Business Owners: What’s Missing from Your Retirement Contribution Strategy?
10/19/2026
Key Takeaways:
We talk with a lot of business owners who assume their retirement contribution strategy is settled. They opened a Simplified Employee Pension (SEP) individual retirement account (IRA) years ago, or a payroll provider defaulted them into a Solo 401(k), and the account has been sitting in the background ever since.
For many owners, that account was the right call at the time it was opened. It may not be the right call now. Income grows, staffing changes, and the rules themselves shift from year to year. A plan built for a business with two employees does not necessarily serve that same business ten years later, once there are eight.
The three structures business owners ask about most often are the Solo 401(k), the SEP IRA, and the cash balance plan. Each works differently, and each tends to fit a different kind of business.
For 2026, the IRS's cost-of-living adjustments set the employee deferral limit at $24,500, with an additional catch-up contribution of $8,000 available for owners aged 50 and older, or $11,250 for owners aged 60 to 63. On top of that, the business may also make an employer contribution, with combined employee and employer contributions capped at $72,000 for 2026, before any catch-up amount.
Because the employee deferral is not tied to a percentage of compensation, a Solo 401(k) may often allow owners in the early years of profitability to contribute more than a SEP IRA would permit at the same income level.
The tradeoff is that without an employee deferral component, an owner relying solely on a SEP IRA may reach a lower total contribution at the same income level than a Solo 401(k) owner would. For an owner with no other employees, that gap is often worth examining closely.
Cash balance plans require more administration, including annual actuarial calculations, and generally work best when paired with an existing 401(k) or profit-sharing plan. For an established business with steady income, the tradeoff can be worthwhile: a meaningfully larger current-year deduction, paired with an accelerated path toward retirement savings in years when a business owner may have less runway left to save.
Regardless of which of these three structures fits best, one change effective this year applies across all of them for higher-earning owners.
This matters for two reasons. First, it changes the current-year tax benefit of that catch-up contribution, since Roth contributions do not reduce taxable income today. Second, if a retirement plan does not currently allow Roth contributions, an affected owner may not be able to make a catch-up contribution at all until the plan document is updated to permit one.
Many small business retirement plans were not originally built with a Roth option in mind. Reviewing plan documents ahead of year-end, rather than finding out at contribution time, could help avoid a gap in a higher-earning owner's strategy.
This is where having a Certified Public Accountant (CPA) and financial advisor working from the same picture tends to matter. At Kaup's Tax & Wealth Management, retirement plan design is evaluated alongside tax strategy from the start, not handed off to a separate conversation after the fact.
We put together a complimentary guide for business owners that walks through how retirement contributions, entity structure, and succession planning fit together as one coordinated strategy. If retirement contribution strategy has not come up in a conversation with your current advisor recently, the guide is a good place to start.
DOWNLOAD NOW
And if it raises questions about your own situation, we're easy to reach. Call us at 402-924-3607 or reach out to our team to schedule a strategy session.
Frequently Asked Questions About Retirement Contributions for Business Owners
About the authors:
Ben Kaup, CPA, is the President of Kaup's Tax & Wealth Management in Stuart, Nebraska. An experienced financial and tax advisor as well as a licensed insurance agent, he holds degrees in Accounting, Finance, and Professional Accountancy from the University of Nebraska–Lincoln. Ben specializes in tax preparation, tax reduction strategies, and comprehensive financial planning.
Scott Kaup, CFP®, is the founder of Kaup's Tax & Wealth Management. With decades of experience helping business owners and high-net-worth families navigate taxes, retirement, and long-term financial planning, Scott specializes in building coordinated strategies designed to adapt over time.
- Many business owners default into whichever retirement plan their bank or payroll provider first set up for them, without comparing it against other options built for their specific situation
- A Solo 401(k) may allow for meaningfully higher contributions than a Simplified Employee Pension (SEP) individual retirement account (IRA) for owners without full-time employees, since it combines an employee deferral with an employer contribution
- Cash balance plans may allow contributions well beyond standard defined contribution limits, which could be worth exploring for owners in their final working years before a sale or transition
- Starting in 2026, business owners whose prior-year wages from their own business crossed a set threshold must make catch-up contributions on a Roth, after-tax basis, changing how those contributions affect this year's tax bill
- Retirement plan selection is not a decision to make once and leave alone; the right structure often shifts as income, staffing, and timeline change
We talk with a lot of business owners who assume their retirement contribution strategy is settled. They opened a Simplified Employee Pension (SEP) individual retirement account (IRA) years ago, or a payroll provider defaulted them into a Solo 401(k), and the account has been sitting in the background ever since.
For many owners, that account was the right call at the time it was opened. It may not be the right call now. Income grows, staffing changes, and the rules themselves shift from year to year. A plan built for a business with two employees does not necessarily serve that same business ten years later, once there are eight.
Why Does Retirement Contribution Strategy Deserve a Fresh Look?
Business income tends to be uneven from year to year, which makes retirement contributions a useful lever for managing lifetime tax exposure, not simply a savings habit. A plan that allows a higher contribution in a strong year could help offset some of that year's tax burden, while a plan that caps contributions too low may leave that opportunity unused.The three structures business owners ask about most often are the Solo 401(k), the SEP IRA, and the cash balance plan. Each works differently, and each tends to fit a different kind of business.
Why Might a Solo 401(k) Allow Higher Contributions for Owner-Only Businesses?
A Solo 401(k) is built for business owners with no full-time employees other than a spouse. It allows two separate types of contributions: an employee deferral, and an employer contribution.For 2026, the IRS's cost-of-living adjustments set the employee deferral limit at $24,500, with an additional catch-up contribution of $8,000 available for owners aged 50 and older, or $11,250 for owners aged 60 to 63. On top of that, the business may also make an employer contribution, with combined employee and employer contributions capped at $72,000 for 2026, before any catch-up amount.
