A business owner has more ways to save for retirement than a typical employee, and the contributions are often deductible. The choice depends on whether you have employees, how much you want to put away, and how much paperwork you will accept. This guide compares the main plans and gives the contribution limits for 2025 and 2026.
Contribution limits
| Limit | 2025 | 2026 |
|---|---|---|
| 401(k) employee deferral | $23,500 | $24,500 |
| Catch-up, age 50 and over | $7,500 | $8,000 |
| Higher catch-up, ages 60 to 63 | $11,250 | $11,250 |
| Total contributions to a defined contribution plan | $70,000 | $72,000 |
| Compensation that can be counted | $350,000 | $360,000 |
| SEP maximum contribution | $70,000 | $72,000 |
| SIMPLE IRA employee deferral | $16,500 | $17,000 |
| SIMPLE IRA catch-up, age 50 and over | $3,500 | $4,000 |
| Traditional or Roth IRA | $7,000 | $7,500 |
| Defined benefit annual benefit limit | $280,000 | $290,000 |
For the age 60 to 63 catch-up, SIMPLE plans use $5,250 for 2026. The total contribution limit does not include catch-up contributions.
The main options
SEP IRA
The employer makes the contributions, and each eligible employee gets the same percentage of pay. The contribution is the lesser of 25 percent of compensation or the dollar limit. Eligible employees are generally those who are at least 21, worked for you in three of the last five years, and earned at least $750 in 2025 ($800 in 2026). You can set up the plan and contribute up to the due date of your return, including extensions, which makes it a good year-end tool.
SIMPLE IRA
Available to employers with generally 100 or fewer employees who earned at least $5,000 in the prior year. Employees defer part of their pay, and the employer either matches up to 3 percent of pay or makes a fixed 2 percent contribution to every eligible employee. You must set up the plan between January 1 and October 1. Employee deferrals are due within 30 days after the end of each month.
Solo 401(k) and other 401(k) plans
For an owner with no employees other than a spouse, a one-participant 401(k) lets you contribute both as the employee (up to the deferral limit) and as the employer (generally up to 25 percent of pay). For a self-employed person, the employer percentage works out to roughly 20 percent of net self-employment earnings after the deduction for half of self-employment tax. A sole proprietor can adopt a 401(k) after year-end and still make contributions for that year, if the plan is adopted by the tax filing deadline (without extensions). Plans with employees may face testing and other requirements, and safe harbor designs can reduce them.
Under SECURE 2.0, 401(k) plans established after December 29, 2022 must generally include automatic enrollment for plan years beginning after 2024, with exceptions. Starting in 2026, participants whose prior-year wages from the plan sponsor were above $150,000 must make catch-up contributions as Roth contributions in plans that offer Roth features. The IRS page does not say whether this applies to self-employed owners, so confirm with your plan provider.
Defined benefit plans
These promise a retirement benefit, up to $290,000 per year for 2026, and the owner funds the plan on an actuarial schedule. They can allow very large deductions for older, high-income owners, but they require an actuary, annual funding and commitment. They are not for everyone.
Credits and deadlines
Small employers may get a tax credit for starting a plan: up to $5,000 per year for three years for setup costs, plus a credit for employer contributions of up to $1,000 per employee (reduced over five years and for employers with more than 50 employees), plus a $500 credit per year for three years for adding automatic enrollment. See small business tax credits.
| Plan | Establish by | Fund by |
|---|---|---|
| SEP IRA | Return due date, including extensions | Return due date, including extensions |
| SIMPLE IRA | October 1 of the year | Employee deferrals within 30 days after month end; employer match by return due date |
| Solo 401(k) | December 31, or the filing deadline for sole proprietors | Employee deferrals per plan rules; employer contribution by return due date, including extensions |
Things to weigh
- Employees. Most plans must include eligible employees, and employer contributions for them are a real cost.
- Cash flow. A deferral reduces take-home pay. A SEP is flexible year to year.
- Roth options. Some plans allow Roth contributions, which are taxed now but grow tax-free. See IRA and 401(k) contributions.
- QBI. Contributions you deduct for yourself reduce qualified business income. See the QBI deduction.
- State tax. Most states follow the federal treatment of contributions, but confirm.
How we can help
We help owners compare plan types for their income and staff, calculate the owner's maximum contribution, coordinate with a plan provider or recordkeeper, and deduct contributions correctly on the return. See our tax planning and business tax preparation services, or contact us.
Frequently asked questions
Which plan lets me contribute the most?
Generally a defined benefit plan, then a solo 401(k) or 401(k) with profit sharing, then a SEP or SIMPLE. The right answer depends on your income, age and staff.
Can I open a plan after the year ends?
A SEP can be set up and funded up to the return due date, including extensions. A sole proprietor can adopt a solo 401(k) up to the filing deadline for deferrals, under SECURE 2.0. A SIMPLE IRA must be established by October 1.
Can I have both an IRA and a business plan?
Often yes, but deduction and Roth eligibility depend on income and coverage. See our IRA and 401(k) guide.
Do I have to cover my employees?
Generally yes, if they meet the plan's eligibility rules. The rules differ by plan type.
Are the 2026 limits final?
They are set by the IRS in Notice 2025-67 and adjusted yearly for inflation. Check the IRS site for the current year.
Official sources
- IRS: Publication 560, Retirement Plans for Small Business
- IRS: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
- IRS: COLA increases for dollar limitations on benefits and contributions
- IRS: Retirement plans startup costs tax credit
- IRS: Retirement topics, catch-up contributions
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.