As a small business owner, it’s easy to get caught up in the day-to-day operations of running your business. But it’s important to remember that you also need to plan for your future, specifically your retirement. 

Unlike traditional employees who may have access to 401(k) plans and pension plans, small business owners often have to create their own retirement plans. In this article, we’ll explore some retirement planning options available to small business owners, including SEP IRAs, SIMPLE IRAs, and solo 401(k)s.

How to Prepare for Retirement

Preparing for retirement as a business owner requires careful planning and consideration. It’s important to start saving for retirement as early as possible and to take advantage of retirement plans that offer tax benefits and higher contribution limits, such as SEP IRAs, SIMPLE IRAs, and solo 401(k)s. 

Additionally, it’s important to regularly review your retirement savings plan and adjust it as necessary to ensure you’re on track to meet your retirement goals. Seeking guidance from a financial advisor or tax professional can also be helpful in navigating the complex world of retirement planning as a business owner. By taking proactive steps to prepare for retirement, you can enjoy a secure financial future and the freedom to enjoy your retirement years to the fullest.


A Simplified Employee Pension (SEP) IRA is a type of retirement plan that allows small business owners to contribute to their own retirement savings as well as the retirement savings of their employees. Contributions are made on a tax-deferred basis, meaning you don’t pay taxes on the contributions until you withdraw the funds in retirement.

Charter Captial shares that the contribution limits for SEP IRAs are generous. In 2023, you can contribute up to 25% of your net self-employment income or $61,000, whichever is less. For example, if your net self-employment income is $100,000, you can contribute up to $25,000 to your SEP IRA.

One of the benefits of a SEP IRA is that it’s easy to set up and administer. You don’t need to file an annual report with the IRS, and there are no annual contribution requirements. Plus, contributions are 100% tax-deductible for the business owner.


A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another retirement plan option for small business owners. As the name suggests, it’s designed to be simple and easy to set up and maintain. It’s similar to a traditional IRA in that contributions are made on a pre-tax basis, and taxes are paid on withdrawals in retirement.

With a SIMPLE IRA, the business owner is required to make either a matching contribution of up to 3% of the employee’s salary or a non-elective contribution of 2% of the employee’s salary. In 2023, the maximum contribution limit for a SIMPLE IRA is $14,000, or $16,000 if you’re age 50 or older.

One thing to keep in mind with a SIMPLE IRA is that it’s not as flexible as a SEP IRA or solo 401(k). For example, you can’t borrow from a SIMPLE IRA, and there are penalties for early withdrawals before age 59 ½. Additionally, you’ll need to file Form 5500 with the IRS each year, which can be a bit more paperwork to manage.

Solo 401(k)s

A solo 401(k) is a retirement plan designed for small business owners with no employees (other than a spouse). It offers some of the highest contribution limits of any retirement plan, making it an attractive option for business owners who want to maximize their retirement savings.

With a solo 401(k), you can contribute up to $19,500 in salary deferrals in 2023, plus an additional $6,500 in catch-up contributions if you’re age 50 or older. On top of that, you can contribute up to 25% of your net self-employment income as an employer contribution, up to a total contribution limit of $61,000.

One of the benefits of a solo 401(k) is that you can borrow from your account if you need to, up to either $50,000 or 50% of your account balance, whichever is less. This can be a helpful feature if you need access to funds in an emergency, says Abrams Insurance.

There are some administrative requirements to setting up a solo 401(k), including filing Form 5500 if your plan assets exceed $250,000, but it’s generally not too burdensome.

Which retirement plan is right for you?

Deciding which retirement plan is right for you will depend on a number of factors, including your business structure, your income, and your retirement savings goals. If you have employees and want to offer them a retirement plan, a SEP IRA or SIMPLE IRA may be the best option. On the other hand, if you’re a sole proprietor with no employees, a solo 401(k) may be the most advantageous choice.

It’s important to note that you don’t have to choose just one retirement plan. You can have multiple plans if it makes sense for your situation. For example, if you have employees and also want to maximize your own retirement savings, you could set up a SEP IRA or SIMPLE IRA for your employees and a solo 401(k) for yourself.

Regardless of which retirement plan you choose, it’s important to start saving for retirement as early as possible. The power of compounding interest means that even small contributions can add up over time. Plus, the sooner you start saving, the more time your money has to grow.

In conclusion, as a small business owner, it’s essential to plan for your retirement. While it may seem overwhelming at first, there are several retirement plan options available to you, including SEP IRAs, SIMPLE IRAs, and solo 401(k)s. Consider your business structure, income, and retirement savings goals when choosing a plan, and don’t hesitate to seek advice from a financial advisor or tax professional. Remember, the earlier you start saving, the more secure your retirement will be.

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