Retirement Plans for Small Business Owners: Comparing Your Options

As a small business owner, you have access to retirement plan options that can significantly exceed the contribution limits of a standard IRA. The right plan depends on your business structure, number of employees, income level, and how much you want to contribute. Choosing well can save tens of thousands in taxes each year while building substantial retirement savings.

Comparing the Most Common Plans

• SEP IRA — employer-only contributions up to 25% of compensation or $69,000 (2024 limit). Simple to set up and administer, best for self-employed individuals or businesses with few employees. No employee contribution allowed.
• SIMPLE IRA — allows both employee deferrals (up to $16,000 plus $3,500 catch-up if 50 or older) and mandatory employer matching of up to 3%. Best for businesses with under 100 employees who want a low-cost plan.
• Solo 401(k) — for self-employed individuals with no employees (other than a spouse). Allows both employee deferrals and employer contributions, with a combined limit of $69,000 plus catch-up. Can include a Roth option.
• Traditional 401(k) — the most flexible option for businesses with employees. Allows higher deferrals, employer matching, profit sharing, and Roth contributions. Requires annual compliance testing and higher administrative costs.

Beyond the Basics: Defined Benefit Plans

For high-income business owners looking to shelter even more, a defined benefit or cash balance plan can allow annual contributions of $200,000 or more, depending on your age and income. These plans are more expensive to administer but can dramatically accelerate retirement savings while providing the largest possible tax deduction.

Choosing the Right Plan

The best plan balances your desire to maximize personal contributions with the cost of covering employees. A financial advisor who understands small business retirement planning can model the costs, tax savings, and long-term accumulation of each option so you make a decision based on data, not guesswork. At Rice Wealth Management Group, we work with business owners across New Jersey to design plans that fit their goals and their budget.