Choosing the right retirement plan structure can mean the difference between saving $7,000 annually in a Roth IRA and sheltering $80,000+ in a Solo 401(k) or SEP IRA. For high-income business owners, the choice has major long-term consequences — and many owners default to whichever plan their advisor suggests first without understanding that the alternatives might suit them much better.
This cheat sheet compares the five most relevant retirement plans for self-employed business owners side by side, with the situations each fits best. Use it to identify which plan is right for you, then see the detailed guides in Category 3 for implementation specifics.
Plan 1: Solo 401(k)
Who it fits: Self-employed with no employees (other than spouse). Wants maximum contribution and flexibility.
Contribution limits (2024): - Employee deferral: $23,000 ($30,500 if age 50+) - Employer contribution: Up to 25% of compensation - Combined total: $69,000 ($76,500 if age 50+)
Key features: - Traditional and Roth contributions possible - Loans allowed (up to $50K or 50% of balance) - Generally low administration cost if balance under $250K (above that, Form 5500 required) - Supports catch-up contributions at 50+
Advantages: - Highest contribution limits for most self-employed - Flexibility to contribute as employee or employer - Roth option for tax-free growth - Loans available if needed
Disadvantages: - Not available with non-spouse employees - Requires more setup than SEP - Annual reporting above certain thresholds - Spouse restrictions if added to the plan
Best for: Solo consultants, independent professionals, single-member businesses with spouse as only other employee. Also good for businesses planning to hire but not yet at scale.
See 3.1 for detailed Solo 401(k) setup guide.
Plan 2: SEP IRA (Simplified Employee Pension)
Who it fits: Self-employed or small business. Values simplicity. Has employees and willing to contribute for all eligible.
Contribution limits (2024): - Employer contribution only: Up to 25% of compensation - Maximum: $69,000 - No employee deferral component
Key features: - Employer contributes only (no employee deferrals) - Must contribute same percentage for all eligible employees - Very simple setup and administration - No annual filings required - Traditional (pre-tax) contributions only — no Roth option
Advantages: - Simplest self-employed retirement plan - Minimal administration - Can adjust contribution annually based on business performance - Good for variable-income businesses - No annual reporting
Disadvantages: - Lower contribution limit than Solo 401(k) for typical owner (no employee deferral) - No loans available - No Roth option - Must contribute same percentage for employees if any qualify
Best for: Self-employed with variable income seeking simplicity. Small businesses with 0-2 employees willing to make employer contributions for all. Owners who want to decide contribution amount each year based on performance.
See 3.2 for detailed SEP IRA guide.
Plan 3: SIMPLE IRA (Savings Incentive Match Plan for Employees)
Who it fits: Small businesses with employees. Want some retirement benefit for employees. Budget-conscious.
Contribution limits (2024): - Employee contribution: $16,000 ($19,500 if age 50+) - Employer contribution: Match up to 3% of comp OR 2% contribution to all eligible - Combined maximum under SECURE 2.0 enhancements: varies
Key features: - Employees can contribute - Employer must match 3% of employee deferral OR contribute 2% for all eligible - Lower administrative cost than 401(k) - Simpler reporting - Two-year withdrawal penalty (25% if withdrawn within 2 years of first contribution)
Advantages: - Lower contribution requirements than traditional 401(k) - Less complex than 401(k) - Employee contributions possible (unlike SEP) - Good middle ground for small businesses
Disadvantages: - Lower contribution limits than Solo 401(k) for owners - Mandatory employer contributions - Restrictive withdrawal rules (25% penalty in first 2 years) - Must have fewer than 100 employees to qualify
Best for: Small businesses with employees where you want to offer retirement benefits but can't commit to the complexity of a 401(k). Works well for businesses with 5-25 employees.
See 3.5 for detailed SIMPLE IRA guide.
Plan 4: Defined Benefit (DB) Plan
Who it fits: High-income self-employed or small business. 50+ years old. Has stable income. Wants massive current tax deduction.
Contribution limits: - Based on actuarial calculation to fund specific retirement benefit - Can be $100K-$300K+ annually depending on age, income, retirement target - Maximum benefit at retirement: $275,000/year (2024 limit)
Key features: - Contributions calculated by actuary each year - Mandatory annual contribution once plan established - Significant administrative complexity - Must contribute for eligible employees - Annual Form 5500 filing required
Advantages: - Highest possible contribution for high-earning older owners - Maximum current tax deduction - Can combine with 401(k) for even larger contributions - Accelerates retirement savings for owners starting late
Disadvantages: - Highest administrative cost ($3,000-$7,000+ annually for actuary/administrator) - Mandatory contributions each year (can't skip in low years) - Requires consistent income to support - Employee obligations significant if staff exists
Best for: High-income owners (typically $250K+), age 45+, with stable business income and few or no employees. The plan that lets a 55-year-old consultant making $400K shelter $200,000+ annually.
