The ABCs of Retirement Plans for Business Owners: Choosing the Right Fit for You

As a business owner, your financial future depends not only on how well your business performs today, but also on the decisions you make to prepare for tomorrow. One of the most effective ways to build long-term wealth and reduce your tax burden is by setting up the right retirement plan – for both yourself and your employees.

But with so many options available, knowing where to start can feel confusing. From 401(k)s to SIMPLE IRAs, SEP IRAs, and even lesser-known strategies like Cash Balance Pension Plans, each comes with its own rules, benefits, and trade-offs.

Whether you’re a solo entrepreneur or have a growing team, this guide will help you understand the ABCs of retirement plan options to help you make a confident, informed choice.

Why Retirement Plans Matter for Business Owners

Retirement plans do more than help you save for the future. They can:

• Reduce your current taxable income
• Help you attract and retain top talent
• Create structure for long-term wealth-building

And in many cases, the right plan allows you to put away significantly more money for retirement than the average individual can through traditional savings methods.

Let’s break down the most common types of retirement plans available to business owners.

401(k) Plans: Flexible and Familiar

What It Is

A 401(k) is one of the most well-known retirement plan options. It allows employees and employers to contribute a portion of income on a pre-tax (or Roth, if offered) basis.

Pros

• High contribution limits ($23,500 for employee deferrals in 2025, plus $7,500 catch-up for those 50+)
• Employer match or profit-sharing options
• Can be tailored with features like Roth contributions, loans, and vesting schedules

Cons

• More complex to administer than other options
• Annual testing requirements (unless it’s a Safe Harbor plan)
• Higher administrative costs

Best For

• Businesses with multiple employees looking for flexibility and strong savings potential
• Owners who want to save aggressively for retirement and offer a competitive employee benefit

SIMPLE IRA: Easy to Set Up, with Modest Limits

What It Is

SIMPLE (Savings Incentive Match Plan for Employees) IRAs are designed for small businesses with 100 or fewer employees. They’re easy to establish and maintain but have lower contribution limits.

Pros

• Simple to set up and administer
• No annual filing requirements for the employer
• Employers must contribute (either a match or fixed percentage), but the rules are straightforward

Cons

• Lower contribution limits than a 401(k): $16,500 in 2025, with a $3,500 catch-up
• Mandatory employer contributions
• No Roth option

Best For

• Small businesses looking for a low-maintenance plan
• Employers who want to offer retirement benefits without the cost and complexity of a 401(k)

SEP IRA: Ideal for Solo or Small Businesses

What It Is

A Simplified Employee Pension (SEP) IRA allows employers to make tax-deductible contributions to employee retirement accounts, including their own.

Pros

• Very easy to set up and administer
• High contribution limits: up to 25% of compensation or $70,000 in 2025 (whichever is less)
• Only employers contribute (no employee deferrals)

Cons

• No employee contributions allowed
• Contributions must be made equally for all eligible employees
• No Roth option

Best For

• Self-employed individuals or business owners with few (or no) employees
• Businesses looking for a simple plan with generous employer contributions

Cash Balance Pension Plan: Maximize Savings with Defined Benefits

What It Is

A Cash Balance Pension Plan is a type of defined benefit plan that acts more like a traditional pension. It allows much higher contribution limits than a 401(k) or SEP IRA, especially for business owners over age 50.

Pros

• Allows for very high tax-deferred contributions (often $100,000+ annually depending on age and income)
• Creates predictable, structured retirement benefits
• Can be paired with a 401(k) for even greater savings potential

Cons

• Requires actuarial calculations and annual IRS filings
• Mandatory employer contributions each year
• More expensive to maintain than other plans

Best For

• High-income earners looking to catch up on retirement savings quickly
• Established business owners who can commit to consistent, large contributions

How to Choose the Right Plan

Choosing a retirement plan isn’t just about looking at contribution limits or tax benefits in isolation. It’s about aligning the plan with your goals, cash flow, business structure, and employee needs.

Here are a few questions to help guide your decision:

• Do you have employees? If so, how many, and do you want to offer them retirement benefits?
• How much do you want to save? Plans like the SEP IRA or Cash Balance Plan allow much higher contributions than a SIMPLE IRA.
• How consistent is your business income? Cash Balance Plans require steady annual contributions. If your income fluctuates, you may want a more flexible option.
• Do you value simplicity or customization? SIMPLE and SEP IRAs are easier to manage. 401(k)s and Cash Balance Plans offer more features but require more effort.

Putting It All Together: A Strategic Approach

Many business owners start with a SIMPLE or SEP IRA when their business is smaller or newer. As revenue and staff grow, they transition into a 401(k) plan or explore adding a Cash Balance Plan to supercharge their retirement savings.

These plans aren’t one-size-fits-all. The right strategy depends on where you are today and where you want to go.

Final Thoughts: Your Retirement Plan Is a Business Decision

Your retirement plan should work as hard as you do. It should reduce your tax burden today, support your financial independence tomorrow, and align with the goals you have for your business and your life.

Working with a financial advisor who understands both the technical side of retirement plans and the personal side of your goals can help you create a plan that fits just right.

At Tenet Wealth Partners, we help business owners evaluate, implement, and manage retirement plans tailored to their unique circumstances. Whether you’re just getting started or looking to upgrade your plan, we’re here to guide you every step of the way.