Retirement Planning Strategies For Small Business Owners and Freelancers (2025 edition)

In this day and age, many individuals operate their own business in one shape or another. Whether you are a freelancer or you run a small business with numerous employees, planning for your retirement should not be overlooked. Fortunately, there are a number of retirement account options available to the world of small business owners, regardless of the size of your business. In this article, we'll explore the different types of retirement accounts available and help you determine which option may be right for you.

Traditional IRA and Roth IRA

An IRA (Individual Retirement Account) is a retirement account that allows individuals (business owners or non-business owners) to save for their retirement. This type of account is not associated with a business. There are some similarities and differences between a Traditional IRA and Roth IRA.

For both the Traditional IRA and Roth IRA, you have the ability in 2025 to contribute up to $7,000 or $8,000 if you are age 50 or older.

For the Traditional IRA, the contributions are tax-deductible, and the earnings grow tax-deferred until you withdraw the money in retirement as income.

For the Roth IRA, the contributions are not tax-deductible, but the earnings grow tax-free, and qualified withdrawals are tax-free in retirement.

An IRA is an easy to establish plan that allows individuals to save for their retirement. Compared to some of the other options that will follow, the IRA offers lower contribution amounts.

SEP-IRA

A SEP-IRA (Simplified Employee Pension Plan) is a retirement account that is set up for your business. This type of plan is easy to establish and administer which makes it a very popular option for small business owners. With a SEP-IRA you can have employees on your plan but, we find that in most cases the self-employed sole proprietors without employees gravitate to this type of account.

With a SEP IRA, the employer contributes to the retirement account on behalf of each employee. The contribution limits for a SEP IRA are much higher than a Traditional IRA. This gives business owners the ability to save a significant amount of money for retirement. The contribution limit for 2025 is the lesser of 25% (20% in some cases for the self-employed) of the employee’s compensation or $70,000.

If your business has employees, you are required to contribute the same percentage of an employee’s compensation as you contribute for yourself as the business owner.

The SEP-IRA is one of the most popular retirement plans to establish for someone that is self-employed. It is easy to set up and it allows you to save up to $70,000 per year for your future.

Solo 401(k)

As the name suggests, this type of retirement account is specifically designed for small business owners who have no employees other than their spouse.

With a Solo 401(k), you have the ability to make both employer and employee contributions. This allows you to stash away a significant amount of money for retirement. The employee contribution limit for 2025 is $23,500 with a catch up contribution of $7500. In addition, for 2025, the employer can then contribute between 20-25% of your net income up to a total maximum contribution of $70,000 plus an additional $7,500 if you are 50 and older (a total of $77,750). If you are between the ages of 60 and 63, instead of an additional $7,500, the catch up contribution is $11,250 (a total of $81,250). The percentage of income the business can contribute depends upon how the business is structured. This contribution limit is per participant so, if your spouse also earns money from the business, they can contribute as well.

Compared to the SEP IRA, you may be able to save more money and a higher percentage of your income in certain scenarios.

With the Solo 401(k), you also have the ability to set up a ROTH option which allows you to pay income tax now on your contribution but your withdrawals in the future can be tax free.

The Solo 401(k) gives you the option to have a loan provision for your account. This will allow you to borrow up to 50% of your account up to a maximum of $50,000.

The Solo 401(k) is a more complicated but more robust retirement plan compared to a SEP IRA. If you have employees or plan on hiring someone in the near future, you may want to consider a different retirement plan option.

Simple IRA

A Simple IRA is a type of retirement plan that is easy to set up and administer and is designed for small businesses with fewer than 100 employees.

With a Simple IRA, the employees are able to defer some of their salary and make their own contributions to the plan. The employer is required to make a matching contribution of either a flat 2% of the employee's salary or a matching contribution of up to 3% of the employee’s contribution. The contribution limit for 2025 for a SIMPLE IRA is $16,500 or $20,000 if you are age 50 or older. If you are between the ages of 60 and 63, your contribution limit is $21,750.

Small business owners usually gravitate to this plan if they have a business with employees and they are looking for a plan that is easy to establish and administer.

Traditional 401(k) and Safe Harbor 401(k)

The 401(k) is the type of retirement plan that most people have heard of. It can also be a little more complex than the previously discussed options. If your small business has employees, a 401(k) is an option that you need to consider.

Traditional 401(k)

401(k) plans can be set up in a variety of ways. For 2025, the Traditional 401(k) offers a contribution limit of $23,500 or $31,000 if you are age 50 and older. Between the ages of 60 and 63, your contribution limit is $34,750. The employer can offer a matching contribution along with a vesting schedule for the match if they wish to do so. Traditional 401(k) plans are subject to non-discrimination tests which do turn away some small business owners. These non-discrimination tests can affect highly compensated employees (HCE) and limit the amount of money they can contribute.

Safe Harbor 401(k)

Another option is the Safe Harbor 401(k). The contribution limit is the same as Traditional 401(k); for 2025 the limit is $23,500 or $31,000 if you are age 50 and older. Between the ages of 60 and 63, your contribution limit is $34,750. With a Safe Harbor 401(k), the employer match is immediately vested. One of the biggest appeals to a business owner about a safe harbor 401(k) is that they are not subject to non-discrimination tests. The Safe Harbor 401(k) must offer some type of employer contribution to the account, whether it is a match or a non-elective contribution.

The Best Retirement Plan For Your Small Business

When choosing the best retirement account for your small business, it's important to consider your unique needs and circumstances. Deciding whether you want a plan that is easy to establish and administer or a plan that is more robust is an important decision to make. Other factors that are equally important are the number of employees employed by your business, the amount of money you are looking to contribute and lastly, your retirement goals.

Before establishing or making a contribution to any of these previously mentioned accounts, we highly recommend that you speak with your tax professional and a financial advisor.

Our firm has helped countless small businesses, like yours, set up a retirement plan. If you are interested in learning more about setting up a plan for your small business, please click the button below to schedule a no obligation consultation or complete the contact form at the bottom of this page.

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For educational purposes only. Not to be relied upon as financial, tax, or legal advice. 

This information was obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness, or fairness. We have relied upon and assumed without independent verification the accuracy of all information available from public sources.