In today’s busy world, it’s no wonder that many business owners leave their retirement planning to chance. This often means sporadic IRA contributions — or worse — no retirement savings strategy at all. This can lead to missing out on the benefits that tax-advantaged retirement accounts can provide.
Having a retirement plan for your business can do more than help improve the outcomes of your personal retirement planning. It can also help you gain a competitive edge in hiring, provide immediate tax deductions, and help shape your business cash-flow planning.
We know that choosing a retirement plan for your business can seem like an overwhelming task. So in this guide, we simplify the process by providing an overview of the most common small business retirement plans — SEP IRA, SIMPLE IRA, traditional 401(k), and Cash Balance — to help you pick the right fit for your cash flow, team, and goals.
Understand the Two Main Retirement Plan Categories
Before diving into any specific retirement plan options, let’s start by talking about the overarching two families that retirement plans fall into: defined contribution and defined benefit plans.
Defined Contribution (DC) plans (SEP IRA, SIMPLE IRA, and 401(k) plans) credit individual accounts based on contributions, with participants bearing investment risk.
Defined Benefit (DB) plans (like Cash Balance and other plans) promise a benefit based on a formula, with employers carrying the actuarial and funding responsibilities.
Defined Contribution plans cap annual limits but require minimal paperwork, while Defined Benefit plans allow for higher deductions at the cost of annual funding commitments and actuarial certification.
Now let’s look at a few popular Defined Contribution plans that business owners use to save for retirement.
Defined Contribution Retirement Plans for Business Owners
1. SEP IRA: High Limits with Minimal Paperwork
The SEP IRA is the workhorse for small teams and variable profits. Established by completing IRS Form 5305-SEP, it has no annual filing requirement and skips nondiscrimination testing.
You decide each year whether and how much to contribute — up to 25% of compensation (capped at $70,000 in 2025). But here’s the key: only employers can contribute, and the percentage must be the same for all eligible employees.
For example, if you set aside 15% of salary for yourself, you must contribute 15% for each eligible employee based on their salary as well.
This flexibility suits owners with seasonal or fluctuating revenue since there’s no penalty for skipping contributions some years. Just be aware that fast staff growth can sharply increase your costs. Also, employees’ balances vest immediately — great as a hiring incentive, but something to watch out for if you face high employee turnover.
For a deeper dive, see our guide on SEP IRAs and how they work for business owners.
2. SIMPLE IRA: Structured Matching for Modest Headcounts
The SIMPLE IRA targets firms with up to 100 employees that want to offer employee salary deferrals plus an employer match, without the complexity of a 401(k) plan.
Employees can defer up to $16,500 annually ($20,000 if age 50+), and employers must contribute using one of two formulas:
- Match: Dollar-for-dollar match on employee contributions, up to 3% of compensation.
- Nonelective: Flat 2% contribution for all eligible employees, whether or not they contribute themselves.
This plan requires no annual Form 5500 and avoids nondiscrimination tests, making it easy to administer. However, matching obligations must be met even in lean years, so forecast carefully if your business experiences off‑season revenue dips. Employee balances also vest immediately, encouraging participation but offering no long‑term retention incentive.
You can establish a SIMPLE IRA by filing Form 5304-SIMPLE if employees can choose their own financial institution, or Form 5305-SIMPLE if all contributions go to a designated institution.
To learn more and get more details on SIMPLE IRA contribution limits for 2025, check out our SIMPLE IRA Explained guide.
3. Traditional 401(k): More Design Flexibility, But More Admin Work
A traditional 401(k) plan delivers the highest limits out of the Defined Contribution plans. It also provides flexibility in terms of design options—Roth and pre‑tax deferrals, discretionary profit sharing, auto‑enrollment, and safe‑harbor provisions— in addition to flexibility in terms of investment options.
In 2025, employees can defer up to $23,500 ($31,000 if 50+), plus employers may make additional profit-sharing contributions, where total contributions cannot exceed $70,000 per account in 2025. Employers can tailor vesting schedules—graded or cliff vesting—incentivizing retention.
Establishing a 401(k) is more complex when it comes to administration and compliance. It usually involves drafting a formal plan document, creating a Summary Plan Description, and filing annual Form 5500. You may need a third‑party administrator (TSA) for nondiscrimination testing (unless you add a safe‑harbor match). Plan expenses (usually up to $5,000 per year) cover testing, participant disclosures, and fiduciary compliance.
To learn more about this year’s 401(k) contribution limits or if you’re an employee wondering how much to contribute to your 401(k) plan, check out our 401(k) and TSP contribution guide.
Defined Benefit Retirement Plans for Business Owners
1. Defined Benefit Plans Overview
A traditional defined benefit (DB) plan promises employees a specific, guaranteed benefit at retirement—what we would call a standard “pension” back in the day. This is usually calculated based on factors like years of service, salary history, and age.
Unlike 401(k)s or SIMPLE IRAs, where employees take on investment risk, DB plans place the funding and investment responsibility on the employer.
