How the right retirement plan can help business owners save money, reduce taxes, and grow long-term wealth.
Running a business often means wearing many hats–from sales to ops to HR. While business owners focus on growing revenue, serving customers, and building a team, it’s easy to push personal retirement planning to the sidelines or assume selling the company one day is the only–or best–option for your retirement plan.
But markets (and minds!) change, a lucrative exit is far from guaranteed, and you may want financial security well before an exit.
If you’re a business owner, you need a plan that builds personal wealth alongside your business growth: consistently, tax efficiently, and with flexibility in case your goals–or the markets–change.
In this article, we’ll explore some retirement planning obstacles for business owners, review the most common retirement plan options, and share tax-aware strategies that can grow and protect your wealth.
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4 Reasons Entrepreneurs Delay Retirement Planning
Owning a business can feel like a constant trade-off between what the company needs today and what your future self will need tomorrow. If you’ve put off retirement planning before now, it’s likely not due to laziness or lack of discipline—it’s the reality of variable cash flow, growth goals, and the feeling that you’re always “on” managing the business.
The day-to-day realities of entrepreneurship create a few hurdles that get in the way of long-term financial planning:
1. For many owners, income can be…lumpy.
Business owners may never be able to accurately predict what annual income will be. Some months are flush, others are thin, and the net income (or lack thereof) remaining in your business bank account at the end of the year can meaningfully alter your annual numbers. Fixed monthly contributions when P&L is up and down can feel unrealistic, so saving can get postponed.
A simple shift that can help you save is to set contributions as a percentage of revenue or owner compensation. When business is strong, you save more; when it’s slower, you still save something—without starving the company.
2. Reinvestment is part of your DNA.
Every dollar has a job: payroll, taxes, marketing, inventory, overhead. That means personal savings often fall to the bottom of the priority list.
Our suggestion? Create a standing rule: i.e. your “profit-to-personal” policy automatically routes the first 10–20% of owner comp to retirement before discretionary reinvestment. Remember: Future you is a stakeholder to invest in, too.
3. There’s no ready-made retirement plan.
You don’t automatically get a retirement savings plan from your employer… because you are the employer. One more thing for you to handle can feel like an annoyance, but it’s also an advantage because you get to create a plan that fits your needs.
By choosing strategically, you can design your company’s retirement plan to reduce taxes and help you recruit and retain talent—while also making sure your financial future is taken care of.
4. The big assumption: “I’ll sell the business to fund retirement.”
A sale can certainly be something to aspire to—but timing, valuation, and taxes are all variables. Instead of treating a business sale as the whole plan, treat an exit as upside.
Build wealth you control, so financial independence doesn’t depend on the perfect buyer at the perfect time.
It’s understandable that these barriers crowd out long-term planning, but saving for retirement has to be a priority—even if you love your work, you don’t want to need to work forever. Put a simple, tax-smart saving system in place now, so your future isn’t tied to the perfect exit at the perfect time.
Next: Let’s talk about the best retirement plans for business owners—and how to choose the one that fits your stage, cash flow, and tax goals.
The Best Retirement Accounts for Business Owners
Choosing the right retirement accounts for yourself and your business matters because the right design can help you gain flexibility in your retirement, reduce taxes, and save more to strengthen your long-term security.
Before you commit to a plan, you need to consider key elements of your business that will drive eligibility and fit, including your headcount (and projected hiring), cash-flow stability, entity type, and how much you can afford to save–and, quite frankly, spend on administering a plan.
Some plans work best for sole proprietors, some suit start-ups with a handful of employees, and some come with higher administration costs.
It may be a slightly lower lift to simply elect to make retirement contributions as an employee, but being the boss also comes with benefits–including the ability to tailor contributions and tax treatment to your situation.
Next: Let’s break down a few of the most common retirement account types for business owners: the SEP IRA, Solo 401(k), SIMPLE IRA, Traditional 401(k), and Defined Benefit Plans.
