Small Business Retirement Plan: Best Options And Their Tax Advantages

A business retirement plan is a key component for retirement savings for small business owners. They are also an increasingly important tool for attracting and retaining the high-quality employees you need to compete in today’s competitive environment.

Starting a retirement savings plan can be easier than most business owners think. What’s more, there are a number of retirement programs that provide tax advantages to both employers and employees.

Tax Benefits of Retirement Plans for Small Businesses

Besides helping employees save for the future, instituting a business retirement plan can provide you, as the employer, with benefits that enable you to make the most of your business’s assets. Such benefits include:

• Tax-deferred growth on earnings within the business retirement plan
• Current tax savings on individual contributions to the business retirement plan
• Immediate tax deductions for employer contributions
• Easy to establish and maintain
• Low-cost benefit with a highly perceived value by your employees

Small Business Retirement Plan Options

Here’s an overview of six small business retirement plan options that can help you and your employees save:

1. SIMPLE: Savings Incentive Match Plan

A SIMPLE IRA plan allows employees to contribute a percentage of their salary each paycheck and to have their employer match their contribution. Under SIMPLE IRA plans, employees can set aside up to $17,000 in 2025 by payroll deduction. If the employee is 50 or older, they may contribute an additional $4,000 catch-up contribution.

Employee contributions are generally made on a pre-tax basis, which reduces current taxable income, while employer contributions are typically tax-deductible for the business. Employers can either match employee contributions dollar for dollar – up to 3 percent of an employee’s wage – or make a fixed contribution of 2 percent of pay for all eligible employees instead of a matching contribution.

SIMPLE IRA plans are easy to set up by filling out a short form. Administrative costs are low and much of the paperwork is done by the financial institution that handles the SIMPLE IRA plan accounts. Employers may choose either to permit employees to select the IRA to which their contributions will be sent or to send contributions for all employees to one financial institution. Employees are 100 percent vested in contributions, get to decide how and where the money will be invested, and keep their IRA accounts even when they change jobs.

2. SEP: Simplified Employee Pension Plan

A SEP plan allows you (an employer) to set up a type of individual retirement account, known as a SEP-IRA, for yourself and your employees. You must contribute a uniform percentage of pay for each employee. Employer contributions are limited to whichever is less: 25% of an employee’s annual salary or $72,000 in 2026.

Contributions are generally tax-deductible to the business, and the funds grow tax-deferred until they are withdrawn during retirement. SEP plans can be started by most employers, including those that are self-employed.

SEP plans also have low start-up and operating costs and can be established using a single quarter-page form. Businesses are not locked into making contributions every year. You can decide how much to put into a SEP each year, offering you some flexibility when business conditions vary.

3. 401(k) Plans

401(k) plans have become a widely accepted savings vehicle for small businesses and allow employees to contribute a portion of their own incomes toward their retirement. It is an excellent option for a small business retirement plan.

Employee contributions, not to exceed $24,500 in 2026, reduce a participant’s pay before income taxes, allowing pre-tax dollars to be invested. If the employee is 50 or older, then they may contribute another $8,000. As an employer, you may offer to match a certain percentage of the employee’s contribution, increasing participation in the plan.

While more complex, 401(k)plans offer higher contribution limits than SIMPLE IRA plans and IRAs, allowing employees to accumulate greater savings.

4. Profit-Sharing Plans

You may also make profit-sharing contributions to plans that are unrelated to any amounts an employee chooses to contribute. Profit-Sharing Plans are well-suited for businesses with uncertain or fluctuating profits.

In addition to the flexibility to decide the amounts of contributions, a Profit-Sharing Plan can include options such as service requirements, vesting schedules, and plan loans that are not available under SEP plans.

Contributions may range from 0 to 25% of eligible employees’ compensation, up to a maximum of $72,000 per employee in 2026. The contribution in any one year cannot exceed 25% of the total compensation of the employees participating in the plan. Contributions need not be the same percentage for all employees. Key employees may actually get as much as 25%, while others may get as little as 3 percent.

A plan may combine these profit-sharing contributions with 401(k) contributions (and matching contributions).

5. Solo 401(k)

A Solo 401(k), or individual 401(k), is best for self-employed individuals and small business owners who do not have employees other than a spouse. This plan works similarly to a traditional 401(k) but is structured specifically for owner-only businesses.

One advantage of a Solo 401(k) is that you can contribute as both the employee and the employer. This allows for higher overall contributions compared with many other small-business retirement plan options.

For 2026, you may contribute up to $24,500 as an employee through salary deferrals. In addition, your business may contribute up to 25% of compensation as the employer. The combined contributions may reach up to $72,000 for the year, or $77,500 if you’re age 50 or older.

Solo 401(k) plans can also allow either traditional pre-tax contributions or Roth contributions, depending on the plan structure.

6. Traditional And Roth IRA

A Traditional IRA or Roth IRA is one of the simplest ways for small business owners to begin saving for retirement. These accounts are individual retirement accounts that you open through a bank, brokerage firm, or other financial institution. They’re not tied directly to your business and can be used even if you have no employees.

With a Traditional IRA, contributions may be tax-deductible in the year they are made, depending on your income and other retirement coverage. The investments grow tax-deferred, and taxes are paid when withdrawals are taken during retirement.

On the other hand, contributions to a Roth IRA are made with after-tax dollars, which means there is no immediate tax deduction. However, qualified withdrawals during retirement are generally tax-free.

For 2026, you can contribute up to $7,500 to an IRA. If you’re 50 or older, you may contribute an additional $1,100 catch-up contribution.

Although IRA contribution limits are lower than those of some employer-sponsored retirement plans, IRAs remain a popular option because they’re easy to establish, require little administration, and provide meaningful tax advantages for long-term retirement savings.

Frequently Asked Questions

What Is The Best Small Business Retirement Plan?

The best small business retirement plan depends on your business structure, number of employees, and how much you want to contribute each year. If you are self-employed with no employees, a Solo 401(k) or SEP IRA often provides the highest contribution limits. Businesses with employees may prefer a SIMPLE IRA or a traditional 401(k) plan.

Can A Small Business Owner Contribute To Multiple Retirement Plans?

Yes, in some cases you can contribute to more than one retirement plan in the same year. For example, a business owner may contribute to both a company retirement plan and a personal IRA if they meet the eligibility requirements. However, contribution limits and income thresholds may apply, so review your situation carefully.

What happens to my retirement plan if I close or sell my business?

In most cases, the retirement account remains yours even if the business changes. Funds already contributed remain invested and continue to grow according to the plan’s rules. If you sell your business or stop operations, you may also have options to roll the funds into another qualified retirement account.

What happens to my retirement account if I move to another country?

Your retirement account remains in the United States even if you relocate abroad. You can usually continue managing the investments and monitoring the account from overseas. However, tax treatment of withdrawals may depend on the country where you live and any applicable tax treaty.

What retirement plan is best for a self-employed expat?

If you run your own business or work as an independent contractor, a Solo 401(k) or SEP IRA is often the most effective option. They allow higher contribution limits compared with traditional IRAs. They also provide tax advantages that can reduce your current taxable income.

Proactive Planning for Small Business

Experts estimate that Americans will need 70 to 90% of their preretirement income to maintain their current standard of living when they stop working. So now is the time to look into business retirement plan options.

Business retirement plan options are complex and have a number of factors to consider, not to mention the tax aspects of retirement plans can also be confusing, so contact us first. We’ll help you find the right business retirement plan for you and your employees.