Retirement Plans for Small Business Owners: 2026 Guide

When people compare retirement plans for small business owners, the conversation almost always comes down to three options: the SEP IRA, the SIMPLE IRA, and the solo 401(k). All three let an S-corp turn part of its profit into a deductible contribution to the owner’s retirement account. But the contribution limits, eligibility rules, and deadlines are different for each — and the numbers change every year. The figures below are the 2026 limits from IRS Notice 2025-67, along with the SECURE 2.0 Act changes that now shape how each plan works.

SEP IRA: The Simple, Employer-Funded Option

Who can use it. Any business, of any size, can adopt a Simplified Employee Pension. For an S-corp owner, the corporation makes the contributions — employees (including you, as an owner-employee) contribute nothing themselves. Under the IRS SEP rules, you must cover any employee who is at least 21, has worked for you in 3 of the last 5 years, and receives at least the minimum compensation threshold ($800 for 2026, per Notice 2025-67).

How much goes in. For 2026, SEP contributions are capped at the lesser of 25% of the employee’s compensation or $72,000. For an S-corp owner, “compensation” means your W-2 wages from the corporation — not the company’s total profit — which is one more reason your reasonable salary decision matters. There is no age-50 catch-up contribution in a SEP; catch-ups only exist for salary-deferral plans, and elective deferrals are not permitted in a SEP.

Flexibility. Contributions are discretionary — the corporation does not have to contribute every year, which is valuable when cash flow swings. All contributions are immediately 100% vested. And the deadline is generous: a SEP can be set up and funded as late as the due date of the business return for that year, including extensions. Since SECURE 2.0, an employer may also choose (but is not required) to let SEP contributions be designated as Roth.

SIMPLE IRA: Employee Deferrals With a Required Employer Contribution

Who can use it. A SIMPLE IRA plan is available to businesses with 100 or fewer employees that maintain no other retirement plan. You must include any employee who earned at least $5,000 in compensation in any 2 prior years and is expected to earn at least $5,000 this year. Unlike a SEP, a SIMPLE plan can only be started for a year if it is effective between January 1 and October 1 — you cannot adopt one retroactively at tax time.

How much goes in. Employees can defer up to $17,000 for 2026 — and thanks to a SECURE 2.0 increase, that limit rises to $18,100 for 2026 if the employer has 25 or fewer employees (employers with 26–100 employees can elect the higher limit by making an enhanced 4% match or 3% nonelective contribution). The age-50 catch-up is $4,000 for 2026, and employees who turn 60 through 63 during the year get a larger catch-up of $5,250 instead. On top of deferrals, the employer must contribute every year: either a dollar-for-dollar match of up to 3% of pay, or a 2% nonelective contribution for every eligible employee on compensation up to $360,000 (2026).

The trade-offs. A SIMPLE plan generally will not let a profitable S-corp owner save as much as a SEP or solo 401(k), the employer contribution is mandatory rather than discretionary, and money in a SIMPLE IRA can only be rolled tax-free into a non-SIMPLE IRA after 2 years of participation. All contributions are immediately 100% vested.

Solo 401(k): The Biggest Limits for Owner-Only Businesses

Who can use it. A one-participant 401(k) covers a business owner with no employees — or the owner and their spouse. Any entity type, including an S-corp, can sponsor one. Once you hire non-spouse employees who become eligible, it stops being a “solo” plan and full 401(k) rules apply.

How much goes in. You contribute in two capacities. As the employee, you can defer up to $24,500 for 2026, pre-tax or Roth. As the employer, the S-corp can add up to 25% of your W-2 compensation. Combined employer and employee contributions are capped at $72,000 for 2026 — not counting catch-ups. The age-50 catch-up is $8,000 for 2026, and owners who turn 60 through 63 during the year can instead contribute an $11,250 catch-up under SECURE 2.0. That stacking of deferral plus employer contribution is why the solo 401(k) usually beats a SEP at the same salary level.

Extras the IRA-based plans can’t offer. A 401(k) plan document may permit participant loans; SEP and SIMPLE IRAs cannot, because a loan from an IRA-based plan is a prohibited transaction. A solo 401(k) also supports designated Roth accounts, letting you choose between a deduction now (traditional) or tax-free qualified distributions later (Roth). The price of these features is more paperwork — including a Form 5500-EZ filing once plan assets pass $250,000.

New for 2026: High Earners’ Catch-Ups Must Be Roth

Starting in 2026, a SECURE 2.0 rule takes effect that directly hits successful S-corp owners: if your prior-year FICA wages from the business exceeded $150,000 (the 2026 threshold, per the IRS catch-up rules and Notice 2025-67), any catch-up contributions to your 401(k) must be designated Roth contributions — after-tax money, with no current deduction. If your plan doesn’t offer a Roth option, affected participants can’t make catch-ups at all, so owner-only plans should confirm their documents are updated. Our companion piece on S-corp 401(k) SECURE 2.0 compliance walks through what to check.

Tax Credits That Help Cover Setup Costs

SECURE 2.0 also made retirement plans for small business owners cheaper to start. An employer with 50 or fewer employees can claim a startup costs credit equal to 100% of eligible plan setup and administration costs, up to $5,000 per year for 3 years (employers with 51–100 employees get 50%). To qualify, the plan must cover at least one non-highly-compensated employee — so a true owner-only solo 401(k) generally won’t qualify. A separate credit of $500 per year for 3 years is available for adding an eligible automatic enrollment feature.

Choosing Among Retirement Plans for Small Business Owners

The short version. If you’re an owner-only S-corp and want to shelter the most income, the solo 401(k) usually wins because the $24,500 deferral stacks on the 25%-of-wages employer contribution up to a combined $72,000 (2026), plus catch-ups. If you value maximum simplicity and a deadline that can wait until your extended return is filed, the SEP is hard to beat. If you have a small team and want employees saving their own money with a modest required employer cost, the SIMPLE fits — set up by October 1.

Being an S-corp owner comes with immense responsibility and a wide range of job roles — choosing among retirement plans for small business owners is just one of them, alongside payroll, bookkeeping, and tax planning. The right answer depends on your W-2 salary, your headcount, and your cash flow. Give us a call if you’re ready to let us take care of the books — including setting up a tax-efficient retirement plan — so you can take care of business.