As a small business owner, you have several options to choose from when picking a retirement plan. In this article, we’ll describe some of the key attributes of some of the more popular employer-sponsored retirement plans small businesses use.

Solo 401(k)

The Solo 401(k) plan, also known as the Self Employed 401(k), or the One-Participant 401(k) is exactly as the name suggests: a retirement plan for businesses with one employee. 

This is ideal for self-employed individuals and can be utilized even if the individual has another qualified retirement plan available to them through W-2 employment. To be eligible, a person must currently generate self-employment income. One advantage to a Solo 401(k) is that an individual can make contributions as both an employee and an employer. This amounts to a base of up to $70,000 in 2025 before factoring in potential catch-up contributions.

2025 limits 

The limits on a Solo 401(k) are similar to those of a Traditional 401(k). Keep in mind that these are indexed to inflation, so the IRS can update these each year.

Employee contribution limit 

The lesser of $23,500 or 100% of self-employment income.

Aggregate contribution limit (employee + employer) 

$70,000, however, employer contribution cannot exceed 25% of earned income.

Catch-up limit

Individuals who are 50 or older can contribute an extra $7,500

60-63 catch-up limit

This new catch-up was added under the SECURE Act 2.0 and increases the standard catch-up for those between ages 60 and 63. The limit is 150% of the standard catch-up or $10,000, whichever is greater. So for 2025, the 60-63 catch-up is $11,250. Note that it increases the catch-up limit, rather than allowing a second catch-up In other words, a 60-year-old is eligible for a $11,250 total catch-up contribution, not two catch-ups of $11,250 and $7,500. 

Be aware that these limits apply across all 401(K), Solo 401(k), and 403(b) accounts.  

Another unique feature of Solo 401(K) is the owner’s spouse can also contribute if the business entity is structured properly. While having employees would typically disqualify a business owner from a Solo 401(k), employing a spouse is an exception to this rule.

SEP IRA

Simplified Employee Pension (SEP) IRA is available to employers of any size. One unique aspect is only employers make contributions.

The limit per employee is 25% of their salary or $70,000 whichever is less. For self-employed individuals earning $280,000 or more, this effectively makes the limit the same as a Solo 401(k). Self-employed individuals earning less than $280,000 as generally better suited with a Solo 401(k) since they can make more contributions.  Furthermore, SEP IRAs do not have catch-up contributions.

Why use a SEP IRA then? In some cases, the setup and filing requirements can be more straightforward relative to a Solo 401(k).

SIMPLE Plan

The Savings Incentive Match Plan for Employees (SIMPLE) is a qualified retirement plan for small businesses with 100 employees or less. These can be designated as either a 401(k) or IRA, but the limits are the same:

2025 Limits

Employee contribution

$16,500

Catch-up 

$3,500 catch-up

However, under the SECURE Act 2.0, these limits are increased if the company has 25 or fewer employees. For these companies, the employee contribution is increased to $17,600 and the catch-up is increased to $3,850.

Employers are also required to make a 3% match, or 2% non-elective match. In other words, to comply with the ERISA requirements, they must match an employee's contributions, up to 3% of their salary, or must contribute 2% of every employee's salary regardless of how much the employee contributes.

Traditional 401(k)

While the overhead and operating costs of a 401(k) are more expensive than the previously aforementioned options, a Traditional 401(k) (or a Roth 401(k)) is the only option that allows more than 100 employees, and the full $23,500 employee contribution. 

Summary

Not sure which plan is right for your business? Schedule a complimentary consultation and we can help guide you.