As a small business owner, you are responsible for your own retirement savings. This can be a daunting task, especially given most adults believe they’ll need nearly $1.5 million to retire comfortably.
The good news is that proper retirement planning can set you up for success. There are several small business retirement plans you can use to pay your future self and ensure your golden years are everything you dreamt they’d be. We’ll review each of your options to help you choose the best plan for you and your business.
An overview of small business retirement plans
Before we get into the details, here is a quick overview of the small business retirement plan options:
| Plan |
2024 contribution limits |
| Solo 401(K) |
Salary deferrals up to $23,000 ($30,500 for age 50+), plus 25% of employer compensation up to $69,000 total |
| SIMPLE IRA |
Employee contribution up to $16,000, plus employer contributions for a total contribution of $23,000 |
| SIMPLE 401(K) |
Salary deferrals up to $16,000, plus employer matching or fixed contributions for a total contribution limit of $69,000 |
| SEP IRA |
Up to 25% of the employee’s compensation or $69,000, whichever is less |
| Traditional or Roth IRA |
$7,000 ($8,000 for age 50+) |
Solo 401(k)
Solo 401(k)s are one of the best retirement plans for small business owners because of their high contribution limits. As the name suggests, solo 401(k)s are intended to work like 401(k)s for self-employed individuals. They let you contribute both as an employee of your business and as an employer.
You can defer up to $23,000 of your salary in 2024, plus an additional 25% of compensation as the employer. This can total up to $69,000 for the year. If you’re 50 or older, you can add an additional $7,500 catch-up contribution on top of that.
The drawback to solo 401(k) plans is that they require a bit of paperwork to set up. You’ll also need to file Form 5500-EZ with the IRS each year once your plan reaches $250,000.
SIMPLE IRA
Another retirement plan option for small business owners is a SIMPLE IRA, also known as a Savings Incentive Match Plan for Employees. Like solo 401(k)s, there is an employee and employer contribution component.
You can contribute up to $16,000 as an employee in 2024, plus a $3,500 catch-up contribution if you’re 50 or older. You can also contribute as an employer, bumping your total annual savings amount up to $23,000 in 2024.
The tricky part of these plans is that you will also be required to make employer matching contributions for each employee under the plan. This means you’ll need to either match a portion of your employees’ contributions dollar-for-dollar up to 3% of their compensation, or make fixed contributions of 2% for each eligible employee even if the employee doesn’t contribute. But you can deduct these contributions as a business expense, at least.
An advantage to a SIMPLE IRA over a solo 401(k) is that SIMPLE IRAs tend to be easier to set up and administer.
SIMPLE 401(K)
SIMPLE 401(k)s are available to small businesses with up to 100 employees. As the business owner, you again get to make both employee and employer contributions to your account.
As an employee, you can choose to defer up to $16,000 of your compensation in 2024, plus an additional $3,500 catch-up contribution if you’re 50 or over. As the employer, you can supplement that by either matching contributions up to 3% of your employee pay or a 2% non-elective contribution.
SIMPLE 401(k)s are subject to the same upper limit as other 401(k)s, so your total contributions cannot exceed $69,000 in 2024.
Another potential drawback to SIMPLE 401(K)s is that you are again required to make contributions to each eligible employee’s plan. So whatever employer contribution scheme you choose for yourself will also apply to each covered employee.
SEP IRA
SEP IRAs, or Simplified Employee Pension Plans, are easy to set up and administer since there is no filing requirement with the IRS. They also have high contribution limits that let you save up to $69,000 or 25% of your employee compensation, whichever is less, in 2024.
These plans work a little differently than the above in that they don’t allow for employee salary deferrals or catch-up contributions. Instead, you, as the employer, must contribute the same percentage for all employees, including yourself. This means if you want to contribute 15% of your salary to your SEP IRA, you must also contribute 15% of all eligible employees’ salaries to their plans. But these contributions are once again a deductible business expense.
Traditional or Roth IRA
As a small business owner, you also have access to the same traditional and Roth IRA plans all workers get. These have low contribution limits, however. You can only contribute $7,000 to a traditional or Roth IRA in 2024, or $8,000 if you’re over 50 years of age. There are also income limits on how much you can contribute to Roth IRAs.
This makes them better suited to supplemental savings rather than your primary retirement vehicle. For example, if you’ve maxed out the contributions available to a solo 401(k) and have more to save, consider putting additional funds into one of these IRAs.
Choosing a small business retirement plan
Now that you know some of the retirement plan options available to you as a small business owner, all that’s left is to choose a plan and start saving. If you’re still unsure which plan is best for you, consider taking the Labor Department’s online small business retirement savings advisor quiz. It will guide you through a series of questions to determine the most appropriate plan for you and your business.
Succession planning
A final key element to your retirement plan is how you’ll exit your business. Retiring as a business owner isn’t as easy as submitting a resignation letter and walking away two weeks later. You need a plan for who will assume control of your business when you leave and how that transition will occur. This is where a succession plan comes into play.
Succession planning touches on both the emotional and financial aspects of retirement. It forces you to prepare for what it will be like to no longer be in control of your business. This can be a hard transition, but learning to let go of the day-to-day is essential so you can fully relax and enjoy retirement.
If your succession plan is to sell your business, you can also include your business’s sale price as part of your retirement assets. Unfortunately, this can be hard to estimate when you’re still several years away from retiring. But a good starting point is to get a business valuation today and use that as your ballpark figure.
After years spent building and running your business, retirement can be bittersweet. But having a plan that includes both how you’ll save for retirement and how you’ll transfer leadership will help you prepare mentally and financially for the next stage of your life.