If you think you can’t save for retirement because you are self-employed, think again. Many small business owners feel behind on retirement savings, but the truth is, you have several powerful, tax-advantaged options designed specifically for people like you. My aim is to introduce you to the most common types of retirement plans available to small business owners, share the updated 2026 contribution limits, and help you ask your financial advisor the right questions to choose the best account for your situation.
Topics
- Small business owners can plan for retirement, too!
- Simplified Employer Plan (SEP)
- Solo 401(k) — A Strong Option for Self-Employed Owners
- Traditional 401(k) Plan
- Simple IRA Plan
- 2026 Quick Comparison: Small Business Retirement Plans
- What’s New for 2026: Key Changes Small Business Owners Should Know
- Additional Advice on Saving for Retirement and Emergencies
- Frequently Asked Questions About Small Business Retirement Plans
- Final Thoughts
Small business owners can plan for retirement, too!
First, let’s talk about the most popular options small businesses have for retirement planning. There are many others, but I want to hit on the ones you’re most likely to encounter when talking to a financial advisor. Below, I’ll walk through the SEP IRA, the Solo 401(k), the traditional 401(k), and the SIMPLE IRA — with all of the 2026 numbers built in.
Simplified Employer Plan (SEP)
A simplified Employer Plan (SEP) is ideal for businesses with high-paid owners and few or no employees. This type of retirement account is similar to a traditional IRA. You can set up the payment and add it to the account when your taxes are due, including extensions, which gives self-employed filers a lot of flexibility.
For 2026, the maximum SEP IRA contribution is the lesser of 25% of compensation or $72,000 (up from $70,000 in 2025). The compensation cap used to calculate the contribution is $360,000 in 2026. If you’re self-employed, the practical contribution rate works out to about 20% of net self-employment income after the self-employment tax deduction.
What you need to know about SEP IRA Plans.
If you have employees, the same percentage of contribution must be made for all eligible employees. This rule can be tricky if one person wants to contribute more and another can’t. However, this type of account is ideal for solopreneurs and mompreneurs without employees.
To be eligible in 2026, an employee generally must be at least 21, have worked for the business in 3 of the last 5 years, and have earned at least $800 from the job.
Distributions taken at age 59½ are taxable as ordinary income. Early withdrawals are subject to a 10% penalty.
The setup is similar to an IRA account, and there’s typically no annual filing requirement.
New under SECURE 2.0: SEP IRAs can now allow Roth contributions, but not all custodians offer the option yet — ask your provider.
Solo 401(k) — A Strong Option for Self-Employed Owners
The Solo 401(k) (also called a one-participant 401(k) or individual 401(k)) is designed for self-employed individuals and owner-only businesses, including spouses who work in the business. It’s become one of the most popular retirement plans for solopreneurs because you can contribute as both the employee and the employer.
For 2026, you can defer up to $24,500 as an employee plus an employer contribution of up to 25% of compensation (about 20% of net self-employment income for sole proprietors), with a combined cap of $72,000. If you’re age 50 or older, you can add an $8,000 catch-up contribution. Workers ages 60 to 63 can use the enhanced “super catch-up” of $11,250 instead.
What you need to know about 401(K) Plans.
Available only if your business has no full-time employees other than you (and your spouse).
Most plans now allow Roth employee contributions, and SECURE 2.0 also allows Roth employer profit-sharing contributions if your plan supports it.
Important 2026 change: If you’re age 50+ and earned more than $150,000 in W-2 wages from the same employer in 2025, your catch-up contributions must be made on a Roth basis. This rule generally affects S-corp owners with W-2 wages, not sole proprietors.
Plan loans are typically allowed (up to $50,000 or 50% of your balance).
Once your Solo 401(k) balance reaches $250,000, you’ll need to file Form 5500-EZ each year.
Traditional 401(k) Plan
A traditional 401(k) Plan is a great fit for small businesses with employees who want a more robust retirement benefit. For 2026, the maximum employee deferral is $24,500, with a $8,000 catch-up contribution for those age 50 and older. Workers ages 60 to 63 are eligible for an enhanced “super catch-up” of $11,250 (instead of $8,000). The combined employee + employer contribution limit is $72,000.
What You Need to Know About 401(k) Plans
Employee contributions must be made through payroll, which reduces taxable wages.
Employer contributions are tax-deductible to the business.
Most 401(k) plans now offer a Roth option in addition to traditional pre-tax contributions.
Starting in 2026, employees age 50+ who earned more than $145,000 from their employer in the prior year must make catch-up contributions on a Roth basis (the threshold rises to $150,000 for 2026 contributions, indexed for future years).
In SECURE 2.0, newly established 401(k) plans must automatically enroll eligible employees at a starting rate between 3% and 10%.
There are early withdrawal rules and penalties — generally a 10% penalty before age 59½.
