Retirement plans for business owners, compared

For profitable business owners, a retirement plan is one of the few tools that lowers this year’s taxes and builds long-term wealth at the same time. The plan you choose decides how much you can put away.

Why plan choice matters

Two owners with the same profit can have very different contribution limits depending on their plan. The right choice depends on your income, your age, whether you have employees, and how much you want to save each year.

The two plans at a glance

Limits from IRS 2026 cost-of-living adjustments.¹² Owners 50 and older can make additional catch-up contributions to a 401(k).

SEP IRA

A simplified employee pension is easy to set up and maintain. Contributions are made by the employer and are generally limited to 25% of compensation, up to the annual dollar cap.³ If you have eligible employees, you generally have to contribute the same percentage for them. A SEP can usually be set up and funded as late as your filing deadline, including extensions.

Solo 401(k)

A one-participant 401(k) covers a business owner with no employees, or the owner and her spouse.⁴ You contribute in two roles: as an employee, up to $24,500 in 2026, and as the employer, with a combined total of up to $72,000.¹ Because of the employee deferral, a solo 401(k) often allows more than a SEP at the same income. Certain first-year sole proprietors can set one up after year-end under SECURE 2.0.⁵

How to choose

• Want simple, with flexible contributions? A SEP IRA.
• No employees, and want to save more? A solo 401(k).
• Have employees? Your options and costs change, so model them before you choose.

Retirement contributions work best as part of a written plan. See what a tax plan for business owners should include.

Frequently asked questions

Which retirement plan lets a business owner save the most?

For an owner with no employees other than a spouse, a solo 401(k) usually allows more than a SEP IRA at the same income, because it adds employee deferrals on top of employer contributions.

What is the 2026 contribution limit for a solo 401(k)?

You can defer up to $24,500 as an employee, with total employee and employer contributions up to $72,000 for 2026, plus catch-up contributions if you are 50 or older.

Can I open a retirement plan after December 31 and still deduct it?

Sometimes. SEP IRAs and employer contributions can often be set up and funded by your filing deadline. Certain first-year sole proprietors can also open a solo 401(k) after year-end.

Sources

1. IRS, 401(k) limit increases to $24,500 for 2026 (IR-2025-111)
2. IRS, Notice 2025-67: 2026 Amounts Relating to Retirement Plans and IRAs
3. IRS, Simplified Employee Pension Plan (SEP)
4. IRS, One-Participant 401(k) Plans
5. National Association of Plan Advisors, Retroactive Deferrals for Sole Proprietors

This article is for educational purposes only and is not tax, legal, or investment advice. Tax rules change and depend on your specific facts. Talk with a qualified professional before acting on anything here.