See 3.4 for detailed DB plan guide.
Plan 5: Keogh Plan
Who it fits: Historically common for self-employed, but largely superseded by Solo 401(k) and SEP IRA. Mostly of historical interest.
Contribution limits: - Similar to profit-sharing plans: up to 25% of compensation - Maximum: $69,000
Key features: - Historical designation for self-employed retirement plans - Now essentially replaced by Solo 401(k) and SEP IRA structures - Some older plans still exist under Keogh designation - Generally no advantage over modern alternatives
Advantages: - Existing Keogh plans can continue - For specific historical situations, may be grandfathered
Disadvantages: - No advantages over Solo 401(k) or SEP IRA for new plans - May have higher administrative costs than modern alternatives - Generally not worth establishing new Keogh plans
Best for: Owners with existing Keogh plans. For new plans, use Solo 401(k) or SEP IRA instead.
See 3.3 for more detail on Keogh plans.
The Decision Matrix
| Factor | Solo 401(k) | SEP IRA | SIMPLE IRA | DB Plan | |--------|-------------|---------|------------|---------| | Max annual contribution | $69,000+ | $69,000 | $19,500 | $100K-$300K+ | | Employee contributions? | Yes | No | Yes | No | | Roth option? | Yes | No | No (Roth SIMPLE coming) | No | | Employee coverage required? | No (solo only) | Yes (if any eligible) | Yes (if any eligible) | Yes (if any eligible) | | Annual filing required? | If assets > $250K | No | No | Yes | | Admin cost (annual) | $0-$500 | $0-$100 | $200-$800 | $3,000-$7,000+ | | Loans available? | Yes | No | No | No | | Flexibility in contribution | High | High | Low | Low (mandatory) | | Best for age | Any | Any | Any | 45+ preferred |
Quick Decision Guide
Choose Solo 401(k) if: - You're self-employed with no non-spouse employees - You want maximum contribution flexibility - You want Roth option - You might want loan access
Choose SEP IRA if: - You want simplest possible setup - Your income varies significantly year to year - You're okay with traditional-only (no Roth) - You have few or no employees
Choose SIMPLE IRA if: - You have 5-25 employees - You want employees to contribute - You want lower employer costs than 401(k) - You're okay with lower contribution limits
Choose DB Plan if: - You're 45+ (ideally 50+) and high-income ($250K+) - You started retirement saving late and need to catch up fast - You have stable income to support mandatory contributions - You can justify $3K-$7K annual administrative cost
Don't choose Keogh: - Not needed for new plans; use alternatives above
Combining Plans
Some plans can be combined for higher total contributions:
Solo 401(k) + DB Plan: For very high-earning older owners, combining these can support $150K-$400K+ annual contributions. Requires careful coordination but provides maximum shelter.
Solo 401(k) + Traditional/Roth IRA: IRA contributions can supplement Solo 401(k). Traditional IRA deduction phases out with Solo 401(k), but Roth IRA (or backdoor Roth) still works.
SEP IRA + Traditional/Roth IRA: Similar — IRA contributions possible alongside SEP, with deduction phase-out rules.
SIMPLE IRA + IRA: SIMPLE IRA limits coordinate with IRA contribution rules.
For combined plans, work with a qualified CPA or financial advisor to optimize within legal limits.
Common Mistakes to Avoid
Choosing based on convenience, not fit. The plan your broker suggested may not be optimal for your situation.
Not reassessing annually. Your situation changes. Your plan should evolve. Review at least annually.
Underutilizing contribution capacity. Many owners could contribute more than they do. Most common in SEP and Solo 401(k) where maximum wasn't captured.
Not starting early enough. Best plan poorly funded beats best plan fully funded starting late. Start now with whatever fits, optimize later.
Ignoring employees. If you hire, your plan may require changes. Plan for employee additions in advance.
Missing SECURE 2.0 updates. Multiple retirement plan enhancements from SECURE 2.0 affect these plans. Work with current advisor aware of latest changes.
The Path Forward
- Identify your current situation. Solo vs. employees? Age? Income stability?
- Review the decision matrix. Which plan fits best?
- Consult qualified advisor. CPA or fee-only financial planner for confirmation
- Establish the plan. Usually 1-2 months from decision to operational
- Fund to maximum affordable. Not necessarily legal maximum — your affordable maximum
- Review annually. Situation changes; plan choice may change
- Coordinate with other planning. Estate, tax, business succession all interact
The right plan, funded consistently, produces substantially different retirement outcomes than a default plan poorly utilized. Invest the time once to choose correctly, then invest the dollars consistently over time.
For detailed guidance on each plan, see the detailed guides in Category 3.