A retirement plan can help a business owner do more than save for the future. The right plan can support employee retention, reduce taxable income, create long-term wealth, and make the business more competitive.
But not every retirement plan works the same way.
A solo business owner, a growing company with employees, a high-income professional practice, and a business with frequent turnover may each need a different strategy.
At True North Wealth Management, we help business owners compare retirement plan options in the context of their cash flow, tax strategy, employee structure, and long-term goals.
Start With the Right Questions
Before choosing a retirement plan, ask:
How much can the business afford to contribute?
Do employees want to contribute from their own paychecks?
How many employees does the business have?
Is employee turnover high or low?
Do I want to maximize contributions for myself or my spouse?
How much administration am I willing to manage?
Do I need Roth contribution options?
Do I want a plan that helps attract and retain employees?
How predictable is business income?
The answers can help narrow the options.
SEP IRA: Simple and Employer-Funded
A Simplified Employee Pension plan, commonly called a SEP IRA, can be a straightforward option for self-employed individuals and small business owners.
A SEP IRA is funded by employer contributions only. Employees do not make salary deferrals. The IRS states that SEP contributions generally cannot exceed the lesser of 25% of compensation or $72,000 for 2026.
SEP IRAs often appeal to business owners who want flexibility. The employer can decide how much to contribute each year, which may be useful when revenue changes from year to year.
When a SEP IRA May Fit
A SEP IRA may work well for:
Self-employed individuals
Solo business owners
Small businesses with few employees
Businesses with variable profits
Owners who want simple administration
Businesses that prefer employer-only contributions
SEP IRA Considerations
SEP IRAs can become expensive if you have eligible employees because contributions must generally follow plan rules for all eligible participants.
The IRS explains that a SEP may require covering employees who are at least age 21, earned the required minimum compensation, and worked for the employer in at least three of the immediately preceding five years.
SEP contributions are immediately vested, meaning employees own the contributions right away.
SIMPLE IRA: A Lower-Cost Plan for Smaller Employers
A Savings Incentive Match Plan for Employees, or SIMPLE IRA, allows both employee salary deferrals and employer contributions.
For 2026, the basic SIMPLE IRA employee deferral limit is $17,000, with catch-up contributions available for eligible workers age 50 or older. Some eligible smaller employers may be able to use higher limits under SECURE 2.0, depending on plan size and plan design.
Employers generally must either match employee contributions or make a nonelective contribution for eligible employees. A common formula is a dollar-for-dollar match up to 3% of compensation, though SIMPLE IRA rules allow certain variations. The IRS also notes that employers may make a 2% nonelective contribution for eligible employees.
When a SIMPLE IRA May Fit
A SIMPLE IRA may work well for:
Small businesses with 100 or fewer employees
Employers who want employee salary deferrals
Businesses that want easier administration than a 401(k)
Owners who want a required but manageable employer contribution
Companies that want a retirement benefit without complex annual testing
SIMPLE IRA Considerations
SIMPLE IRAs require employer contributions, and all contributions are immediately vested. That means employees own employer contributions right away.
SIMPLE IRAs also have lower contribution limits than many 401(k) plans, which may matter for owners who want to save aggressively.
401(k): Flexible and Scalable
A 401(k) plan is one of the most recognizable retirement plan options for businesses.
Employees fund the plan through salary deferrals, and employers may choose to make matching or profit-sharing contributions. For 2026, the employee deferral limit for 401(k), 403(b), and most 457 plans is $24,500. The catch-up contribution limit for participants age 50 and older is $8,000, with a higher catch-up limit available for certain participants ages 60 to 63.
A 401(k) can offer traditional pre-tax contributions, Roth contributions if the plan allows, employer matching, profit sharing, loans, and customized eligibility or vesting provisions.
When a 401(k) May Fit
A 401(k) may work well for:
Growing businesses
Businesses that want higher contribution limits
Employers who want Roth options
Companies that want to offer a competitive employee benefit
Owners who want more plan design flexibility
Businesses that can manage more administration
401(k) Considerations
A 401(k) generally requires more administration than a SEP IRA or SIMPLE IRA. Plans may require annual testing, Form 5500 filings, plan documents, participant notices, payroll coordination, and fiduciary oversight.
