Best Retirement Plan Options for Self-Employed Business Owners

by | Jun 8, 2022 | Business Planning | 0 comments

Having a financial plan for the post-retirement years is everyone’s dream. With a long-term personal financial strategy, you can live comfortably and avoid financial issues during retirement. The thing is, no one really knows what those latter years hold until you get there. Planning for those years, however, will help you deal with whatever hurdles come with them.

Unfortunately, not everyone manages to create a plan for themselves and their families. It’s a common problem, especially for those who own small and medium businesses. In most retirement plan discussions, the main subjects of discussion are the employed.

But what about you, a self-employed business owner? What options do you have? It’s important to keep in mind that the retirement options discussed below may depend on whether you have employees or not. Read on to learn more.

Solo 401(k)

Also known as Single Participant 401(k), this retirement plan, as the name suggests, is designed for those business owners running sole proprietorships with no employees. So, if you have a small business that you’re operating with your spouse, this might just be the best choice for you.

How does it work? Individual 401(k), as is sometimes called, is similar to a company 401(k) plan in terms of benefits enjoyed. In fact, you can enjoy even more advantages with Solo 401(k) because you get to choose between traditional or Roth 401(k) which means you’ll be making your contributions before or after tax respectively.

You can also contribute in both employee and employer capacities. As such, you’ll access higher limits than many other plans. Employee contributions can be made up to USD$20,500 which is the current limit. As an employer, you can also contribute an additional amount up to 25% of the company’s profit.

The total contribution limit currently stands at USD$61,000 plus USD$6,500 if you’re eligible for catch up contribution (50 years old or older). As you can see, you can save higher amounts in your retirement account than you would with a company 401(k) plan.

Who is the ideal target?

As mentioned earlier, the Solo 401(k) retirement plan is tailored for people running businesses (with or without their spouse) without employees. The fact that the contribution limit is very high makes it a great option for those earning a lot of money.

Defined benefit plan

Another retirement plan you can consider if you don’t have employees in your business is a defined benefit plan. Famously known as a pension plan, this qualified employer-sponsored retirement plan has become less popular in recent years because of the rise of plans like 401(k)s. Nevertheless, it’s still a great option to consider.

Once you sign up for this plan, an actuary will determine your monthly contributions and deduction limit based on your age and investment goal. As such, there’s no set limit, which makes it ideal for high income earners. The disadvantage, however, is that it comes with high maintenance fees, which explains why many people avoid it.

Who is the ideal target?

If your business generates a lot of profit, this might be ideal for you because the contribution limit is subject to your earnings. It’s also a great plan for self-employed business owners looking to save large amounts on a regular basis. As mentioned earlier, you can go for it if you don’t have any employees, but it also works for those with employees. In such a case, you’ll be making monthly contributions on their behalf.


Do you have a few employees in your business, and are you looking for the best retirement plan for all of you? Simplified Employee Pension (SEP) IRA offers benefits that’ll suit you as an employer and a self-employed business owner. You’re allowed to make tax-deductible contributions for yourself and your employees on a discretionary basis. (3)

It’s an attractive plan to many because of its low operating costs compared with other employer-sponsored IRAs. The contribution limit in 2022 is up to 25% of the self-employment earnings or the employee’s compensation or the lesser of USD$61,000.

The maximum amount that can be used to factor in the contribution is currently USD$305,000, up from USD290,000 in 2021. Also, keep in mind that there’s no catch-up contribution in SEP IRA plan.

Who is the ideal target?

This retirement plan is best for those who are self-employed business owners with or without employees in their enterprises. It’s important to note that if you have employees, you’ll be required to contribute an equal percentage for every eligible individual, including yourself. So, if you choose to go with 15%, that value should be universal across your business.


So far, the options discussed have focused on self-employed individuals with few or no employees. But what if you have up to 100 employees in your business? That’s where a Savings Incentive Match Plan for Employees (SIMPLE) IRA plan comes in.

This plan is tailored to serve the interests of larger businesses. It allows employers who aren’t sponsoring a retirement plan to contribute to traditional IRAs for themselves and their employees.

The Simple IRA is easy and inexpensive to set up, however, it has very low contribution limits as compared with SEP-IRA and Solo 401(k) plans. You can only contribute up to USD$14,000 (up from USD$13,500 in 2021), and it offers a USD$3,000 catch-up contribution for those who are 50 years old or older. The limit for an employer plan is USD$20,500 in 2022, which is an increment of USD$1,000 from 2021.

Who is the ideal target?

This retirement plan is ideal for large-business owners who have 100 employees. It’s, however, not the best option if you’re looking to contribute high amounts on an ongoing basis.


There you go; four of the best retirement plans for a self-employed business owner. Each of the options discussed in this article has its pros and cons. Need help selecting the best plan for you and your company? Schedule a meeting with an advisor, or visit our website for more information about our services for business owners.