Simplified Employee Pension Individual Retirement Account (SEP IRA)
Best for: Solo business owners or small companies without (or with only a few) employees.
SEP IRAs are a popular choice for solo business owners or companies with small teams because they’re easy to set up and administer, and they’re a good fit when you want contribution flexibility due to uneven profits.
The SEP IRA allows for tax-deductible annual contributions that grow tax-free and are taxed upon withdrawal in retirement. Like all defined contribution accounts, distributions made before the age of 59 ½ are normally taxed as ordinary income and include a 10% IRS penalty.
Some custodians also offer a SEP Roth IRA. It’s advisable to consult with your financial or tax professional before making the decision to direct the contributions to the SEP Roth IRA because unlike the traditional SEP IRA, the employee pays the taxes on the employer contributions in the year the contributions are made to the SEP Roth IRA.
You may be able to contribute to a SEP IRA and a traditional or Roth IRA in the same year to increase your annual savings. Check with a financial or tax professional to see if you’d qualify.
SEP IRA contribution limit for 2025
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Lesser of $70,000 or 25% of compensation, up to the first $350,000 of income
SEP IRA contribution limit for 2026
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Lesser of $72,000 or 25% of compensation, up to the first $360,000 of income
Note: If you are running a team, SEPs require you to contribute on your employees’ behalf at the same percentage of compensation that you contribute to your own.
Perhaps the biggest downsides to the SEP IRA are:
- It only allows for employer contributions—unlike the Solo 401(k), which allows for employee contributions.
- If you have employees, you’re likely not contributing the maximum amount to your SEP IRA because it means contributing the same % to their SEP IRAs.
- They don’t include catch-up contributions for those 50 and older like many other retirement accounts.
Generally we see that business owners are able to contribute more to a Solo 401(k) than to a SEP IRA, so let’s talk about that next.
Solo 401(k)
Best for: Self-employed individuals or small business owners with no full-time employees other than themselves—and possibly their spouse—who want the highest possible contribution limits in a tax-advantaged plan.
For many entrepreneurs, the Solo 401(k) offers greater flexibility, including higher contribution limits than a SEP IRA for some, and the ability to contribute employee deferrals AND employer profit-sharing (you wear both the employee and the employer hats in this case).
The Solo 401(k) can be used by any small business (corporations, LLCs, and partnerships), but the only eligible participants are the business owners and their spouses (if they’re also employed by the business).
Like a traditional 401(k), contributions to a Solo 401(k) are tax-deferred and tax deductible. Or you can make Roth Solo 401(k) contributions which are taxed in the year of contribution and grow tax free.
Solo 401(k) 2025 contribution limit
- Employee deferral: $23,500
- Standard catch-up (50+): $7,500
- Enhanced catch-up (60-63): $11,250
- Employer Profit-Sharing: Up to 25% of net self-employment income
Total combined limits (Employee + Employer) for 2025
- Under age 50 or age 64+: $70,000
- Age 50-59: $77,500 (includes $7,500 catch-up)
- Age 60-63: Up to $81,250 (includes $11,250 enhanced catch-up)
Solo 401(k) 2026 contribution limit
- Employee deferral: $24,500
- Standard catch-up (50+): $8,000
- Enhanced catch-up (60-63): $11,250
- Employer Profit-Sharing: Up to 25% of net self-employment income
Total combined limits (Employee + Employer) for 2026
- Under age 50 or age 64+: $72,000
- Age 50-59: $80,000 (includes $8,000 catch-up)
- Age 60-63: Up to $83,250 (includes $11,250 enhanced catch-up)
As a self-employed business owner, you can contribute as both the employee and the employer—though it is not required—making it flexible from year-to-year.
If your business is a sole proprietorship, you must have net profits in the business to contribute to your Solo 401(k) in that year.
If your business is an S-corp and you pay yourself W-2 compensation, you can make contributions based on your salary even if the business operates without showing profits. So if your business is operating at a loss, as long as you are paying yourself a salary (i.e. you have eligible earned income from the business), you can still defer income and build your retirement fund.
