Retirement Options for Self-Employed Business Owners
Retirement planning as a business owner requires a strategic approach to growing and preserving your wealth. Unlike traditional employees who benefit from company-sponsored plans, you are responsible for selecting and managing a retirement plan that aligns with your long-term financial goals. Self-employed individuals have two primary retirement plans: the Self-Employed 401(k) and the Simplified Employee Pension (SEP) IRA.
Self-Employed 401(k)
A self-employed 401(k), also known as a Solo 401(k), is a retirement option for business owners without employees other than a spouse.
Much like a traditional 401(k), the Solo 401(k) allows for both tax-deferred employee and employer contributions. Employees can save up to $24,500 annually, with those over 50 able to save an extra $8,000 in catch-up savings each year. If you are age 60-63, the allowable catch-up contribution is $11,250.
As an employer, you can contribute up to 25% of your net profits to your Solo 401(k), up to the IRS limit. For 2026, the total combined contribution limit for individual and employer contributions under age 50 is $72,000. For those age 50-59 (and 64+) the limit is $80,000, which includes the catch-up contribution. For individuals age 60-63, the total contribution limit is $83,500. This combination can add up to substantial savings and growth year over year by the time you reach retirement.
Married couples have a significant opportunity to save even more with the spouse’s ability to also participate in the plan. The employer you— can also contribute up to 25% of your spouse’s compensation to their Solo 401(k) account, provided the spouse is working for the business.
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For example, John and Jane are both 52 years old and work together in their own business. Each earns $100,000 annually. Here’s how they could maximize their Solo 401(k) contributions:
- Employee contribution: $24,500 each
- Employee catch-up contribution: $8,000 each
- Employer contribution: 25% of $100,000 = $25,000 each
Total contribution per person: $24,500 + $8,000 + $25,000 = $57,500
Total contribution for the couple: $57,500 x 2 = $115,000
Thus, John and Jane could collectively contribute $115,000 to their Solo 401(k) plans based on 2026 contribution limits.
Affluent earners may choose to make Roth contributions into their Solo 401(k). This allows you to pay taxes up front and enjoy tax-free withdrawals later, which can be a strategic move if you expect to remain in a high tax bracket in retirement.
Solo 401(k) contributions can also be eligible for certain tax breaks depending on the business structure. Talk to your Altair client service team for more information.
Simplified Employee Pension IRA (or SEP IRA)
If you have only a few employees, the Simplified Employee pension IRA (or SEP IRA) is a retirement plan geared toward self-employed and small-business owners.
This plan is funded entirely by employer contributions and allows for significant tax advantages. As the employer, you can contribute up to 25% of your income to your SEP IRA or the IRS limit of $72,000, whichever is less.
The flexibility the SEP IRA provides a number of advantages. You can adjust your contributions based on your business performance, making it an ideal option for businesses with fluctuating income. You can also scale back or skip contributions without penalty, which could be beneficial if unpredictable cash flows create a squeeze.
While it doesn’t allow for Roth contributions or employee deferrals, the SEP IRA earnings are tax-deferred and contributions are tax-deductible. This allows you to effectively reduce your overall taxable income while providing a simple and effective way to balance current
financial priorities with future retirement goals.
Key Considerations for Solo 401(k) and SEP IRAs
Account setup: A Solo 401(k) requires a plan document, filing with the IRS annually and contribution tracking. A SEP IRA is much simpler, only requiring opening a SEP IRA account at a financial institution.
Maximizing contributions: If you are seeking the highest possible retirement contribution, the Solo 401(k) maybe be a better option, especially if your income allows for maximizing both the employee and employer limits.
Roth opportunities: Only the Solo 401(k) offers Roth contributions. The tax-free growth and withdrawals can be valuable for individuals expecting to remain in a higher tax bracket in retirement.
Income stability: The SEP IRA’s flexibility to skip contributions based on business performance makes this advantageous for business owners with fluctuating income and cash flow.
Scalability: When choosing between a Solo 401(k) and a SEP IRA, it’s important to consider scalability as your business grows. A SEP IRA requires proportional contributions for all eligible employees, which can become costly as you hire. Meanwhile, a Solo 401(k) is only available to business owners with no employees other than a spouse, so hiring additional staff would require transitioning to a different retirement plan.
When it comes to retirement planning for self-employed individuals, both the Solo 401(k) and SEP IRA offer compelling advantages. The best choice ultimately depends on your business structure, income and financial goals. As an Altair client, your client service team can help you create a strategy that not only protects your wealth but also supports your lifestyle well into your retirement.
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