax on the money now and it grows tax-free. For business owners who expect to be in a higher tax bracket later, or who want more diversity, this is a meaningful advantage. Neither the SEP-IRA nor the SIMPLE IRA offer this.

You can borrow from it.

Solo 401(k) plans can allow loans, which is something IRAs simply don’t permit. We don’t recommend routinely borrowing from your retirement savings, but having the option available can provide a safety valve if cash flow gets tight.

Setup is straightforward.

Most major custodians offer Solo 401(k) plans, and the initial setup is relatively simple, especially compared to a defined benefit plan. 

A few things to keep in mind: you need to establish the plan by December 31st of the year you want to begin contributing (for existing businesses). 

Also, if your plan assets exceed $250,000 at any time during the year, you will need to file Form 5500 annually. 

Although the Form 5500 isn’t necessarily difficult, it still adds a layer of complexity. Luckily, this can easily be avoided by completing an in-service rollover (if you plan allows it).

Side-by-Side Comparison (2026 Figures)

Solo 401(k) advantages are highlighted in green.

When a Solo 401(k) Is Not the Right Fit

The Solo 401(k) is built for solopreneurs. The moment you hire a full-time W-2 employee (other than a spouse), you generally can’t use the plan anymore and would need to convert to a different type of retirement plan. If hiring an employee is on your horizon, it’s worth thinking ahead.

Also, if your business income is very high and you are older - think late 50s with significant earnings - a defined benefit plan layered on top of (or instead of) a Solo 401(k) might allow you to shelter even more income. That is a more complex analysis and typically involves working with an actuary, but the tax savings can be compelling.

The Bottom Line

Running your own business means you have to build your own retirement safety net, but you also have more tools at your disposal than most people realize. For the majority of solopreneurs and self-employed individuals, the Solo 401(k) offers the best combination of contribution flexibility, tax options, and simplicity. The earlier you get one in place, the more time you have to take advantage of it.

If you are not sure which plan is the right fit for your situation, or if you have one already but are not sure you are maximizing it, that is exactly the kind of question we help clients work through all the time. Every situation is a little different, and getting this right can make a big difference down the line.