Picking the Right Retirement Plan for Your Small Business: 2025 Edition

Running a small business means wearing a lot of hats: CEO, HR, janitor, IT “expert,” and sometimes therapist for your employees when the coffee runs out. With all that, figuring out a retirement plan might not be at the top of your list. But here’s the reality: the right retirement plan not only helps you save for your future but also makes your business more attractive to employees (and keeps the IRS happy).

So, let’s break down the common retirement plan options available to small business owners in 2025. Spoiler: there’s no one-size-fits-all. But by the end of this, you’ll have a clearer idea of which hat you want to wear — at least when it comes to retirement savings.

Solo 401(k): The One-Person Powerhouse

If you’re self-employed with no employees other than a spouse, the Solo 401(k) is your best friend. Think of it as a turbo-charged retirement account just for you.

• Who’s eligible? Self-employed individuals and their spouse.

• Contributions: You can contribute up to $23,500 (plus an extra $7,500 if you’re 50 or older). On top of that, the business can make contributions, with a total cap of $70,000 ($77,500 with catch-up).

• Perks: 100% vesting, Roth option available, loans permitted, and no annual testing headaches.

• Catch: Once your plan balance tops $250,000, you’ll need to file Form 5500 each year.

  
  

This is the plan for people who like control and big tax-advantaged contributions. If your “employees” are just you and your dog, this is a great fit.

Safe Harbor 401(k): The Employee-Friendly Choice

Got employees? A Safe Harbor 401(k) is designed to keep both them and Uncle Sam off your back.

• Who’s eligible? Any employer.

• Contributions: Employees can defer $23,500 ($7,500 catch-up for 50+). Employers must either give a flat 3% of pay or match up to 4% of pay.

• Total cap: $70,000 ($77,500 with catch-up).

• Perks: No annual testing (huge time saver), Roth option available, loans allowed, and contributions are 100% vested right away (at least the safe harbor ones).

• Catch: You’re on the hook for those required employer contributions.

  
  

This plan is ideal if you want a solid benefit to offer employees without the compliance headaches of regular 401(k) testing. It’s like paying a little up front to avoid a lot of paperwork later.

Traditional 401(k) Profit Sharing: The Flexible Big League Plan

A 401(k) with profit sharing is the “choose your own adventure” of retirement plans. It allows both employee deferrals and employer discretionary contributions.

• Who’s eligible? Any employer.

• Contributions: Employees can defer $23,500 ($7,500 catch-up), while employers can add more at their discretion.

• Total cap: $70,000 ($77,500 with catch-up).

• Perks: Allows for creative contribution designs, like rewarding top performers or spreading profit among everyone. Roth option, loans, and flexibility built in.

• Catch: Annual testing is required, and employer contributions can be subject to a vesting schedule.

  
  

This is the plan if you want flexibility and don’t mind the extra paperwork. The “have your cake and eat it too” option, if you like cake that comes with IRS forms.

SIMPLE IRA: Small but Mighty

Don’t let the name fool you, the SIMPLE IRA is… well, relatively simple.

• Who’s eligible? Employers with 100 or fewer employees and no other retirement plan.

• Contributions: Employees can defer $16,500 (plus $3,500 catch-up). Employers must either give a 2% non-elective contribution or match 3%.

• Perks: Easy to set up and run. No Form 5500. Roth option available in 2025.

• Catch: Lower contribution limits than 401(k)s, and a nasty 25% penalty if employees withdraw in the first two years.

  
  

SEP IRA: Keep It Simple (But Generous)

A SEP IRA is a solid option for employers who want minimal setup and flexibility.

• Who’s eligible? Any employer, including those with household employees.

• Contributions: Employees cannot defer, but the employer can contribute up to 25% of compensation, capped at $70,000.

• Perks: No Form 5500, immediate vesting, easy to establish.

• Catch: Employers must contribute the same percentage for all eligible employees — so if you give yourself 25%, you’re giving everyone 25%.

  
  

This plan works best for solo operators or businesses where the owner is willing to be very generous.

Putting It All Together

So which plan should you pick? That depends:

• Solo entrepreneur with no staff: Solo 401(k) or SEP IRA.

• Small business with employees, wants to keep compliance easy: Safe Harbor 401(k) or SIMPLE IRA.

• Want maximum flexibility and don’t mind admin work: Profit Sharing 401(k).

  
  

And remember, these plans aren’t just about retirement. They’re also about reducing taxes today, retaining great employees, and setting your business up for long-term stability.

Think of it this way: you’re either putting money toward your future self (who will hopefully be on a beach somewhere), or you’re paying it to the IRS. It’s your call.

Final Thought

Choosing a retirement plan can feel like choosing between health insurance plans or cell phone carriers, confusing acronyms, different rules, and hidden catches. But the good news is that once you commit, you’re not only investing in your employees, but you’re also investing in yourself. And that’s one that every small business owner should be proud to wear. So, take your time, consider your options, and make a decision that aligns with your business's long-term goals.

WHWM is here to guide you in identifying your priorities, developing a plan, and making adjustments along the way. By choosing WHWM, you're partnering with our Founder and President, Stephen Bodwell. As a CPA and CFP® professional, Stephen is committed to helping you achieve your financial goals and aspirations. Don't hesitate to take the next step toward realizing your dreams. Schedule your complimentary, no-obligation 30-minute consultation with Stephen. 

Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and is subject to change.