What does retirement look like for small business owners?

When growing and building a business, it is natural to focus on the many important priorities demanding your attention in the near term.  As a business owner, there’s value in considering retirement funds outside of the value of your business, and those savings may provide near-term benefits through tax deductions.  Thoughtfully coordinating the value built into your business with savings options outside your business can begin with a simple conversation, and the following insights lay the foundation to prepare you to discuss further.   

How can I save for retirement as a business owner? 

Retirement Plan Options

SEP IRA

A SEP-IRA is a plan that a sole-proprietor or partner can establish for themselves and their employees.  Only an employer (or self-employed person) can make contributions, employees may not contribute.  The contribution is tax-deductible for the business and growth within the SEP IRA account is tax-deferred until withdrawal after age 59 ½, as with Traditional IRA’s.  Contribution limits are high, up to the lower of 25% of an employee’s compensation or $72,000 for 2026, enabling strong savings (and business tax deductions) during high-earning years.  Although employers must contribute the same percentage for all eligible employees, SEP IRA contributions are generally discretionary from year to year, allowing a business owner to adjust contributions based on business profitability.  Contribution limits are subject to annual IRS adjustments, and additional catch-up contributions may be available depending on age and plan type.

SIMPLE IRA

A SIMPLE IRA is an employee benefit plan for businesses with employees (but no more than 100 employees), allowing an employer to match employee contributions up to 3% of compensation.  Unlike a SEP IRA, a SIMPLE IRA allows employees to make their own salary-deferral contributions. Employers generally must either match employee contributions or make a contribution for eligible employees, making the plan relatively straightforward to administer but less flexible for an owner who wants to vary contributions substantially from year to year.  Contribution limits are higher than those of Traditional IRAs, allowing employee contributions of up to $17,000 in 2026.  Contribution limits are subject to annual IRS adjustments, and additional catch-up contributions may be available depending on age and plan type.

401K

Similar to a SIMPLE plan, a 401k is a plan designed through an employer and must be made consistently available to all eligible employees.  401k plans require the default eligibility to be employees 21 years old with at least 1 year of service, though employers may offer plans to those younger at their discretion.  The 401k program comes with more administrative, tax reporting and compliance requirements than a SIMPLE plan (which has virtually no reporting requirements) but the contribution limits are higher, allowing in 2026 up to $24,500 of employee contributions per tax year and optional employer contributions that can be structured very flexibly.  The additional administrative requirements on 401k plans often come with higher administrative fees on the plan, which would need to be evaluated and considered and may not be a fit for every small business situation.   Contribution limits are subject to annual IRS adjustments, and additional catch-up contributions may be available depending on age and plan type.

The “best” plan isn’t necessarily the one with the highest contribution limit. The right choice depends on your business size, profitability, employee population, desired contribution level, and willingness to take on administrative responsibilities.

How can I get value out of my business for retirement? 

Business Exit Strategy Preparations

After pouring life and energy into your business, it can be challenging to think seriously about preparations for transitioning away from your business.  Beyond thinking through potential buyers or succession options, estimating the value of the business is important to planning what you may need in retirement.  With a reasonable estimate of the value of the business, planning considerations with appropriate tax and legal professionals also involve how to structure the sale in a way to match your goals, considering how the transaction can be structured to align with your goals and tax circumstances, including considering the choices between up-front versus multi-year buyout alternatives.  This plan can and should be done in conjunction with your own retirement income planning, so that you have a sense for what amount of income you need in retirement, how that income will be generated and what equity from your business beyond your income needs can be considered for savings, wealth-building or gifting, depending on your goals. 

Balancing the opportunities for retirement savings now with consideration of how to structure the harvest from your business when you are ready to retire will entail a plan unique to you and your business, but it can be guided by counsel and experience.  If you’re thinking about small business retirement or transition, the next right step can be as simple as beginning a conversation.  If you’re a small business owner beginning to think about retirement or eventually transitioning out of your business, we’d be glad to start with a conversation.