We’ve seen this feature come in handy for business owners whose partners/spouses are able to cover household and lifestyle expenses from their income. Consult with your tax preparer and financial advisor to determine contribution eligibility before you add funds to your Solo 401(k).
The Solo 401(k) is fairly straightforward and not administratively complicated or cumbersome, but two considerations that might be considered cons to this plan include: Once your account balance is over $250,000, there are additional regulatory reporting requirements (your accountant can handle these), and if you decide to hire employees later on, you won’t be able to continue this plan and may even have to wait a year before starting a new, regular 401(k) plan.
Savings Incentive Match Plan for Employees (SIMPLE) IRA
Best for: Owners of small businesses with up to 100 employees.
A SIMPLE IRA is a streamlined, payroll-based plan typically used by businesses with less than 100 employees. Employees defer a portion of pay, and employers either match up to 3% or make a 2% nonelective contribution (subject to the annual compensation cap).
SIMPLE IRAs are exactly that: a simple-to-execute, low-cost alternative to traditional 401(k) plans, that still allow for business owners to save for retirement while contributing to their employee’s retirement savings.
The SIMPLE IRA can be especially useful for startups who need a straightforward way to provide retirement benefits to employees—with no annual IRS reporting required.
SIMPLE IRA employee deferral limit for 2025 for companies with 25 or fewer employees
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Employee deferral: $17,600 (for those who earned $5k or more in 2024)
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Standard catch-up (50-59 and 64+): $3,850
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“Super” catch-up (60-63; if offered by your plan): $5,250
SIMPLE IRA employee deferral limit for 2025 for companies with 26-100 employees
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Employee deferral: $16,500
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OR $17,600 (*for employees who earned $5k or more in AND the employer provided notice at least 60 days before the end of 2024 AND employer either makes a 4% dollar-for-dollar match, or a 3% non-elective contribution)
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Standard catch-up (50-59 and 64+): $3,500
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OR: $3,850 (if the above * was met)
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“Super” catch-up (60-63; if permitted): $5,250
SIMPLE IRA employee deferral limit for 2026 for companies with 25 or fewer employees
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Employee deferral: $18,100
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Standard catch-up (50+): $4,000
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Enhanced catch-up (60-63; if offered by your plan): $5,250
SIMPLE IRA employee deferral limit for 2026 for companies with 26-100 employees
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Employee deferral: $17,000
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OR $18,100 (*for employees who earned $5k or more in AND the employer provided notice at least 60 days before the end of 2025 AND employer either makes a 4% dollar-for-dollar match, or a 3% non-elective contribution)
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Standard catch-up (50-59 and 64+): $4,000
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“Super” catch-up (60-63; if permitted): $5,250
When applicable, under SECURE 2.0 certain smaller employers (25 or fewer employees) have higher contribution limits (110% of the standard limit).
The SIMPLE IRA provides a good compromise between a traditional IRA (with relatively low contribution limits) and a traditional 401(k) that brings more complexity. Both employer and employee contributions to a SIMPLE IRA grow tax-deferred, and employee contributions are made on a pre-tax basis. Or if available through the financial institution (custodian) with which you have your plan, you can make Roth SIMPLE IRA contributions which are taxed in the year of contribution and grow tax free.
Per IRS rules, one limitation of the SIMPLE IRA is that if you offer it as your organization’s retirement plan, you generally cannot maintain or contribute to another employer-sponsored retirement plan—like a 401(k), profit-sharing, or defined benefit plan—at the same time for your employees in the same calendar year. This is known as the “exclusive plan rule.”
