The Right Retirement Plan Depends on Your Business, Not a Brochure.
A SEP IRA, SIMPLE IRA, Solo 401(k), or a full 401(k): each one fits a different business. I help you pick the plan that matches your size, your cash flow, and how much you want to put away, then set it up and run it.
By Jay Chang, VP, Wealth Advisor at Farther · Last reviewed July 2026
Which Small Business Retirement Plan Is Right for You?
Start with your situation, not the product. Four questions decide most of it: are you the only employee, how much do you want to save, do you want employees funding their own accounts, and how much administration can you take on. In short:
- Self-employed, no employees: a Solo 401(k) for the highest savings, or a SEP IRA for the simplest setup.
- A few employees, want it simple and low-cost: a SIMPLE IRA, or a SEP IRA if you would rather fund it yourself.
- Employees, want higher limits and design flexibility: a 401(k), usually a safe harbor 401(k) to skip most testing.
- High-earning owner chasing bigger deductions: a 401(k) with profit sharing, or a cash balance plan on top.
The Four Plans at a Glance (2026)
The biggest practical difference is how much you can set aside and how much administration comes with it. Here is the same picture two ways, a chart and a table.
| Plan | Best for | 2026 limit | Admin |
|---|---|---|---|
| SEP IRA | Solo or few employees, employer-funded | 25% of pay, up to $72,000 | No 5500 |
| SIMPLE IRA | ≤100 employees, low cost | $17,000 deferral, plus catch-ups | No 5500; required match |
| Solo 401(k) | Owner-only (and spouse) | $24,500 deferral, up to $72,000 total | 5500-EZ over $250K |
| 401(k) | Employees, flexibility | $24,500 deferral, up to $72,000 total | 5500 + testing; audit at 100+ |
Catch-up contributions raise these limits at ages 50 and older, with an enhanced catch-up at ages 60 to 63. Figures are 2026 limits.
Same Income, Very Different Savings.
The plan you choose can change how much you shelter by tens of thousands, at the exact same income. Take a self-employed consultant, age 45, with about $150,000 of net self-employment income and no employees:
Both plans allow the same profit-sharing contribution. The Solo 401(k) adds an employee salary deferral on top, so the same person can set aside roughly $24,000 more in the same year. That is the kind of gap I look for when I help you choose.
Hypothetical illustration only, not a projection of actual results. Figures assume the stated inputs and returns, which are not guaranteed; your outcome depends on your contributions, investment returns, tax rates, and time horizon. Past performance does not guarantee future results.
Choose the Plan, Set It Up, and Run It.
Picking the plan is the first step, not the finish line. Here is what I handle from there:
- Matching the plan to your business, your headcount, and how much you want to save
- Serving as the §3(38) investment fiduciary, so the fund lineup is selected and monitored with discretion and that liability sits with me
- Coordinating with your CPA and third-party administrator so setup, deadlines, and testing line up
- Connecting the business plan to your personal wealth plan so they work together, not in separate silos
- Planning the move to a larger plan as you grow, before the headcount forces it
If your plan is heading past 100 employees, the math changes and so does the audit. I cover that on the 401(k) plan advisory page, including how a pooled structure can take the audit cost off your plate. If you want to see which plan lets you save the most, you can compare your plan options against your own income in about a minute.
When You Outgrow the Plan You Started With.
Most businesses do not stay on their first plan forever. The common path is a SEP or SIMPLE IRA early on, then a 401(k) once headcount and cash flow grow and you want higher limits, a designed match, or profit sharing. SECURE 2.0 even lets you replace a SIMPLE IRA with a 401(k) mid-year under certain rules, so you do not always have to wait for January.
The switch has deadlines and contribution rules that need to line up, which is exactly the kind of timing I plan with you ahead of the hire, not after.
This page is educational and not tax or legal advice. Contribution limits, eligibility, and deadlines depend on your specific facts and can change; confirm details with your CPA and plan documents.
Common Questions About Small Business Retirement Plans
SEP IRA vs SIMPLE IRA: which is better for a small business?
It depends on who funds it and how many employees you have. A SEP IRA is funded entirely by the employer and lets you contribute up to 25% of pay, as much as $72,000 in 2026, but you must contribute the same percentage for every eligible employee. A SIMPLE IRA lets employees defer their own pay (up to $17,000 in 2026) with a required employer match, and works for businesses with 100 or fewer employees. SEP tends to fit owner-heavy or solo businesses; SIMPLE fits small teams that want employees to save from their own paychecks.
Can I have a Solo 401(k) if I have employees?
A Solo 401(k) is only for an owner-only business (you, and a spouse who works in the business). Once you have a non-owner, non-spouse employee who meets the eligibility rules, you generally need a regular 401(k) instead. Planning the transition before you hire matters, because the plan type has to change.
Do small business retirement plans require a Form 5500 or an audit?
SEP and SIMPLE IRAs do not require a Form 5500. A Solo 401(k) files a simple Form 5500-EZ once its assets exceed $250,000. A regular 401(k) files a full Form 5500 and runs annual testing, and needs an independent audit once it has 100 or more participants with an account balance at the start of the plan year.
Can I switch retirement plans as my business grows?
Yes, and most growing businesses do. A common path is to start with a SEP or SIMPLE IRA and move to a 401(k) as headcount and cash flow grow. SECURE 2.0 even allows replacing a SIMPLE IRA with a 401(k) mid-year under certain rules. The key is to plan the switch so contributions and deadlines line up.
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Let's Match a Plan to Your Business.
Whether you are setting up your first plan or wondering if you have outgrown the one you have, a short conversation is the fastest way to see what fits. No obligation.