Because the employee deferral is not tied to a percentage of compensation, a Solo 401(k) may often allow owners in the early years of profitability to contribute more than a SEP IRA would permit at the same income level.
Why Isn't a SEP IRA Always the Highest-Capacity Option?
A SEP IRA works on employer contributions only, generally up to 25 percent of compensation, capped at the same overall limit as a Solo 401(k): $72,000 for 2026. For a business with a handful of eligible employees, that employer-only structure is often simpler to administer than a 401(k), and contribution amounts can flex from year to year based on how the business performed.The tradeoff is that without an employee deferral component, an owner relying solely on a SEP IRA may reach a lower total contribution at the same income level than a Solo 401(k) owner would. For an owner with no other employees, that gap is often worth examining closely.
Why Might a Cash Balance Plan Allow Significantly Higher Contributions?
For owners further along in their careers, often within ten to fifteen years of a transition, a cash balance plan may allow contributions well beyond the limits available through a Solo 401(k) or SEP IRA alone. These plans function more like a traditional pension, with contribution amounts determined by age, income, and years until retirement rather than a flat percentage.Cash balance plans require more administration, including annual actuarial calculations, and generally work best when paired with an existing 401(k) or profit-sharing plan. For an established business with steady income, the tradeoff can be worthwhile: a meaningfully larger current-year deduction, paired with an accelerated path toward retirement savings in years when a business owner may have less runway left to save.
Regardless of which of these three structures fits best, one change effective this year applies across all of them for higher-earning owners.
What Changed for Catch-Up Contributions in 2026?
Beginning in 2026, a provision under the SECURE 2.0 Act takes effect that changes how certain catch-up contributions are treated. Business owners whose prior-year wages from their own business exceeded $150,000 must now make any catch-up contribution as a Roth, after-tax contribution, rather than a pretax one.This matters for two reasons. First, it changes the current-year tax benefit of that catch-up contribution, since Roth contributions do not reduce taxable income today. Second, if a retirement plan does not currently allow Roth contributions, an affected owner may not be able to make a catch-up contribution at all until the plan document is updated to permit one.
Many small business retirement plans were not originally built with a Roth option in mind. Reviewing plan documents ahead of year-end, rather than finding out at contribution time, could help avoid a gap in a higher-earning owner's strategy.
Why Is Retirement Contribution Strategy a Tax Planning Decision Too?
Choosing between a Solo 401(k), a SEP IRA, and a cash balance plan is not purely a retirement savings question. It is also a tax planning decision, and the two should be evaluated together rather than in separate conversations, alongside a broader retirement income strategy like The Bucket Plan®. A plan that looks appealing in isolation may create less value once it is weighed against entity structure, income timing, and the owner's broader financial plan.This is where having a Certified Public Accountant (CPA) and financial advisor working from the same picture tends to matter. At Kaup's Tax & Wealth Management, retirement plan design is evaluated alongside tax strategy from the start, not handed off to a separate conversation after the fact.
We put together a complimentary guide for business owners that walks through how retirement contributions, entity structure, and succession planning fit together as one coordinated strategy. If retirement contribution strategy has not come up in a conversation with your current advisor recently, the guide is a good place to start.
DOWNLOAD NOW
And if it raises questions about your own situation, we're easy to reach. Call us at 402-924-3607 or reach out to our team to schedule a strategy session.
Frequently Asked Questions About Retirement Contributions for Business Owners
What is the difference between a Solo 401(k) and a SEP IRA?
A Solo 401(k) is built for a business owner with no full-time employees other than a spouse, and allows both an employee deferral and an employer contribution. A SEP IRA relies on employer contributions only, generally up to 25 percent of compensation. Depending on income level, a Solo 401(k) may allow for a higher total contribution than a SEP IRA, while a SEP IRA could be simpler to set up and maintain for a business with a handful of eligible employees.How much can a business owner contribute to a cash balance plan?
Contribution limits for a cash balance plan depend on the owner's age, compensation, and years remaining until retirement, since the plan is designed around a target benefit rather than a flat dollar cap. For an owner closer to retirement, contributions could significantly exceed the limits available through a Solo 401(k) or SEP IRA alone, though the exact amount requires an actuarial calculation specific to that business and owner.What changed with catch-up contributions in 2026?
Starting in 2026, a provision under the SECURE 2.0 Act requires business owners and employees whose prior-year wages from a given employer exceeded $150,000 to make any catch-up contribution as a Roth, after-tax contribution. This may reduce the near-term tax benefit of that contribution, and if a retirement plan does not currently allow Roth contributions, an affected owner might not be able to make a catch-up contribution until the plan is updated.When should a business owner consider a cash balance plan instead of a Solo 401(k) or SEP IRA?
Cash balance plans tend to fit established businesses with steady income, often owners within ten to fifteen years of a transition who want to accelerate retirement savings and reduce current taxable income. Because these plans require ongoing actuarial administration, they generally make the most sense once a Solo 401(k) or SEP IRA no longer allows enough contribution capacity to meet an owner's goals, and could be paired with an existing plan rather than replacing it outright.About the authors:
Ben Kaup, CPA, is the President of Kaup's Tax & Wealth Management in Stuart, Nebraska. An experienced financial and tax advisor as well as a licensed insurance agent, he holds degrees in Accounting, Finance, and Professional Accountancy from the University of Nebraska–Lincoln. Ben specializes in tax preparation, tax reduction strategies, and comprehensive financial planning.
Scott Kaup, CFP®, is the founder of Kaup's Tax & Wealth Management. With decades of experience helping business owners and high-net-worth families navigate taxes, retirement, and long-term financial planning, Scott specializes in building coordinated strategies designed to adapt over time.