Traditional 401(k)
- Employee elective deferral: $23,500
- Standard catch-up (50-59 and 64+): $7,500
- Enhanced catch-up (60-63): $11,250
- Total combined limits (Employee + Employer):
- Under age 50: $70,000
- Age 50-59 and 64+: $77,500
- Age 60-63: $81,250
- Employee elective deferral: $24,500
- Standard catch-up (50-59 and 64+): $8,000
- Enhanced catch-up (60-63): $11,250
- Total combined limits (Employee + Employer):
- Under age 50: $72,000
- Age 50-59 and 64+: $80,000
- Age 60-63: $83,250
- Standard limits apply first: First, you contribute up to the $24,500 elective deferral (plus catch-up, if eligible) in pre-tax or Roth dollars
- Employer match: Your employer’s matching funds are added, counting to the $72,000 total
- After-tax contributions: If your pre-tax/Roth plus employer contributions equate to less than $72,000, you can contribute the remaining gap as after-tax money (not Roth) until you hit that $72,000 cap
- “Mega Backdoor Roth”: Those after-tax dollars can often be converted to a Roth 401(k) (if your plan allows), providing significant tax-free growth
Defined Benefit Plans
Best for: High-income entrepreneurs seeking rapid retirement savings acceleration who have consistently high, stable earnings.
Defined benefit plans are accelerated savings plans that are best for high earners seeking rapid pre-tax accumulation with required annual funding. Defined benefit plans act like a personal pension, and can enable $100k+ annual contributions depending on age/income.
Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Older owners, typically age 45 or above, can make the largest contributions—that are tax-deductible and can dramatically reduce taxable income in profitable years—because the plans aim to fund a defined payout by a set retirement age, making accelerated funding for a shorter time period possible.
Unlike defined contribution plans—which limit what you can put in each year—defined benefit plans start with the end in mind: a specific retirement income beginning at a designated age. Contributions aren’t fixed amounts but are calculated actuarially each year based on what’s needed to fund that future benefit (such as $280,000 per year), using your age, compensation, and years of service as key inputs.
Maximum Annual Benefit for 2025
- Defined benefits 415(b) annual cap: $280,000
- The IRS caps the maximum annual benefit at the lesser of a set dollar limit or 100% of your highest three-year average compensation. However, the amount you contribute isn’t tied to that cap in a straightforward way. Instead, it’s calculated actuarially—and will vary based on your age and income to fund the promised payout.
Maximum Annual Benefit for 2026
- Defined benefits 415(b) annual cap: $290,000
Again, as the name suggests, benefits are defined—set by an actuary to target a promised benefit. These plans require ongoing administration, and can be used alongside other retirement plans like a traditional 401(k) for additional flexibility and tax-deferred savings.
Because the employer must cover all eligible employees who meet certain service requirements, defined benefit plans are most suitable for entrepreneurs and small businesses with few or no employees.
Choosing the right plan is the first step; how you use it is what compounds the advantage.
The biggest levers you can pull in your retirement plans as a business owner are tax design and execution: when to use pre-tax vs. Roth, how employer profit-sharing interacts with your entity type, when to accelerate contributions, and how to coordinate investments across taxable and retirement accounts.
In the next section, we’ll outline advanced tax-smart retirement strategies for entrepreneurs so each dollar you save has a clearer after-tax path—from contribution, to growth, to withdrawal.
Advanced Tax-Aware Strategies for Entrepreneurs and Business Owners
When you’re a business owner, profitability is only step one. Step two is turning that business profit into lasting personal wealth that can support your retirement goals.
That means thinking beyond your P&L and making sure the money your business earns is working just as hard for your future as you did to earn it. Coordinated, tax-aware planning helps you convert business income into retirement savings, minimize tax drag, and protect what you’ve built—so your business success becomes personal financial freedom.
