Retirement Strategies for Small Business Owners

Whether you just launched your small business or have been running your own shop for years, it’s no secret that the hard work never ends. This holds true for retirement planning, as well, and the earlier you begin, the better off you will be. Fortunately, there are several tax-advantaged options available, including retirement vehicles that you can offer employees while maximizing your own account. However, the best retirement strategy for you as a small business owner ultimately depends on your specific circumstances, risk tolerance and business size.

If you own a small business, consider asking a financial advisor for guidance in creating your retirement plan.

Retirement Accounts for Small Business Owners

Small business owners who want to set up a retirement account have several options to consider. Factors such as the number of employees you have, annual contribution limits, investment options and administrative requirements differentiate these choices. As a result, your circumstances and preferences will help define the most suitable retirement plan for your business and personal financial goals. 

These are five retirement accounts for small business owners.

1. SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account)

SIMPLE IRAs are exclusive to small businesses with fewer than 100 employees, offering a streamlined setup where both employer and employee participate.

SIMPLE IRAs require every employee to enroll. The plan also requires matching contributions from the employer in one of two forms: 

• 100% matching of each employee’s contributions, up to 3% of their annual pay
• 2% contribution of each employee’s pay (up to $345,000), regardless of employee contributions

Fortunately, employer contributions are tax-deductible, helping to ease the financial burden for small business owners. ¹ Additionally, SIMPLE IRAs can be traditional or Roth accounts, providing greater tax flexibility based on the owner’s preferences.

The contribution limit for SIMPLE IRAs is higher than traditional IRAs. After changes in the SECURE 2.0 Act, limits increased to $17,600 for 2025 and $18,100 in 2026. Participants age 50 and older can contribute an additional $3,500 of catch-up contributions for a total of $19,500 in 2025. In 2026, this increases to a $4,000 catch-up contribution for $20,000 total. 

Another consideration is tax credits, which can defray SIMPLE IRA setup costs. Employers with a maximum of 50 employees may qualify for a full credit covering the costs of creating and managing the plan. If you have 51 to 100 employees, this credit decreases by half. 

Your business may also qualify for a $1,000 bonus credit per employee to offset the cost of matching contributions.

2. SEP IRA (Simplified Employee Pension Individual Retirement Account)

SEP IRAs share similarities with SIMPLE IRAs, including simplified management, tax-deductible contributions, potential tax credits and a Roth option. However, they can also differ significantly. For example, contributions come solely from the employer, and they aren’t required each year to maintain the account. 

Moreover, the savings potential of SEP IRAs is higher. For 2025, business owners can deposit up to 25% of their annual compensation or $70,000, whichever is less. In 2026, the SEP IRA contribution limit increases to $72,000.

SEP IRA contributions must also be equal for each worker. For example, if the business owner contributes 15% of their salary to their account, they must deposit 15% of each employee’s salary into the employee accounts. 

No catch-up contributions are allowed for employers or employees.

3. Conventional IRA (Individual Retirement Account)

A traditional IRA is a personal retirement savings account available to all individuals, including small business owners. 

This option requires no contributions or participation from employees. Instead, you open the account independently, deciding between a traditional and Roth IRA, and then you make annual contributions. 

This type of retirement account is advantageous for owners who want to skip the administrative hassle of a retirement plan for their entire workplace. 

However, the disadvantage is the lower contribution limit. For 2025, the IRS allowed contributions of $7,000 to your IRA, with the limit increasing to $7,500 for 2026. While catch-up contributions of $1,000 are available to plan holders age 50 and older, this lower maximum means it’s likely best to combine this tool with others in order to form a more robust investment strategy.

4. Solo 401(k) 

Just as IRAs are available in multiple forms, so are 401(k)s, with several types of 401(k) plans available. 

A solo 401(k) is for business owners with no employees or who work with only a spouse. Businesses with any other setup are ineligible. Therefore, if you plan to hire future employees, this account isn’t feasible.

Solo 401(k)s have the same contribution limits as SEP IRAs, allowing for greater savings potential than conventional 401(k)s. For 2025, the SEP IRA contribution limit is the lesser of 25% of their annual compensation or $70,000 ($72,000 in 2026), with additional catch-up contributions of $7,000 for 2025 and $7,500 for 2026 for those 50 or older.

This retirement account also comes in a Roth variant, potentially allowing after-tax contributions.  

5. Conventional 401(k)

A conventional 401(k) allows employees to participate in a retirement plan with the business owner. The owner can offer matching contributions and then decide between Roth and traditional variants. Owners can deduct matching contributions of up to 25% of total employee compensation and receive tax credits for setup costs.

Conventional 401(k)s have the same contribution limits for business owners as solo 401(k)s, which is the lesser of 25% of annual compensation or $70,000 in 2025 and $72,000 in 2026. Additional catch-up contributions for those 50 and older are limited to $7,000 for 2025 and $7,500 for 2026. 

Drawbacks to this option, however, include more administrative demands. The non-discrimination standards ensure the plan benefits all employees equally, and testing for fairness can be expensive and time-consuming.

How to Create a Retirement Savings Plan as a Business Owner

There are a few basic steps to create a retirement savings plan as a business owner.

Set Achievable Goals for Retirement

Define your retirement goals, such as your target retirement age, retirement savings target and where you want to spend your golden years. 

Additionally, it’s crucial to consider factors such as lifestyle, travel and healthcare expenses, as they will determine your annual expenses. The more accurate a picture you have of retirement, the better you can pursue your goals. 

