What's the Best Retirement Plan for a Business With Fewer Than 10 Employees?

Retirement

The best plan for a small business depends on whether you have employees and how much you want to save. An owner-only business usually lands on a solo 401(k). A business with a handful of employees usually lands on a safe harbor 401(k), often paired with profit sharing or a cash balance plan if the owner wants to save aggressively.

What are the main options for a small business?

There are five plans worth knowing, and they range from dead simple to powerful but complex. Picking among them comes down to two questions: do you have employees, and how much do you want to put away each year.

Plan	Best for	2026 contribution ceiling	Complexity
SEP-IRA	Owner-only or very few employees	Up to 25% of comp, max $72K	Low
SIMPLE IRA	Small teams wanting easy payroll deferral	$17K employee, plus employer match	Low
Solo 401(k)	Owner with no full-time employees	$72K, or $80K if 50+	Medium
Safe harbor 401(k)	Businesses with employees	$72K total per person, or $80K if 50+	Medium
Cash balance plan	High-income owners over 40	$150K to $300K+ by age, on top of a 401(k)	High

What is the simplest plan to start with?

The SEP-IRA is the simplest, and it is a fine starting point for an owner-only business. You can open one quickly, contribute up to 25% of compensation to a 2026 max of $72K, and the paperwork is minimal. The catch is that contributions are employer-only, so if you have employees you generally have to fund the same percentage for them as you do for yourself, which gets expensive fast as you add staff.

For a solo operator with no employees who wants something easy, a SEP does the job. For almost anyone with a team or a desire to maximize, a 401(k) structure gives you more control.

What is the best plan for an owner with no employees?

For a one-person business, the solo 401(k) usually beats everything else. It lets you wear two hats: you defer up to $24,500 in 2026 as the employee, then add an employer profit sharing contribution on top, up to a combined $72K, or $80K if you are 50 or older. A spouse on payroll can do the same, effectively doubling the household total.

That two-bucket structure is why a solo 401(k) lets you reach the same ceiling as a SEP at a lower income level. A SEP needs high compensation to hit $72K because it is purely a percentage of pay. A solo 401(k) gets you there faster because the employee deferral is a flat dollar amount on top of the percentage.

The moment you have even one full-time employee beyond a spouse, the solo 401(k) is off the table and you move into safe harbor territory.

What is the best plan once I have employees?

For a business with employees, a safe harbor 401(k) is usually the right answer. A standard 401(k) has to pass annual nondiscrimination tests that compare how much owners and highly paid staff contribute against everyone else. In a small business those tests often fail, which forces the owner to scale back contributions.

A safe harbor plan sidesteps the tests entirely in exchange for a required employer contribution to staff, typically either a match of around 4% or a flat 3% of pay to everyone. You give a defined benefit to your team and in return you get to max out your own contributions with certainty. For most owners with a handful of employees, that trade is well worth it.

What about adding profit sharing?

Profit sharing layers on top of a safe harbor 401(k) and lets you push toward the full $72K. It is discretionary, so you decide each year whether and how much to contribute, and the formula can be designed to direct more of the dollars toward owners and key people while still passing the rules. It is the standard way a small business owner gets from the $24,500 deferral up to the full ceiling.

When does it make sense to add a cash balance plan?

A cash balance plan makes sense when the owner is over 40, has high income, and wants to save well beyond $72K. Stacked on top of a safe harbor 401(k), it can move total pre-tax contributions to $200K, $300K, or more depending on age. The contribution is set by an actuary and rises as you get older.

This is the heavy machinery of small business retirement. It requires consistent profit, comes with a multi-year commitment, and has to provide a benefit to employees. But for the right owner it is the largest legal deduction on the menu by a wide margin.

How do I choose?

Match the plan to your situation rather than chasing the biggest number. A quick way to think about it:

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