Simple IRA Plan
A Simple IRA plan (Savings Incentive Match Plan for Employees) is a flexible option for businesses with 100 or fewer employees. It’s less complex and less expensive to administer than a traditional 401(k).
For 2026, the standard employee salary deferral limit is $17,000, with a $4,000 catch-up contribution for those age 50 and older. Workers ages 60 to 63 are eligible for a “super catch-up” of $5,250 instead of $4,000.
Thanks to SECURE 2.0, businesses with 25 or fewer employees automatically get a higher deferral limit of $18,100, and small employers with employees ages 50+ get a catch-up of $3,850 (the higher catch-up of $5,250 still applies for ages 60–63).
What you need to know about Simple IRA Plans.
The employer must either match employee contributions dollar-for-dollar up to 3% of compensation OR make a 2% nonelective contribution for all eligible employees.
Employer contributions are tax-deductible.
Employee contributions are 100% vested immediately and are not subject to payroll taxes for federal income tax purposes (FICA still applies).
New for 2026: SIMPLE IRA plans can now allow Roth employee deferrals if your custodian supports it.
Early withdrawals (before age 59½) are subject to a 10% penalty — 25% if taken within the first two years of participation.
2026 Quick Comparison: Small Business Retirement Plans
Here’s a side-by-side look at the four most common plans, with the updated 2026 numbers:
| Plan | 2026 Contribution Limit | Catch-Up (Age 50+) | Best For |
| SEP IRA | Up to 25% of compensation, max $72,000 | None | Solopreneurs and owners with few/no employees |
| Solo 401(k) | $24,500 employee + employer up to $72,000 total | $8,000 (or $11,250 ages 60–63) | Self-employed with no employees (spouse OK) |
| SIMPLE IRA | $17,000 (or $18,100 for businesses with 25 or fewer employees) | $4,000 (or $5,250 ages 60–63) | Small businesses up to 100 employees |
| Traditional 401(k) | $24,500 employee + employer up to $72,000 total | $8,000 (or $11,250 ages 60–63) | Businesses with employees wanting full features |
What’s New for 2026: Key Changes Small Business Owners Should Know
The IRS announced 2026 cost-of-living adjustments, and several SECURE 2.0 provisions take effect this year. Here are the highlights for small business owners and solopreneurs:
- Higher contribution limits across the board: SEP IRA up to $72,000, 401(k)/Solo 401(k) employee deferral up to $24,500, and SIMPLE IRA up to $17,000 (or $18,100 at small employers).
- Mandatory Roth catch-up for high earners: Starting in 2026, employees age 50+ who earned more than $145,000 in W-2 wages from their employer the prior year must make catch-up contributions on a Roth basis (rising to $150,000 for 2026 contributions). This mainly affects 401(k) and Solo 401(k) participants who are S-corp owners.
- Enhanced “super catch-up” for ages 60–63: Higher catch-up contributions are available for those approaching retirement — $11,250 in a 401(k)/Solo 401(k) and $5,250 in a SIMPLE IRA.
- Roth options expanded: SEP IRAs and SIMPLE IRAs can now offer Roth contributions if your custodian supports it. Roth employer profit-sharing contributions are allowed in Solo 401(k)s.
- Automatic enrollment for new 401(k) plans: Most 401(k) plans established after December 29, 2022, must automatically enroll eligible employees at a starting rate between 3% and 10% (effective 2025 and ongoing).
- Compensation cap increase: The maximum compensation that can be considered for retirement plan contributions is $360,000 in 2026 (up from $350,000 in 2025).
Additional Advice on Saving for Retirement and Emergencies
Figure Out How Much Money You Will Need for Retirement
There are plenty of apps and tools to help you determine this. Some experts say you can multiply your annual spending by 25 to estimate a retirement number. Free retirement calculators (like the one at NerdWallet) can also help you run the numbers based on your savings, age, and goals.
Contribute Regularly
I’ve seen this happen many times with clients (affiliate). They feel they can’t contribute monthly because of the cost, and instead opt to do it once a year. I always believe that contributing regularly over time allows for the ups and downs in the market. If you put money into an account once, you’re more likely to buy at a single price point and could lose money in the short run. Contributing a little at a time over several months lets you buy at different prices, so your money will be more stable when the market moves.
If you feel you can’t contribute much, try $100/month, then increase it every six months. The point is to get started.
Be Clear on How You’ll Contribute and Use the Account
Make sure it’s clear in your mind which account the money should come from. Will you be doing an auto-withdrawal each month, each quarter, or once a year? Retirement accounts should be used for retirement — you’ll be penalized for taking money out too soon (10% federal penalty before age 59½, plus ordinary income tax).
Have a Separate Emergency Fund for Your Business
Don’t use your retirement account for emergencies. Building an emergency fund takes patience, but it will grow if you don’t constantly tap into it. It may take a year or two, but it’s worth it. If you want to learn how to start one, check out my post called “How To Create A Small Business Emergency Savings Account.”
