A 2025-2026 Guide to 401(k)s, Solo 401(k)s, SEP IRAs, and SIMPLE IRAs

Updated March 2026 with current IRS contribution limits

As a small business owner, you wear every hat. You are the strategist, the operator, and often the HR department. Choosing a retirement plan for your business is one of the highest-leverage financial decisions you will make, both for your employees and for yourself. Done right, it reduces your tax burden today, builds wealth for the future, and signals to your team that you are invested in their long-term wellbeing.

The options can feel overwhelming. This guide cuts through the complexity and tells you exactly what each plan is, who it is best for, and what you can contribute in 2025 and 2026, with updated IRS figures so you are working with current numbers.

Why Offering a Retirement Plan Makes Business Sense

The case for a small business retirement plan is not just altruistic. It is financial.

According to the Society for Human Resource Management (SHRM), replacing an employee costs a business six to nine months of that person's salary in recruiting and training expenses alone. A retirement benefit reduces turnover by giving employees a meaningful reason to stay.

Beyond retention, the tax incentives are substantial. Under the SECURE 2.0 Act of 2022, eligible small employers can claim a tax credit of up to $5,000 per year for three years to offset the costs of starting a new retirement plan. Add an auto-enrollment feature and you can claim an additional $500 per year for the same three-year period. That is up to $16,500 in federal tax credits simply for setting up a plan.

Employer matching contributions to employee accounts are generally deductible as an ordinary business expense, up to 25% of covered payroll. And your own contributions to the plan reduce your taxable self-employment income, potentially moving you into a lower bracket.

A Note on Colorado SecureSavings

Colorado employers with five or more employees who have been in business for more than two years are generally required to offer a retirement savings option. Colorado

SecureSavings is the state's default program, which features a Roth IRA option administered through the state.

Important limitation: employees (including business owners) with a modified adjusted gross income above $150,000 as a single filer, or $236,000 if married filing jointly, in 2025 are not eligible to participate in Colorado SecureSavings. Employer contributions are also not permitted under the state program, which means employers miss the startup tax credit opportunity.

If SecureSavings does not fit your situation, or if you want a plan that offers more flexibility and larger contribution limits, the following five options are worth considering.

The Five Main Small Business Retirement Plans

1. Traditional 401(k)

Best for: Businesses of any size that want the highest contribution flexibility and the option to offer employer matching.

A 401(k) gives both you and your employees the ability to contribute a significant portion of compensation before taxes. It is the most flexible of the employer-sponsored plans and the most familiar to employees who have worked for larger companies.

	2025	2026
Employee elective deferral	$23,500	$24,500
Catch-up (age 50-59 and 64+)	+$7,500	+$8,000
Enhanced catch-up (age 60-63, SECURE 2.0)	+$11,250	+$11,250
Total (employee + employer)	$70,000	$72,000

Employer contributions are discretionary; you decide each year whether to match and how much. Matching is fully deductible as a business expense up to 25% of covered payroll.

Employees who earned more than $145,000 in FICA wages in 2025 must make any catch-up contributions to a Roth account beginning in tax year 2026.

Setup and administration: More complex and costly than simpler plans. A third-party administrator (TPA) is typically required.

2. Solo 401(k) (One-Participant 401(k))

Best for: Self-employed individuals and business owners with no full-time employees other than a spouse.

The Solo 401(k) combines the contribution limits of a full 401(k) with simplicity. Because there are no other employees to consider, nondiscrimination testing is not required. You act as both employer and employee, which means you can contribute to the plan in both capacities.

	2025	2026
Employee elective deferral	$23,500	$24,500
Catch-up (age 50-59 and 64+)	+$7,500	+$8,000
Enhanced catch-up (age 60-63)	+$11,250	+$11,250
Employer profit-sharing (up to 25% of comp)	up to $70,000 total	up to $72,000 total

Your spouse can also participate if they earn income from the business, effectively doubling your household contribution potential. Most Solo 401(k) plans now support Roth contributions, which is a significant advantage for tax diversification.

Note: Once plan assets exceed $250,000, you must file Form 5500-EZ with the IRS annually.

3. SEP IRA (Simplified Employee Pension)

Best for: Self-employed individuals or very small businesses with consistent, high income and few or no employees.

The SEP IRA is one of the simplest plans to establish and maintain. There is no annual filing requirement, and contributions are entirely at the employer's discretion; you are not required to contribute every year.

	2025	2026
Maximum employer contribution	$70,000 (25% of comp)	$72,000 (25% of comp)
Employee elective deferrals	Not allowed	Not allowed
Roth option	Not available	Not available
Must contribute same % for all eligible employees	Yes	Yes

The requirement to contribute the same percentage to all eligible employees is the key trade-off. If you have employees earning $50,000 and you want to contribute the maximum 25% of compensation for yourself, you must also contribute 25% of each eligible employee's compensation to their accounts.

The SEP IRA does not allow employee contributions or Roth savings, which limits its usefulness for tax diversification planning.

4. SIMPLE IRA (Savings Incentive Match Plan for Employees)

Best for: Small businesses with up to 100 employees that want a straightforward plan with mandatory employer contributions.

