Business Owner’s Guide to Retirement Plans in 2026: SEP, Solo 401(k), vs. SIMPLE
Why Retirement Planning Is a Strategic Business Decision
For business owners, retirement planning is not just about saving for later. It directly impacts how much you pay in taxes, how you manage cash flow, and how confidently you can invest in your business.
Strong retirement planning supports:
Reducing taxable income
Creating disciplined long-term investing habits
Improving cash flow predictability
Supporting business succession and exit planning
When your retirement plan aligns with your overall financial strategy, you create stability and flexibility across both your business and personal life.
Understanding the Three Main Options
Most small business owners choose between three plans: the SEP IRA, the Solo 401(k), and the SIMPLE IRA. Each serves a different type of business and growth profile. The best retirement plan for a small business owner depends on income level, business structure, number of employees, and future goals.
SEP IRA: Flexible and Simple
A SEP IRA is funded entirely by the employer. You decide each year whether to contribute and how much, up to 25 percent of compensation, subject to annual IRS limits. This plan works well for business owners with fluctuating income who want flexibility without administrative complexity.
Key AdvantagesYou can contribute large amounts in profitable years
Contributions are tax deductible
Setup and maintenance are extremely simple
You are not required to contribute every year
Key LimitationsYou must contribute the same percentage for all eligible employees
There is no catch-up contribution for those over age 50
Employees cannot make their own salary deferrals
ExampleIf your net compensation is $150,000 in 2026 and you contribute the maximum 25 percent, you could put $37,500 into your SEP IRA and deduct that entire amount from taxable income.
Solo 401(k): Maximum Savings Power for Founders
The Solo 401(k) is often the most powerful retirement tool available to solo entrepreneurs and S-Corp owners with no employees besides a spouse. It allows you to contribute both as the employee and as the employer, dramatically increasing your savings potential.
How Contributions WorkAs an employee, you can defer up to $24,500 in 2026.
If you are age 50 or older, you can add a $7,500 catch-up contribution.
As the employer, you can contribute up to 25 percent of compensation.
Together, this creates one of the highest retirement contribution opportunities available.
Why Founders Love the Solo 401(k)It provides the highest possible contribution limits
It allows for catch-up contributions
It offers flexibility in tax planning
Some plans allow participant loans for liquidity
DrawbacksMore administrative work once assets exceed certain thresholds
Not available if you have non-spouse employees
ExampleAn S-Corp owner paying themselves a $120,000 salary in 2026 could contribute $24,500 as an employee and up to $30,000 as an employer, for a total of $54,500. If they are over 50, the total could rise to $62,000.
SIMPLE IRA: Predictable and Employee-Friendly
The SIMPLE IRA is designed for small businesses with employees that want a straightforward retirement benefit without the complexity of a full 401(k) plan.
How It WorksEmployees can defer up to $17,000 in 2026. Employers must either match employee contributions up to 3 percent of compensation or contribute 2 percent for every eligible employee regardless of participation.
StrengthsEasy to implement and administer
Encourages employee retention and morale
Employer contributions are tax deductible
LimitationsLower contribution limits for owners
Required employer contributions affect cash flow
Less flexible than a Solo 401(k) for high-income founders
ExampleIf an employee earns $100,000 and contributes the maximum $17,000, the employer match at 3 percent would be $3,000. Both contributions are tax deductible for the business.
Tax Tradeoffs and Strategic Considerations
Choosing the best retirement plan for a small business owner means balancing tax efficiency with cash flow and business growth. Plans like the Solo 401(k) and SEP IRA allow aggressive tax deferral, which can significantly lower current tax bills. SIMPLE IRAs provide predictable obligations but may limit how much the owner can personally defer.
Employee considerations matter as well. SEP plans require equal treatment of employees. SIMPLE plans require employer contributions. Solo 401(k)s avoid employee obligations entirely but only work for owner-only businesses.
How Retirement Planning Fits Into Your Bigger Financial Picture
Your retirement plan affects and is affected by nearly every major financial decision you make. It interacts with your tax strategy, your business reinvestment plan, your long-term investing approach, and your risk management. It should also coordinate with how you manage concentrated business ownership and any equity compensation you may hold.
For additional guidance on building a well-integrated financial strategy, you may find these resources helpful:
Quick Decision Guide
If you are a solo entrepreneur with strong income and no employees, the Solo 401(k) usually provides the most powerful solution. If your income fluctuates significantly, the SEP IRA offers flexibility and simplicity. If you have employees and want a predictable, easy-to-administer benefit, the SIMPLE IRA is often the best fit.
A Closing Thought
Retirement planning is not about picking a product. It is about building a strategy that supports your business today and your life tomorrow. When your retirement plan aligns with your tax planning, cash flow management, and long-term investment strategy, you create financial clarity and confidence that extends far beyond your balance sheet.
If you would like help evaluating which structure fits your business and personal goals, Silicon Beach Financial specializes in working with founders and entrepreneurs to design retirement strategies that grow with your vision. Schedule a Discovery Call to explore what the next phase of your financial plan could look like.