These plans require annual contributions determined by an actuary to ensure the promised benefits are fully funded. While DB plans are less common among small businesses today due to their cost and complexity, they can be powerful tools for owners seeking large, tax-deductible contributions and stable retirement payouts.
One unique retirement plan option that some small business owners turn to is the Cash Balance plan, which we explore next.
2. Cash Balance Plan
The Cash Balance plan blends defined‑benefit generosity with the transparency of a defined‑contribution account. Each participant has a hypothetical “account” that receives two types of annual credits:
- Pay credit: A percentage of salary, such as 5%.
- Interest credit: A guaranteed rate, often tied to Treasury yields or a fixed percentage.
Unlike traditional DB plans or pensions, participants can easily see their account balance grow over time, and at retirement, they typically have the choice between taking a lump sum or receiving annuity payments. The lump sum can usually be rolled over into an IRA for continued tax deferral.
However, setting up a Cash Balance plan isn’t plug-and-play. You’ll need an actuary to draft the plan document, set funding assumptions, and certify that contributions meet IRS minimum funding standards.
Employers bear the investment risk, meaning they must ensure the plan assets grow enough to cover promised benefits. Most plans work best when you can commit to funding for at least 3–5 years, so it’s important to forecast your cash flow carefully.
For business owners in their mid-50s, combining a Cash Balance plan with a 401(k) and profit sharing can push annual contributions well over $300,000 — a major tool for reducing taxable income and rapidly boosting retirement savings.
For more details on how Cash Balance plans work and their pros and cons, see our Cash Balance Plans for Business Owners Guide.
5-Step Framework for Choosing Your Retirement Plan
Selecting the right option for your business retirement plan ultimately depends on your objectives:
- Tax‑savings priority. Business owners seeking the largest deduction in peak years often lean into Cash Balance or a high‑limit 401(k).
- Headcount & funding flexibility. SEP IRAs work for small or variable‑payroll firms; SIMPLE IRAs fit more predictable payrolls under 100 staff.
- Administrative bandwidth. If you want minimal setup and maintenance, go for a SEP IRA or a SIMPLE IRA; for more control and higher limits, plan for 401(k) oversight.
- Retention goals. Use vesting schedules in 401(k) plans to encourage staff loyalty; SEP IRAs and SIMPLE IRAs vest immediately, offering fewer retention levers.
- Employee engagement. SIMPLE IRAs and 401(k)s allow employees to contribute their own salary deferrals, which boosts buy-in. SEP IRAs and Cash Balance plans are employer-funded only, so employees aren’t as actively involved.
Map these priorities against plan features to identify the best fit, then stress‑test with a three‑year cash‑flow projection before committing.
Best Retirement Plan for a Small Business Owner: Comparison at a Glance
| Feature | SEP IRA | SIMPLE IRA | 401(k) | Cash Balance |
| Ideal For | Solo/≤ 5 staff, variable profits | ≤ 100 staff, basic match | Growing firms needing flexibility | Owners 45+, high cash flow |
| Employee Deferral | N/A | $16.5k ($20k 50+) | $23.5k ($31k 50+) | N/A |
| Employer Contribution | Up to 25% of pay | 3% match / 2% flat | The difference between $70k and employee deferral | $100k+ actuarial |
| 2025 Total Max | $70k | $19.5k | $70k | $300k+ |
| Form 5500 Required | No | No | Yes | Yes |
| Vesting | Immediate | Immediate | Custom | Custom |
| Admin Cost | Low | Low | Moderate | Higher |
Best Retirement Plan for Self-Employed Individuals
If you’re self-employed with no employees, two of the best retirement plan options to consider are the SEP IRA and the Solo 401(k). Both offer great tax advantages, but they differ in how much you can contribute, how flexible they are, and how much paperwork they require.
A SEP IRA is the simpler option. It’s easy to set up, has minimal administrative requirements, and allows you to contribute up to 25% of your net self-employment income, capped at $70,000 in 2025. This makes it a good fit if you want flexibility and low maintenance, especially if your income varies from year to year.
The Solo 401(k), by contrast, offers maximum contribution potential. You can contribute both as the employee (through salary deferrals) and as the employer (profit sharing), helping you reach the $70,000 total limit for 2025 faster. It also comes with added features like Roth contributions and loan provisions. While it involves more paperwork it’s often the top choice for high-income solo business owners looking to supercharge their retirement savings.
Need Help Choosing the Best Retirement Plan for Your Business?
While this guide gives you a good starting point in choosing the best retirement plan as a business owner, making the final decision can be complex. There are many factors involved, and you should always ensure that your business retirement plan also aligns with your personal financial plan. Schedule a call with one of our financial advisors in Tampa to get a complimentary retirement plan strategy session based on your personal and business goals.
Disclosure :
Jaffe Tilchin Investment Partners is a Registered Investment Advisor. Certain representatives of Jaffe Tilchin Investment Partners are also Registered Representatives offering securities through APW Capital, Inc., Member FINRA/SIPC. 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866 (800)637-3211 Check the background of this firm on FINRA’s BrokerCheck