Don’t Forget About Tax Credits for Setting Up a Plan
Thanks to SECURE 2.0, eligible small businesses (generally 50 or fewer employees) may qualify for a tax credit covering up to 100% of plan startup costs (up to $5,000 per year for the first three years), plus an additional credit for employer contributions. This is a great reason to talk with your CPA before assuming a plan is unaffordable.
Frequently Asked Questions About Small Business Retirement Plans
For most solopreneurs, the choice comes down to a SEP IRA or a Solo 401(k).
A Solo 401(k) usually allows higher contributions at lower income levels because you can contribute as both employee and employer, and most plans now offer Roth options.
A SEP IRA is simpler to administer if you don’t need the higher contribution capacity or Roth feature.
Talk with your CPA about which fits your income and tax goals.
SEP IRA: You can set up and fund a SEP IRA up to your business tax filing deadline, including extensions.
Solo 401(k): Sole proprietors with no employees can adopt a new plan as late as the personal tax-return due date (no extensions) under SECURE 2.0, but the salary-deferral election generally needs to be in place before the wages are paid.
SIMPLE IRA: A new SIMPLE IRA generally must be set up by October 1 of the year it takes effect.
Technically, yes, but in most cases, you wouldn’t want to.
The two plans share the same overall annual additions limit ($72,000 for 2026), so contributing to both at the same time doesn’t increase how much you can save.
Many people switch from a SEP IRA to a Solo 401(k) once they realize the Solo 401(k) usually allows higher contributions at the same income level.
If you hire full-time employees, your Solo 401(k) generally has to convert into a traditional 401(k) plan that covers eligible employees.
With a SEP IRA, you must contribute the same percentage of compensation for all eligible employees that you contribute for yourself.
Plan ahead with a financial advisor before adding W-2 employees.
If you’re 50 or older and earned more than $145,000 in W-2 wages from your employer in 2025 (rising to $150,000 for 2026), any catch-up contributions you make to a 401(k) or Solo 401(k) must go into a Roth account.
This rule mainly affects S-corp owners with W-2 wages — sole proprietors and single-member LLCs taxed as sole proprietorships are not subject to it because they don’t have W-2 wages.
Yes, in most cases. For 2026, the personal IRA contribution limit is $7,500 ($8,600 if you’re age 50 or older).
However, your ability to deduct a traditional IRA contribution may be limited if you’re also covered by a workplace plan, and Roth IRA eligibility is subject to income phase-outs. Check the current IRS phase-out limits or ask your tax advisor.
Yes. Small businesses with 50 or fewer employees can claim a startup tax credit covering up to 100% of plan setup and administration costs (up to $5,000 per year for three years), plus an additional credit for employer contributions to employee accounts. This is one of the most underused benefits in SECURE 2.0.
No. Both SEP IRAs and Solo 401(k)s let you skip years or vary your contribution amount based on the business’s performance.
SIMPLE IRAs are different — employers must make either matching or non-elective contributions every year the plan is in effect.
Generally, withdrawals before age 59½ trigger a 10% federal early-withdrawal penalty in addition to ordinary income tax.
SIMPLE IRAs have a stricter 25% penalty if you withdraw within the first two years of participation.
There are some exceptions (like a first-time home purchase). Check with a tax professional before tapping your account.
Ask other business owners, family, or friends you trust for recommendations. Look for someone who understands self-employed and small business situations specifically.
Important: Ask the financial advisor about the fee structure (flat fee, hourly, commission, or assets under management). Also, ask whether they’re a fiduciary, and how often they’ll review your plan with you. The right advisor should explain your options clearly without pressuring you toward one specific product.
Final Thoughts
These are just a few of the available retirement accounts for small business owners. Make sure you ask lots of questions about the plans your financial advisor suggests. Be sure to ask about annual fees, and they are less than what you are contributing. Check when the fees are due. And ask about the amount or percentage required when contributing. Some plans have no required minimum contribution.
If you need help deciding which retirement account would be best for you, ask around. Other business owners, family members, or friends are saving too and can give you advice. Pick someone who understands your needs and your business situation.
I hope this updated 2026 information helps you get a clearer picture of what’s available for your retirement savings.
Feel free to comment below, and I’ll reply as soon as possible.
Note: This article is for informational purposes only and is not financial, tax, or legal advice. Contribution limits and rules can change — verify current figures with the IRS or your tax professional before making decisions.
Retirement Planning tips from experts.
5 Retirement Planning Tips For Small Business Owners by Forbes
Inexpensive retirement plans for small-business owners by USA Today
Please note that these are affiliate links through Amazon (affiliate), and at no additional cost to you, I will earn an affiliate fee if you decide to make a purchase.
Retirement plans come in many forms, so it’s important to do as much research as possible to determine which one is best. I have a simple IRA, which works for me, but each one has its upsides and downsides to consider.
I totally agree, Robert. Thank you for stopping by and commenting. Every small business owner needs to assess their own situation and determine the best plan for them.