Here are a few things to consider to be more tax-efficient in your retirement planning as a business owner:
Use Roth conversions and catch-ups deliberately
- In lower-income or gap years (post-exit, sabbatical, or between big contracts), partial Roth conversions can optimize future tax-free growth with more flexibility later
- For workplace plans, remember SECURE 2.0 introduces a higher “enhanced catch-up” at ages 60–63 and a Roth-catch-up requirement for certain higher earners
Coordinate your plan design with entity type
- How your business is set up matters: For example, S-corp salary choices affect how “compensation” is defined for employer contributions; C Corps follow a different formula
- Coordinate with your plan administrator, CFP® professional, and tax preparer so profit-sharing, deferrals, and owner compensation are within IRS guidelines (you don’t contribute more than you’re allowed in any given year) and don’t trigger top heavy alerts or other audit flags
Strategize investment placement in taxable vs. tax-deferred accounts
- In certain situations, it’s appropriate to limit the investments that would produce high taxable income in taxable accounts
- It may also make sense for you to hold investments with higher expected growth in tax-deferred accounts
- Make sure you talk to your financial advisor to strategize what’s right for you here
Coordinate withdrawals before Required Minimum Distribution (RMD) age
- Thoughtful pre-RMD distributions (or small annual Roth conversions) can smooth tax bracket creep, reduce future RMDs, and help manage Medicare IRMAA-related cost increases
- The goal is higher after-tax income over your lifetime, not just a low tax bill in one year
Give smarter if you’re charitably inclined
- Donating appreciated securities (or using a donor-advised fund) can rebalance (or diversify) your portfolio without realizing taxable gains in taxable accounts
- After age 70½, qualified charitable distributions (QCDs) from IRAs can satisfy part or all of your giving and count toward RMDs (when that time comes)—without increasing taxable income
- IMPORTANT: We find that many mistakes can occur between making the QCD and reporting it correctly on your tax return. Details get forgotten—and your tax preparer only knows what you document for him or her. This is just one benefit of the Annual Tax Letter we send as part of our Ultra Tax Efficient Wealth Management® suite of services – we ensure these details are communicated to your tax preparer so that QCDs show up on your tax return accurately and you receive the full tax benefit due.
Systematize your cash flow
- Automate contributing a percentage of business revenue to your retirement accounts so it scales with revenue, then you can top off retirement accounts with the profit remaining at EoQ or EoY
- Use a checklist to plan for and execute year-end moves with your CFP® professional (the most tax-efficient ways to make charitable donations, Required Minimum Distributions, contribution deadlines to your investment accounts, Roth conversions, tax-loss or gain harvesting)
Plan well in advance of a business sale
- The timing of your sale matters because, without other strategies in place, 100% of gains realized during the calendar year are fully and inexorably taxed, i.e. the capital gains tax comes due
- Prepare for what will be a large capital gains event by working with an advisor who uses tax-aware investment strategies and tools—like the tax-aware long-short overlay in our Ultra Tax Efficient Wealth Management® suite–to strategically harvest losses and offset capital gains, reducing taxable income and allowing you to keep more profit in your pocket
- Work with your tax preparer and financial advisor to understand how the proceeds from your business sale move you closer to the retirement resources you’ll need
All of the above strategies work best as part of a coordinated plan, not a series of year-end reactions. A fiduciary advisor and your tax preparer can help you plan, implement, and manage the strategy end to end—so you avoid costly mistakes (missed deadlines, bracket creep, IRMAA surprises) and get the underrated advantage of keeping more after tax.
You don’t need another hat to wear, so do yourself a favor: Bring in a professional team that can execute your plan smoothly in the background while you run, prepare to sell, and then sell the business—so you can enjoy your retirement.
Ready to plan around a sale? Work with a fiduciary, tax-forward team with decades of experience partnering with business owners
We’re set up to help you coordinate taxes, investments, and
cash flow—especially if a major liquidity event is on the horizon
- What we offer: Ultra Tax Efficient Wealth Management® (UTEWM®) and, for suitable investors with $1.25M+ in taxable assets, our Flex SMA tax-aware long/short overlay to help manage risk and the timing of gains/losses
- Who it’s for: Owners expecting (or who have recently completed) a sale, concentrated equity, or large capital gains—and are looking for a coordinated, tax-aware plan
- Why now: With enough runway, we can map pre-sale moves and post-sale strategy so more decisions are intentional—not reactive
Let’s talk about your path forward ➜ Schedule a complimentary Discover Meeting
The Benefits of Working With a Fiduciary Advisor on Your Retirement Plans
Owning a business gives you freedom—and responsibility. The right retirement plan turns good years into lasting progress, and a tax-aware strategy helps more of that progress show up in the paycheck that keeps coming long after you’ve stopped working.