SIMPLE IRA plans are easy to set up and have lower administrative costs than a full 401(k). The trade-off is that employers are required to make contributions every year, either a matching contribution or a nonelective contribution.

	2025	2026
Employee elective deferral	$16,500	$17,000
Catch-up (age 50-59 and 64+)	+$3,500	+$4,000
Enhanced catch-up (age 60-63)	+$5,250	+$5,250
Required employer match (option 1)	Up to 3% of employee comp	Up to 3% of employee comp
Required nonelective (option 2)	2% of every eligible employee's comp	2% of every eligible employee's comp

SIMPLE IRA contributions vest immediately, meaning employees own employer contributions from day one. This is generous for employees but limits your ability to use vesting as a retention tool. Early withdrawals within the first two years of plan participation carry a steeper 25% penalty (vs the standard 10% for most retirement plans).

5. Traditional 401(k) with Safe Harbor Provisions

Worth mentioning: A Safe Harbor 401(k) is a variation that allows business owners and highly compensated employees to contribute the maximum without worrying about nondiscrimination testing, provided required employer contributions are made. This can be an excellent choice for owners who want to maximize their own contributions while offering a competitive benefit to employees.

Side-by-Side Comparison: 2025 Key Numbers

	401(k)	Solo 401(k)	SEP IRA	SIMPLE IRA
Max employee deferral (2025)	$23,500	$23,500	N/A	$16,500
Max total (2025)	$70,000	$70,000	$70,000	~$20,000
Roth option	Yes	Yes	No	Yes
Employer contribution required	Optional	Optional	Optional (but equal for all)	Yes
Employees allowed	Any	Self + spouse only	Any	Up to 100
Admin complexity	Higher	Low-Medium	Low	Low

A Note on Roth Options Across All Plans

All five plan types can incorporate Roth savings, though the mechanics differ. With a 401(k), Solo 401(k), or SIMPLE IRA, Roth is a designated contribution option within the plan. Roth contributions are made after tax, grow tax-free, and can be withdrawn tax-free in retirement.

Roth IRA income limits (for direct contributions) are $150,000 for single filers and $236,000 for married couples filing jointly in 2025. Contributions to a Roth 401(k) or Roth Solo 401(k) have no income limits, making the Roth 401(k) an especially powerful tool for high-earning business owners.

Beginning in tax year 2026, SECURE 2.0 requires that employees who earned more than $145,000 in FICA wages in 2025 must direct any catch-up contributions to a Roth account. Plan now for this change.

How to Decide Which Plan Is Right for You

The right plan depends on your situation. Here are the questions that typically clarify the decision.

1. Do you have employees other than your spouse? If yes, SEP IRA or 401(k) are your primary options. Solo 401(k) is not available to you.

   
   

2. Do you want maximum possible contributions? Solo 401(k) or SEP IRA both allow up to $70,000 in 2025 (depending on income). However, the Solo 401(k) also allows employee deferrals, which often means you can hit the maximum at a lower income level than a SEP IRA.
   

3. How important is simplicity? SEP IRA has the lowest administrative burden. SIMPLE IRA is also relatively simple. A full 401(k) requires more setup and administration.
   

4. Do you want a Roth option? SEP IRA does not offer Roth. All others do.
   

5. Do you want to use your employer contributions as a retention tool? A 401(k) with vesting schedule allows you to structure contributions so employees fully own them only after working for you for a set number of years. Neither the SEP IRA nor the SIMPLE IRA offers this flexibility.

Getting Started

If implementing one of these plans on your own feels like too much to take on while running a business, working with a financial advisor who has small business expertise can be valuable. The right advisor can help you select the plan that fits your goals, coordinate with a TPA or plan document provider if needed, and educate your team so they actually use the benefit you have worked hard to offer.

Some advisors, like those at Life Story Financial, can help manage the entire implementation process, from plan selection to employee education, so you spend your time running your business rather than your retirement plan.

Frequently Asked Questions

Can I have more than one retirement plan for my business?

In some cases, yes. For example, a self-employed person can contribute to both a SEP IRA and a Roth IRA in the same year, subject to income limits for the Roth. However, the total contributions across all plans cannot exceed IRS limits. A financial or tax advisor can help you structure multiple plans correctly.

What if my income varies year to year? Which plan handles that best?

The SEP IRA offers the most flexibility for variable income. Contributions are discretionary, meaning you can contribute a large amount in a profitable year and nothing in a lean one. The SIMPLE IRA, by contrast, requires employer contributions every year.

Can I set up a retirement plan and make contributions after December 31?

It depends on the plan type. A SEP IRA can be established and funded up to your tax filing deadline, including extensions. A 401(k) or Solo 401(k) must generally be established by December 31 of the plan year, though employee contributions must be timely and employer profit-sharing contributions can be made by the filing deadline.

Disclosures: Contribution limits and rules referenced are based on IRS guidance current as of March 2026 (tax years 2025 and 2026). Laws and limits change annually. This article is for educational purposes and does not constitute tax, legal, or investment advice. Consult a qualified advisor for guidance specific to your situation. Life Story Financial LLC is a registered investment advisor.