Eligibility rules also matter. SECURE 2.0 changed access for long-term, part-time employees. Beginning with the 2025 plan year, certain employees with at least 500 hours of service in two consecutive years may need to be allowed to make elective deferrals to a 401(k) plan.
Safe Harbor 401(k): Reduce Testing Complexity
A Safe Harbor 401(k) can simplify certain compliance testing if the employer agrees to make required contributions and satisfy plan notice rules.
This structure may appeal to business owners who want to contribute more to their own accounts while reducing the risk that nondiscrimination testing limits highly compensated employees.
When a Safe Harbor 401(k) May Fit
A Safe Harbor 401(k) may work well for:
Businesses with owners or highly compensated employees who want to maximize contributions
Companies that have lower employee participation
Employers willing to make required contributions
Businesses that want 401(k) flexibility with reduced testing concerns
Defined Benefit Plan: Higher Contributions for the Right Business
A defined benefit plan is different from a 401(k). Instead of focusing on annual contributions, it promises a future retirement benefit based on plan formulas.
For certain high-income business owners, especially those closer to retirement, a defined benefit plan may allow much larger annual contributions than a SEP IRA, SIMPLE IRA, or 401(k).
When a Defined Benefit Plan May Fit
A defined benefit plan may work well for:
High-income business owners
Professional practices
Owners who started saving later
Businesses with strong, predictable cash flow
Older owners seeking larger deductible contributions
Companies with few employees or favorable employee demographics
Defined Benefit Plan Considerations
Defined benefit plans are typically more complex and expensive to establish and maintain. They require actuarial calculations, annual administration, and ongoing funding commitments.
They can be powerful, but they are not casual plans. Business owners should review cash flow stability carefully before adopting one.
Compare Common Small Business Retirement Plans
| Plan Type | Funded By | Best Fit | Key Advantage | Key Consideration |
|---|---|---|---|---|
| SEP IRA | Employer only | Solo owners or small firms with few employees | Simple and flexible | Contributions for eligible employees can be costly |
| SIMPLE IRA | Employee and employer | Small employers wanting easier administration | Lower-cost employee deferral plan | Lower limits and required employer contributions |
| 401(k) | Primarily employee, optional employer | Growing businesses | Higher limits and flexible design | More administration and compliance |
| Safe Harbor 401(k) | Employee and required employer | Owners who want to maximize contributions | Reduces certain testing issues | Required employer contributions |
| Defined Benefit Plan | Employer | High-income owners with stable cash flow | Potentially much higher contributions | Higher cost and complexity |
Retirement Plan Design Should Match the Business
The best retirement plan is not always the one with the highest contribution limit. The right plan should fit the business owner’s goals and the company’s reality.
A plan should account for:
Profitability
Payroll structure
Employee demographics
Turnover
Owner age
Owner compensation
Tax planning goals
Administrative capacity
Retirement timeline
Hiring and retention needs
A business with high turnover may need a different plan than a professional practice with long-term employees. A solo consultant may need a different plan than a company preparing to hire staff.
Coordinate the Plan With Your Personal Financial Strategy
A business retirement plan can affect both business finances and personal wealth planning.
It may influence:
Current-year taxes
Retirement savings
Cash flow
Employee benefits
Business valuation
Succession planning
Estate planning
Investment management
Owner compensation strategy
At True North Wealth Management, we help business owners evaluate retirement plans as part of a larger strategy. We coordinate with tax professionals, payroll providers, plan administrators, and legal advisors when appropriate.
Choose a Plan With Intention
Choosing a retirement plan is one of the most important benefit decisions a business owner can make. The right plan can help you save for the future, support employees, manage taxes, and strengthen the business.
If you are starting a retirement plan, reviewing an existing plan, or wondering whether your current plan still fits, schedule a conversation with True North Wealth Management.
A thoughtful review can help you compare options, understand tradeoffs, and choose a retirement plan that supports both your business and your future.
Important Disclosures:
This material is for informational purposes only and is not intended as tax, legal, accounting, ERISA, plan design, or individualized investment advice. Retirement plan rules, contribution limits, eligibility requirements, tax treatment, and administrative obligations may change. Business owners should consult qualified tax, legal, payroll, third-party administration, and financial professionals before establishing, amending, or terminating a retirement plan.
1. Like a Traditional IRA, withdrawals from a SEP-IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
7. Congress.gov, 2026
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite and customized by True North Wealth Management LLC to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.