Small Business Owner? Here Are 10 Retirement Plans to Consider

Small business owners have more retirement plan choices than ever. The key is finding the option that fits your business size, cash flow, and long-term goals while keeping administrative burdens manageable.

1. Traditional and Roth IRAs

Best for: Solo entrepreneurs without employees

Individual Retirement Accounts (IRAs) are the simplest retirement savings option. Traditional IRAs offer immediate tax deductions but require RMDs at age 73. Roth IRAs use after-tax dollars but provide tax-free withdrawals in retirement.

• 2025 Limits: $7,000 ($8,000 if age 50+)
• Pros: Easy setup, wide investment choices, no employer requirements
• Cons: Low contribution limits, income restrictions for Roth

2. SEP IRA (Simplified Employee Pension)

Best for: Self-employed individuals and small businesses wanting higher contribution limits

SEP IRAs allow employers to contribute up to 25% of compensation or $70,000 (whichever is less) for 2025. All eligible employees must receive the same percentage contribution.

• Pros: High contribution limits, flexible funding, minimal paperwork
• Cons: Mandatory equal contributions for all employees, no catch-up contributions

3. SIMPLE IRA

Best for: Businesses with up to 100 employees wanting a low-maintenance plan

SIMPLE IRAs combine employee salary deferrals with required employer contributions—either matching up to 3% or a 2% non-elective contribution for all eligible employees.

• 2025 Employee Limit: $16,500 ($20,000 if age 50+)
• Pros: Easy setup, no Form 5500 filing, employee-owned accounts
• Cons: Lower limits than 401(k)s, mandatory employer contributions

4. Solo 401(k) Plan

Best for: Business owners with no employees (except spouse)

Solo 401(k)s offer the highest contribution potential by combining employee deferrals ($23,000 + $7,500 catch-up) with employer contributions (up to 25% of compensation), totaling up to $76,500 for those 50+.

• Pros: Highest contribution limits, Roth options, loan provisions
• Cons: Form 5500-EZ required when assets exceed $250,000

5. Safe Harbor 401(k) Plan

Best for: Small businesses with employees wanting to avoid nondiscrimination testing

Safe Harbor 401(k)s automatically pass IRS testing by meeting minimum employer contribution requirements—either matching up to 4% or 3% non-elective contributions.

• Pros: No testing headaches, higher participation rates, startup tax credits
• Cons: Mandatory annual contributions, higher admin costs

6. Profit-Sharing Plan

Best for: Businesses with variable cash flow wanting flexible contributions

Profit-sharing plans let employers make discretionary contributions up to 25% of each participant’s compensation, with no obligation to contribute every year.

• Pros: Complete contribution flexibility, can reward key employees
• Cons: Unpredictable benefits, potential underfunding

7. Cash Balance Plan

Best for: High-earning business owners near retirement

Cash Balance Plans combine features of pensions and 401(k)s, often allowing contributions exceeding $200,000 annually for older, high-income owners.

• Pros: Massive contribution potential, predictable growth formula
• Cons: Complex administration, requires annual actuarial valuations

8. Defined Benefit Plan

Best for: Owners wanting guaranteed retirement income and maximum tax deductions

Traditional pensions promise specific retirement benefits, with contributions determined by actuarial calculations. Older owners can often contribute $200,000+ annually.

• Pros: Guaranteed retirement income, substantial tax deductions
• Cons: High costs, rigid funding requirements, complex compliance

9. Pooled Employer Plan (PEP)

Best for: Small businesses wanting 401(k) benefits without administrative burden

PEPs let multiple unrelated employers join a single plan managed by a Pooled Plan Provider, sharing costs and compliance responsibilities.

• Pros: Reduced administration, economies of scale, professional management
• Cons: Less customization, dependence on provider quality

10. Employee Stock Ownership Plan (ESOP)

Best for: Owners planning succession while rewarding employees

ESOPs give employees company stock ownership, serving as both a retirement plan and succession strategy with significant tax advantages for selling shareholders.

• Pros: Tax-efficient ownership transition, aligns employee interests
• Cons: Requires annual valuations, concentrates retirement savings risk

Choosing Your Strategy

Consider these factors when selecting a plan:

• Business size and employee count
• Cash flow consistency
• Desired contribution levels
• Administrative capacity
• Tax planning objectives

Many owners combine multiple plans to maximize benefits. For example, pairing a 401(k) with profit-sharing or adding a Cash Balance Plan for additional savings.

Getting Professional Help

Given the complexity and ongoing compliance requirements, partnering with experienced retirement plan administrators like Retirement Capital can streamline setup, ensure compliance, and optimize your strategy while you focus on running your business.

The right retirement plan isn’t just about saving for the future—it’s a powerful tool for reducing current taxes, attracting talent, and building long-term wealth for you and your team.