Owner resources

Business Retirement Plans for Owners: SEP vs SIMPLE vs Solo 401(k) vs Cash Balance

Owners comparing a SEP, a SIMPLE, a solo 401(k), and a cash balance plan are really asking how much the business can set aside for them, what it will cost for the team, and who will run the paperwork. This page lays out which plan fits which payroll and how the 2026 limits cap the owner’s contribution.

Educational only. Not personalized investment, tax, legal, or ERISA advice. Vital Investment Management, LLC is a fee-only fiduciary and SEC-registered RIA (CRD #300811). Led by Dillon Goodman, CPA, CFP®, for Northern Colorado business owners. Vital does not prepare tax returns, draft plan documents, or act as a plan’s third-party administrator or actuary.

The short version: payroll size narrows the menu

Most owners are choosing among four plan families: a SEP IRA, a SIMPLE IRA, a 401(k) (solo, or safe-harbor once you have a team), and a cash balance plan, which is a type of defined benefit plan usually added on top of a 401(k). Headcount, how steady profits are, and how much the company can commit for staff every year do more to decide the right fit than any product name.

Dollar figures are 2026 limits from the IRS COLA table and IRS Notice 2025-67. The IRS adjusts most limits every year. Plan documents, employer formulas, and compensation definitions can cap your amount below these maximums.

2026 contribution limits owners ask about most

Source: IRS COLA table and IRS Notice 2025-67 (2026 cost-of-living adjustments, IR-2025-111). Checked October 7, 2026. We will update this table when the IRS publishes 2027 figures.

Solo 401(k): one owner, two hats

A solo 401(k) usually works for a business with no eligible employees other than the owner and, in many cases, a spouse. You can contribute as the “employee” (deferrals, traditional or Roth if the plan document allows it) and as the “employer” (profit sharing). For sole proprietors and partners, the employer piece is figured from net self-employment earnings, not W-2 wages, so the math needs to match how your CPA prepares the return. Once you hire employees who become eligible, the solo design usually stops working. Plan the switch before the first hire, not after.

SEP IRA: simple, but the percentage applies to everyone

A SEP IRA is funded only by the employer. That keeps administration light, and contributions can be decided after year-end, up to the tax filing deadline including extensions. The tradeoff shows up when you have staff: the contribution percentage you choose for yourself generally has to go to every eligible employee too. A SEP that is efficient for a solo consultant can get expensive for a ten-person firm.

SIMPLE IRA: easy to run, with lower owner ceilings

A SIMPLE IRA is for employers with 100 or fewer employees who earned $5,000 or more in the prior year. Employees make deferrals, and the company must make either a matching contribution (generally up to 3% of pay) or a 2% nonelective contribution for all eligible employees. It costs little to run. The catch is that the owner’s deferral ceiling is well below a 401(k)’s, and an employer that keeps a SIMPLE IRA generally cannot keep another plan for the same year. Owners who outgrow it usually move to a safe-harbor 401(k). Switching has timing and employee-notice rules, and recent law changes added some mid-year flexibility, so plan the move with your plan administrator.

Cash balance plan: when a 401(k) is not enough

A cash balance plan is a defined benefit plan that looks like an account. Each participant has a hypothetical balance that grows with a “pay credit” (often a percentage of pay or a flat dollar amount) and an “interest credit” set in the plan document. The employer funds the plan, and an enrolled actuary certifies the required contribution every year.

Owners usually look at cash balance plans once they are already filling a 401(k) and profit-sharing plan and still have steady profits they want to set aside. Because the allowed contribution depends on age and the defined benefit limit, the amount can be well above the $72,000 defined contribution limit for an older owner. That is a design possibility, not a promise. The actual figure comes from the actuary’s calculation for your census and plan formula.

• It is a funding commitment. Minimum required contributions are not optional in a lean year. Plan amendments to change pay credits take time and professional help.
• Staff are part of the design. Cash balance plans are usually paired with a safe-harbor 401(k) and tested together. Employee contributions are a real cost to model.
• More professionals involved. Expect an actuary, a third-party administrator, annual Form 5500 filings, and, for some plans, PBGC premiums.
• Investment policy matters. The plan promises a crediting rate. Plan assets that earn far more or far less than that rate create funding swings the company will have to absorb or manage.

How owner contributions are capped

Every plan has two kinds of ceiling: the IRS dollar limit for the year and the plan’s own formula. Your actual maximum also depends on what counts as compensation (W-2 wages for an S-corporation owner, net self-employment earnings for a sole proprietor or partner), the $360,000 compensation cap for 2026, and nondiscrimination testing when you have employees. If you own more than one business, related employers can be treated as one employer, which can affect both coverage and limits. Your CPA and plan administrator should confirm these facts before you commit to a number.

Coordinating with your CPA and plan administrator

The plan touches three professionals at once. The CPA sees how owner compensation, entity type, deduction timing, and estimated taxes interact. The plan administrator (TPA) and actuary design the document, run testing, and certify funding. The investment advisor looks at how the plan fits with personal savings, business cash needs, and the rest of the household balance sheet. Dillon Goodman is a CPA and CFP®, so the first conversation can cover both the tax and the planning questions. Vital does not draft plan documents, run testing, or prepare returns. We coordinate with the professionals who do.

1. Count employees who are or will become eligible in the next two years.
2. Write down how much the company can commit for staff contributions every year, including in a slower year.
3. Decide whether you need employee deferrals, Roth options, or room above a 401(k) (the cash balance question).
4. Get a census-based illustration from a plan administrator. For cash balance, get one from an actuary.
5. Review the illustration with your CPA before plan adoption and contribution deadlines.

Related reading

• Owner retirement plans: solo 401(k) vs SEP vs safe-harbor 401(k)
• Tax-coordinated investing with your CPA
• What fee-only investment management costs
• Wealth outside the company
• Financial planning for owners

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