It depends on how many people you employ and how close you are to retirement. A SEP-IRA or a basic 401(k) is simple and works well for a very small business. With a larger staff, a 401(k) combined with profit sharing and a cash balance plan can let an owner put away far more each year, often at a lower cost per dollar than a SEP.
A retirement plan is the one place the tax code lets an owner move business profit to the personal balance sheet before paying tax on it. Contributions are deductible, grow without current tax, and are taxed when they come out in retirement. An employee takes the plan as offered. The owner gets to design it.
The plan that fits the workforce is rarely the plan that fits the owner.
How much can a business owner put in a 401(k)?
The 401(k) is the base layer. As an employee of your own business you can defer part of your salary up to the yearly IRS limit. Total contributions to the account, including employer money, are capped at $72,000 in 2026. Whether your plan allows Roth contributions, employer matching, profit sharing, after-tax contributions or in-plan Roth conversions is a design choice you make as the owner.
What is a cash balance plan?
A cash balance plan sits on top of the 401(k) and profit sharing. It is a defined benefit plan: an actuary sets a target retirement benefit and calculates the yearly contribution needed to reach it. Contributions are deductible in the year they are made. Older owners can contribute more because fewer years remain to reach the target. For an owner with high income and a short time to retirement, the contribution can exceed $200,000 a year. Once installed, the contributions are required, not optional.
SEP-IRA, profit sharing or cash balance: what’s the difference?
| Profit sharing | Cash balance | Full stack (401(k) + profit sharing + cash balance) | |
|---|---|---|---|
| Maximum for the owner (2026) | 25% of W-2 pay, up to $72,000 combined | Set by the actuary | $200,000 to $350,000+ combined |
| Cost for employees | Minimum set by testing | Minimum benefit for all eligible employees | Safe harbor plus minimum cash balance benefit |
| Roth option | Employer contribution only | No | Yes, on the 401(k) layers |
| Contributions | Optional each year | Required once installed | Mixed |
| Best for | Owners who want more than the salary deferral | Older owners with high, steady income | Owners who want to put away the most |
Dollar figures reflect 2026 limits. The IRS adjusts them each year.
For an S-corp or C-corp owner, the contribution limit is based on W-2 salary only. For a single-member LLC or partnership, it is based on net business income.
Why can a SEP-IRA cost more than it seems?
A SEP requires the same contribution percentage for every eligible employee. If the owner contributes 24% of pay, every employee gets 24% too.
An illustration from Financial Fortress for Business Owners: Dominique. Dominique owns a firm with twenty employees, $1.8 million of profit before contributions, a $300,000 salary and $900,000 of staff payroll. The firm has used a SEP-IRA since it had three employees.
| SEP-IRA | Full stack | |
|---|---|---|
| 401(k) deferral and safe harbor | — | $24,500 deferral; 3% safe harbor for staff |
| Profit sharing | — | $46,500 to the owner; 5% for staff |
| Cash balance | — | $301,000 to the owner; required minimum for staff |
| Owner contribution | $72,000 | $372,000 |
| Cost of contributions for staff | $216,000 | $95,000 |
| Staff cost per $1 the owner puts away | $3.00 | $0.26 |
Illustrative composite from the book, not a client. 2026 limits. Actual contributions depend on plan testing, employee ages and pay, and the actuary’s calculations.
The SEP costs three dollars in staff contributions for every dollar in Dominique’s account. The full stack costs twenty-six cents. It works because the IRS measures fairness by projected retirement benefits, not by today’s contribution percentages, and younger employees’ contributions have more years to grow.
What does it take to run a bigger plan?
Plans like this come with rules that exist because the tax break is meant to serve the whole workforce, not only the owner:
- Non-discrimination testing requires guaranteed contributions for employees who are not owners.
- Vesting schedules let the business recover employer contributions when an employee leaves early.
- Controlled group rules can pull a second business into the testing when you or your family own more than one.
An outside plan administrator and an actuary handle the testing and filings, and they charge fees for it.
Which retirement plan fits how many people I employ?
- Just you, or you and your spouse: a solo 401(k) usually lets you put away the most, because you contribute both as the employee and as the employer, up to the same $72,000 combined limit, plus catch-ups. A SEP-IRA is simpler but has no employee deferral and no catch-up.
- A few employees: a SEP-IRA or a SIMPLE IRA is cheap to run. The SEP gives every eligible employee the same percentage you give yourself. The SIMPLE has lower limits and requires an employer match or contribution for everyone, and it cannot sit beside another plan.
- A growing staff and high owner income: a 401(k) with profit sharing, and a cash balance plan on top, as in Dominique’s example above.
Can business owners over 50 put in more?
Yes. From 50, catch-up contributions can be added to a 401(k) or SIMPLE IRA above the normal deferral limit, with a larger catch-up from 60 to 63. From 2026, owners whose wages pass the IRS threshold must make catch-up contributions as Roth. A cash balance plan rewards age more than any other plan, because the actuary has fewer years to fund the target benefit.
What does a business retirement plan cost to set up and run?
A SEP or SIMPLE IRA costs little and needs no yearly government filing. A solo 401(k) needs a short Form 5500-EZ once it holds more than $250,000. A 401(k) with employees, profit sharing or a cash balance plan needs an outside administrator and, for the cash balance plan, an actuary, each with yearly fees. Small employers may qualify for a federal tax credit that offsets most start-up costs in the first three years.
Frequently asked questions
What is the best retirement plan for a self-employed person with no employees?
Usually a solo 401(k), because it allows both an employee deferral and an employer contribution, plus catch-ups after 50. A SEP-IRA is simpler if you contribute less.
Is a SEP-IRA or a SIMPLE IRA better for a small business?
A SEP suits owners who want flexible yearly contributions and have few employees. A SIMPLE has lower limits and requires a contribution for every eligible employee each year.
Can I have a cash balance plan and a 401(k)?
Yes. The cash balance plan is designed to sit on top of a 401(k) and profit sharing plan, and that combination allows the largest contributions.
Questions to ask your advisor
- Am I capped at the standard 401(k), and what would profit sharing or a cash balance plan add over twenty years?
- Is my current plan still right for the number of people I employ today?
- Has anyone checked all of my businesses together for controlled group rules?
More for business owners: How do I maximize the value of my business? · What happens to my business if my partner dies?
Related questions
Want to see what a different plan design would put away for you?
Schedule a conversation or read Chapter 1 of Financial Fortress for Business Owners.
This page is general education, not tax, legal or investment advice for your situation. Plan design should be reviewed with your CPA, plan administrator and actuary. Triathlon Partners LLC is a registered investment adviser in Connecticut and New York. Registration does not imply a certain level of skill or training.