Assess Your Business’s Value

While 401(k)s and IRAs are excellent retirement savings vehicles, your business is also a key asset. 

Selling your business at the right time can help ensure the cash flow and lifestyle you want during retirement. Even if you want to close your business when you retire, the equipment and real estate from the shuttered business have cash value. 

For these reasons, it’s essential to get an appraisal of your business. Understanding the market value for your business and its component parts can help you decide how to time your retirement. Gathering data on recent sales of similar businesses can also help you estimate your business’s value, as well. Fortunately, a business broker can provide these services and facilitate the sale of your business.

You may also benefit from hiring a financial advisor, such as a CPA, to help you understand the implications of selling your business. For example, selling may incur long-term capital gains taxes. This means you can owe up to 20% of your income from that sale. 

Lastly, you have different options for selling. You could sell to a larger corporation, make a deal with an aspiring business owner or entrepreneur, pass the business on to a family member or allow your employees to buy in through an employee stock ownership plan (ESOP). 

Each choice has different ramifications, including how you’ll profit from the sale.

Make a Succession Plan

An exit strategy centered around succession can help your business avoid disaster when you step back. Doing so means selecting an employee or making an outside hire to choose the next owner or manager for your company.

It’s recommended to implement this process ahead of time to allow your successor to shadow you, gain insight and receive advice. You could also step back into an advisory role for your successor’s first several months to transition gradually instead of a sudden break. 

Additionally, it’s advisable to streamline or formalize business practices to ensure the business continues to run smoothly. Whether you need to implement a defined hiring process, document your business strategy or solidify relationships with suppliers, it’s crucial to organize operations.

Diversify Your Portfolio

Spreading your investments among different assets is important to protect your retirement savings. Therefore, it’s advisable to allocate your hard-earned savings across various savings vehicles. 

Remember, reducing your risk threshold as you near retirement helps maintain the gains you’ve made during your working years. Diversification performs this vital task, as does picking more stable investments, such as mutual funds, ETFs and bonds.

Update and Change Your Plan Along the Way

Life brings changes regardless of your stage of life, including retirement. 

Fortunately, a retirement plan isn’t set in stone. You should update it and make necessary changes as your circumstances and goals develop.

So, whether you realize you want to downsize upon retiring or a health condition changes the support you’ll need, you can adjust your plan based on where life takes you. Your plan should reflect changes in your business, personal life and financial situation.

How to Boost Your Retirement Savings as a Business Owner

Boosting your retirement savings as a business owner requires strategic planning and disciplined financial management. These effective strategies can help you enhance your retirement savings.

• Save early. Begin saving for retirement as early as possible to take advantage of compounding returns. The longer your money is invested, the more time it has to grow.
• Set goals. Establish clear and realistic retirement savings goals. Break down your goals into short-term and long-term targets, making it easier to track progress.
• Use catch-up contributions. If you have a traditional IRA, take advantage of catch-up contributions available for individuals aged 50 and older. This allows you to contribute $1,000 more to your account each year. 
• Prioritize annual savings. Make retirement savings a top priority in your annual budget. Treat your retirement contributions as non-negotiable expenses, similar to other fixed costs.
• Diversify. Reinvesting every extra dollar you have in your business can be tempting, but diversifying your funds across different asset classes will help manage risk while potentially increasing returns.
• Keep working. Consider working beyond the typical retirement age if feasible. Continuing to earn income allows you to delay tapping into your retirement savings, giving your nest egg more time to grow.

Administrative Responsibilities and Compliance Requirements

Retirement plans for small businesses come with different levels of administration. This can help determine the type of plan that will best fit a business owner’s capacity and structure. Some plans require little ongoing maintenance, while others involve annual filings, testing procedures and detailed recordkeeping.

Plans with simpler structures, such as SEP IRAs and SIMPLE IRAs, generally have lighter administrative needs. These plans do not require annual nondiscrimination testing and usually do not require the employer to file separate paperwork with the IRS beyond normal tax reporting. This streamlined structure can reduce time spent on oversight.

Traditional 401(k) plans often involve more detailed compliance duties. Employers may need to conduct annual nondiscrimination tests to confirm the plan treats employees fairly, maintain more extensive records and file Form 5500 each year. Some businesses hire outside administrators or service providers to manage these tasks, potentially adding to the plan’s cost.

Solo 401(k) plans have fewer administrative requirements when account balances are modest. Once the plan reaches certain asset levels, the owner may need to submit additional filings, including an annual Form 5500-EZ.

Understanding these operational requirements can help business owners evaluate the workload and professional support needed to keep a plan operating smoothly. Each plan’s administrative structure plays a role in determining whether it aligns with the business’s size, staffing and long-term goals.

Bottom Line

Small business owners have a variety of retirement account options, each with its own advantages and considerations. The decision on which plan to adopt depends on specific factors like the size of your business, the number of employees and your individual preferences. Common options include a SIMPLE IRA, SEP IRA, Conventional IRA, Solo 401(k) and a traditional 401(k). A careful review of each can help business owners select the plan that aligns best with their financial goals and circumstances.

Tips for Retirement for Small Business Owners

• A financial advisor can help you assess the value of your business and tailor a retirement plan for your situation. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• SEP IRAs and solo 401(k)s both provide boosted investment maximums. If you’re struggling to decide between the two, here’s a comparison.

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