Small Business Retirement Plans: A Complete Guide for Business Owners

A staggering 34% of small business owners have no retirement savings plan for themselves. Meanwhile, 89% of their employees report experiencing significant financial stress, with 38% lacking access to any employer-sponsored retirement benefits. If you're running a small business and haven't set up a retirement plan yet, you're leaving money on the table—both in potential tax savings and in your ability to attract and retain top talent.

The good news? Setting up a retirement plan for your small business has never been easier or more affordable. Thanks to SECURE Act 2.0, you could receive up to $16,500 in tax credits over your plan's first three years. And with contribution limits reaching $72,000 in 2026, you can shelter significant income from taxes while building your nest egg.

This guide breaks down everything you need to know about choosing, setting up, and maximizing a retirement plan for your small business.

Why Small Business Retirement Plans Matter Now

The landscape for small business retirement is shifting dramatically. In 2025, several states began implementing mandatory retirement savings programs, with ten states now offering state-sponsored plans and 25 more proposing similar legislation. If you don't offer a retirement plan, you may soon be required to participate in a state-run program.

But beyond compliance, offering retirement benefits is becoming essential for competitive hiring. According to Capital Group, 94% of employers say providing a retirement plan is important for attracting, retaining, and engaging employees. Millennial business owners are leading this charge—77% believe offering retirement benefits is "essential" to their business success.

The participation gap is also narrowing. Access to defined contribution plans for employees at businesses with fewer than 50 workers increased from 47% in 2020 to 54% in 2024. Smart business owners are getting ahead of this trend.

The Four Main Retirement Plan Options

Solo 401(k): Best for Self-Employed Without Employees

If you're a freelancer, consultant, or business owner with no employees (except perhaps your spouse), the Solo 401(k) offers the highest contribution limits and most flexibility.

2026 Contribution Limits:

• Employee elective deferral: $24,500
• Combined employee + employer: $72,000
• Age 50+ catch-up: $8,000 (total: $80,000)
• Ages 60-63 "super catch-up": $11,250 (total: $83,250)

Key Advantages:

• Highest contribution limits of any small business plan
• Both traditional (pre-tax) and Roth contribution options
• Loan provisions let you access funds for emergencies
• Spouse can participate, effectively doubling household contribution limits
• Employer contributions reduce your business's taxable income

Drawbacks:

• Must file Form 5500 annually if assets exceed $250,000
• Cannot have any full-time employees (other than spouse)
• More administrative complexity than SEP or SIMPLE IRAs
• If your business grows and you hire employees, you'll need to switch plans

Best For: Solo entrepreneurs, freelancers, and consultants earning $50,000+ who want to maximize retirement savings.

SEP IRA: Simplest Option for Small Business Owners

The Simplified Employee Pension (SEP) IRA lives up to its name—it's the easiest retirement plan to set up and maintain. You can establish one in minutes through most brokerages, with no IRS filing requirements.

2026 Contribution Limits:

• Maximum: $72,000 or 25% of compensation (whichever is less)
• Self-employed: Generally limited to 20% of net earnings
• Compensation cap: $360,000

Key Advantages:

• Setup takes minutes with zero paperwork for the IRS
• No annual filing requirements
• Flexible contributions—contribute anywhere from 0% to 25% depending on your year
• Can be established up until your tax filing deadline (including extensions)
• Extremely low or no fees at most brokerages

Drawbacks:

• No employee contributions—only employers can contribute
• Must contribute the same percentage for all eligible employees
• No catch-up contributions for those 50+
• To max out at $72,000, you'd need $288,000 in compensation

Best For: Self-employed individuals and small business owners who want simplicity and flexibility, especially those with variable income.

SIMPLE IRA: Middle Ground for Growing Businesses

The Savings Incentive Match Plan for Employees (SIMPLE) IRA works well for businesses with up to 100 employees. It offers a balance between the simplicity of a SEP and the employee contribution features of a 401(k).

2026 Contribution Limits:

• Employee contribution: $17,000 (or $18,100 for businesses with 25 or fewer employees)
• Age 50+ catch-up: $3,850-$4,000
• Ages 60-63 super catch-up: $5,250
• Employers must either match up to 3% or contribute 2% for all eligible employees

Key Advantages:

• Employees can contribute through payroll deduction
• No IRS filing requirements
• Lower administrative burden than a full 401(k)
• Starting in 2026, Roth contributions are available
• Smaller businesses get higher contribution limits under SECURE 2.0

Drawbacks:

• Lower contribution limits than Solo 401(k) or SEP IRA
• Mandatory employer contributions (either matching or non-elective)
• Early withdrawals within first two years face 25% penalty (vs. 10% for other plans)
• Less flexibility than SEP IRA

Best For: Businesses with 5-100 employees who want to offer retirement benefits without the complexity of a full 401(k).

Traditional and Roth IRAs: The Foundation

While not specifically small business plans, Traditional and Roth IRAs remain valuable tools, especially when combined with other retirement accounts.

2026 Contribution Limits:

• Maximum: $7,000
• Age 50+ catch-up: $1,000 (total: $8,000)

Traditional IRA: Contributions may be tax-deductible depending on your income and whether you're covered by a workplace plan. Taxes are paid on withdrawals in retirement.

Roth IRA: No tax deduction for contributions, but qualified withdrawals in retirement are completely tax-free. Income limits apply ($161,000-$176,000 MAGI for single filers in 2026).

Best For: Supplementing other retirement plans or for those who want tax-free growth (Roth) or immediate tax deductions (Traditional).