Whether you start with a SEP IRA, lean into a Solo 401(k), roll out a SIMPLE IRA for a growing team, or pair a 401(k) with a defined benefit plan, the key is matching the plan to your stage, cash flow, and goals—and revisiting it as those change.
And, as a business owner, you’re wearing enough hats—so don’t try to do this alone. A fiduciary advisor (alongside your tax preparer) can help you choose, implement, and manage the right approach—so contributions are automatic, taxes are coordinated, and avoidable mistakes don’t get in the way.
Confidently Build Your Retirement as a Business Owner… Starting Today
- Run the numbers: Estimate your current retirement income with our Retirement Calculator
- Get Practical: Download our Retirement Guide for more tax-aware planning
- Let’s talk: Schedule a complimentary Discover Meeting with one of our lead advisors
We'll get to know you, your business, and your goals so we
can make an informed recommendation for your best next steps.
Build a retirement strategy as strong as your business—with a
team on your side who will make sure it maximizes your long-term
wealth and minimizes the taxes that stand to drag it down.
More Retirement Resources:
- 📝Can I Retire at 55? What High Earners Need to Know About Early Retirement
- 📝How Long Will My Money Last? A Smarter Approach to Retirement Withdrawals
- 📝Personal Retirement Planning: A Fiduciary Guide to Knowing When You Can Retire
- IRS Retirement Contribution Updates: 2026
Frequently Asked Questions
1. How do I save for retirement when I’m self-employed?
Automate a percentage of revenue/owner comp, then choose a plan that fits your stage (Solo 401(k), SEP IRA, SIMPLE IRA) and maximize what you can contribute quarterly/year-end when your bookkeeper finalizes your business’ net income numbers.
2. SEP IRA vs. Solo 401(k): Which is better for me?
SEP = contribution of profit only (you must have profit), employer-only contributions, simple, flexible for uneven profits. Solo 401(k) = employee deferrals (pre-tax/Roth) + employer share; often allows higher savings if business income is moderate. If you have employees other than you and your spouse, you won’t be able to use the Solo 401(k).
3. Roth or pre-tax: how should I choose?
Pre-tax lowers taxes now, whereas Roth can improve flexibility and after-tax income later. Many business owners strategically blend both with the help of their CFP® professional and use lower-income years for Roth deferrals/conversions.
4. Can I contribute to both a SEP IRA (or Solo 401(k)) and an IRA?
Often yes—subject to annual limits and deductibility/eligibility rules. Coordinate with your tax preparer to avoid overcontributions.
5. Which self-employed retirement plan should I choose?
Match to headcount, cash-flow stability, and admin bandwidth: Solo 401(k) (owner-only, maximize savings), SEP IRA (simple), SIMPLE IRA (≤100 employees), or a regular 401(k) (better advantages, growing team).
6. Is selling my business a good retirement strategy?
Treat a sale as upside—not the entire plan. Build tax-efficient, well-diversified assets now and start sale prep 12–24 months ahead (by getting in touch with a CFP® professional who can implement a tax-aware long-short strategy to minimize capital gains taxes on your sale and keep more of the profit in your pocket).
Disclaimer:
All investing involves risk, including the potential loss of principal. There is no guarantee that any investment plan or strategy will be successful. Advisory services provided by Hendershott Wealth Management, LLC (“HWM”), an investment advisor registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
All written content in this article is for information purposes only and does not constitute an offer, or solicitation of an offer, or any advice, or recommendation to purchase any securities or other financial instruments–and may not be construed as such. Opinions expressed herein are solely those of HWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.
