Choosing a Retirement Plan for Your Business in 2026

A retirement plan is one of the few ways a business owner can set aside a large amount of income before tax while building savings at the same time. The right plan depends on whether you have employees, how much you want to contribute, and how much administration you want to take on.

Here is how the common options compare for 2026, and which deadlines still matter this year.

The 2026 limits

These are the main federal limits for 2026:

• 401(k) employee deferrals: $24,500, plus an $8,000 catch-up at age 50 or older. People age 60 through 63 can make a larger catch-up of $11,250 instead.

• Total contributions to one person's account in a 401(k) or other defined contribution plan, including employer contributions: $72,000, not counting catch-ups.

• SIMPLE IRA deferrals: $17,000 in most plans, plus a $4,000 catch-up at age 50 or older.

• Traditional and Roth IRAs: $7,500, plus a $1,100 catch-up at age 50 or older.

Solo 401(k): the high-limit plan for owners without employees

If the only people working in the business are you and your spouse, a solo 401(k) usually allows the largest contribution for the least cost. You contribute in two roles. As the employee, you can defer up to $24,500 plus any catch-up. As the employer, the business can add a contribution of up to 25 percent of your W-2 pay if you own an S corporation, or roughly 20 percent of your net self-employment income, after a few adjustments, if you are a sole proprietor. Together, the two cannot exceed $72,000 plus catch-ups.

Timing depends on how the business is set up. If you own an S corporation, your employee deferrals have to come out of your W-2 pay, so the plan and your deferral election need to be in place before your last 2026 payroll. If you are a sole proprietor with no employees, the rules are more forgiving. A brand-new solo 401(k) can be set up as late as your filing deadline, without extensions, and still accept employee deferrals for its first year.

SEP IRA: simple, and still open for 2026

A SEP lets the business contribute up to 25 percent of each eligible employee's pay, up to $72,000 per person. For sole proprietors, the effective limit works out closer to 20 percent of net self-employment income. There are no employee deferrals, so the money comes entirely from the business. A SEP is easy to run, and it can be set up as late as the business's tax return due date, including extensions. That makes it a good fit for an owner who wants to decide after the year closes.

The catch is that a SEP has to cover eligible employees at the same percentage of pay. If you contribute 20 percent of your own pay, you contribute 20 percent of theirs. For owners with staff, a SEP can cost more than it first appears.

SIMPLE IRA: for small teams, with an early deadline

A SIMPLE IRA lets employees defer part of their pay. The employer either matches deferrals up to 3 percent of pay or contributes 2 percent of pay for every eligible employee. Costs are low, and it suits businesses with a handful of employees, though the limits are lower than a 401(k)'s.

A business that has not had a SIMPLE IRA before can generally start one on any date from January 1 through October 1. For most established businesses, that window has closed for 2026, but a SIMPLE IRA can be planned now for 2027. Businesses formed after October 1 have more time.

Cash balance plans: for owners who want to save much more

A cash balance plan is a type of pension plan. It can allow contributions far above the 401(k) limits, especially for owners in their 50s and 60s with steady, high profits. It is often paired with a 401(k). It costs more to run, it needs an actuary, and it requires contributions every year, so it fits best when profits are reliable.

A new plan funded only by employer contributions, such as a cash balance or profit-sharing plan, can be adopted as late as the business's tax return due date, including extensions, and still count for the prior year. That extra time does not apply to employee 401(k) deferrals.

Credits for starting a plan

Businesses with up to 100 employees can claim federal tax credits for starting a new plan. For employers with 50 or fewer employees, the startup credit can cover all of the eligible costs of setting up and running the plan, up to $5,000 a year for three years, depending on how many non-highly compensated employees are eligible. Adding automatic enrollment earns an extra $500 a year for three years. There is also a credit for employer contributions to a new defined contribution plan, up to $1,000 per eligible employee, that phases down over five years.

The startup credit requires at least one plan participant who is not highly compensated, so it does not apply to a plan that covers only the owner.

California employers and CalSavers

California requires employers with at least one employee other than the owners to either offer a retirement plan or register for CalSavers, the state-run program. The last group to be phased in, employers with one to four employees, had a December 31, 2025 deadline. After notice from the state, employers that do not comply can face a penalty of $250 per eligible employee, and another $500 per employee if the problem continues. Offering your own qualified plan satisfies the requirement.

Roth catch-ups for higher earners

Starting in 2026, employees age 50 and older who earned more than $150,000 in FICA wages from the employer in 2025 must make any 401(k) catch-up contributions as Roth contributions. S corporation owners who receive W-2 pay are included. Partners and sole proprietors whose only earnings are self-employment income are not, because they have no FICA wages. If your plan does not offer a Roth option, talk with your plan provider now.

Which plan fits

• No employees, and you want the highest contribution at low cost: a solo 401(k).

• You want to decide after year end, and have few or no employees: a SEP.

• A small team, and you want employees to save too: a SIMPLE IRA for 2027, or a 401(k).

• Steady high profits, and you want to contribute much more: a 401(k) paired with a cash balance plan.

Book your planning call

If you want to compare plans using your actual numbers, book a time with our team at calendly.com/kirkcole/15-minute-meeting. Some of these decisions have to be made before December 31.

This article is general information, not tax advice for your situation. Tax rules change, and the right move depends on your facts.