Side-by-Side Comparison

Feature	Solo 401(k)	SEP IRA	SIMPLE IRA
2026 Max Contribution	$72,000	$72,000	$17,000-$18,100
Employee Contributions	Yes	No	Yes
Catch-up (50+)	$8,000	None	$3,850-$4,000
Super Catch-up (60-63)	$11,250	None	$5,250
Roth Option	Yes	Limited	Yes (2026+)
Loan Provision	Yes	No	No
IRS Filing Required	Yes (if >$250K)	No	No
Employees Allowed	No (except spouse)	Yes	Yes (up to 100)
Setup Complexity	Medium	Very Low	Low
Typical Fees	$0-hundreds/month	$0-minimal	$0-minimal

How to Choose the Right Plan

Choose a Solo 401(k) if:

• You're self-employed with no employees
• You want the highest possible contribution limits
• You value having a Roth option and loan provisions
• Your spouse works in the business and can also participate

Choose a SEP IRA if:

• Simplicity is your top priority
• Your income varies significantly year to year
• You're just starting out and want something you can set up quickly
• You plan to hire employees eventually (SEP can cover them too)

Choose a SIMPLE IRA if:

• You have employees and want to offer them retirement benefits
• You want employees to be able to contribute their own money
• You need something simpler than a full 401(k)
• Your business has 100 or fewer employees

Tax Credits That Pay for Your Plan

SECURE Act 2.0 dramatically expanded tax credits for small businesses starting retirement plans. Here's what you could claim:

Startup Credit

• Businesses with 1-50 employees: 100% of qualified startup costs, up to $5,000 per year for three years (up to $15,000 total)
• Businesses with 51-100 employees: 50% of qualified startup costs, up to $5,000 per year for three years

Employer Contribution Credit

For the first five years of a new plan with 100 or fewer employees:

• Years 1-2: 100% of employer contributions up to $1,000 per employee
• Year 3: 75% up to $1,000 per employee
• Year 4: 50% up to $1,000 per employee
• Year 5: 25% up to $1,000 per employee

Auto-Enrollment Credit

$500 per year for up to three years ($1,500 total) if you add an auto-enrollment feature.

Total Potential Credits: Up to $16,500+ over the first three to five years of your plan.

Key 2025-2026 Changes to Know

Automatic Enrollment Requirements (2025)

New 401(k) and 403(b) plans started in 2025 or later must automatically enroll employees at 3-10% of salary, with annual 1% increases up to 10-15%. Exemptions apply for businesses with fewer than 10 employees or those less than three years old.

Roth Catch-Up Requirement (2026)

Starting in 2026, if you earned more than $145,000 in the prior year and are age 50+, all catch-up contributions must be made on a Roth (after-tax) basis. No more pre-tax catch-up deferrals for high earners.

Enhanced Catch-Up Contributions (Ages 60-63)

The "super catch-up" provision allows those ages 60-63 to contribute an additional $11,250 (for 401(k) plans) or $5,250 (for SIMPLE IRAs) on top of regular limits—50% more than the standard catch-up amount.

Later Deadline for Solo 401(k) Setup

Sole proprietors can now establish a new Solo 401(k) up until their tax filing deadline (not including extensions) and still treat it as if adopted in the prior year. This gives you until April 15 to set up a plan and make contributions for the previous tax year.

Setting Up Your Plan: Step by Step

For a SEP IRA (Simplest)

1. Choose a provider (Fidelity, Schwab, and Vanguard all offer no-fee accounts)
2. Complete IRS Form 5305-SEP or the provider's equivalent
3. Fund the account before your tax filing deadline
4. Provide eligible employees with a copy of the signed agreement

For a Solo 401(k)

1. Establish a plan document (most providers offer templates)
2. Set up a trust to hold plan assets
3. Open accounts for yourself and your spouse (if applicable)
4. Make contributions by your business tax filing deadline
5. File Form 5500-EZ annually if assets exceed $250,000

For a SIMPLE IRA

1. Complete IRS Form 5304-SIMPLE or 5305-SIMPLE
2. Give eligible employees notice about the plan
3. Set up individual SIMPLE IRA accounts for each participant
4. Begin payroll deductions and employer contributions

Common Mistakes to Avoid

Waiting too long to start. The power of compound growth means every year you delay costs you significantly in retirement. Even small contributions early on can grow substantially.

Ignoring the tax credits. Many business owners don't realize they're eligible for thousands in tax credits. Work with your accountant to claim every credit available.

Not contributing for employees. If you have a SEP IRA and contribute for yourself, you must contribute the same percentage for eligible employees. Factor this into your planning.

Missing contribution deadlines. SEP IRA contributions are due by your tax filing deadline (including extensions). Solo 401(k) employee deferrals must be made by December 31, but employer contributions can wait until your filing deadline.

Forgetting about state mandates. If your state has a mandatory retirement savings program, not offering your own plan may automatically enroll you in the state program.

Track Your Retirement Savings Effectively

Setting up a retirement plan is just the first step—tracking your contributions, monitoring investment performance, and ensuring accurate record-keeping are equally important. Whether you're making quarterly SEP IRA contributions or tracking employer and employee portions of a 401(k), having clean financial records helps you maximize tax benefits and stay compliant.

Beancount.io provides plain-text accounting that makes tracking retirement contributions straightforward and transparent. Your contributions, tax deductions, and investment allocations are all recorded in human-readable format—perfect for business owners who want complete control over their financial data. Get started for free and simplify your business finances.