Retirement Wealth

Business Owner Retirement Planning: Build Wealth Faster

Maximize Tax-Deferred Savings

Business owners can contribute $200K-$300K+ annually to retirement plans - far exceeding employee limits. Learn how to maximize tax-deferred savings and build retirement wealth faster.

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$69K

Solo 401(k) Max Contribution (2024)

$200K-$300K+

Possible Annual Contributions with Stacked Plans

37%

Top Federal Tax Rate Avoided

$2M-$5M+

Potential 20-Year Accumulation

Quick Answer

Solo 401(k) allows $69K+ annually - far exceeding employee 401(k) limits of $23K
Adding a defined benefit plan can push total contributions to $200K-$300K+ per year
Tax-deferred compounding adds millions to retirement wealth over 20+ years
Business owners have flexibility employees lack - contribute more in high-income years, less in lean years
Plan design matters: SEP-IRA is rarely optimal when Solo 401(k) offers more benefits with similar simplicity

The Opportunity

Why This Matters for Business Owners

Higher Contribution Limits

Business owners can contribute far more to retirement than employees. A Solo 401(k) allows $69K (2024), but adding a defined benefit plan pushes limits to $200K-$300K+ annually. At 37% tax bracket, that is $74K-$111K+ in annual tax savings while building retirement wealth.

Tax-Deferred Growth Compounding

Every dollar contributed grows tax-free until withdrawal. A 45-year-old contributing $200K annually for 20 years at 7% return accumulates $9.2M - but would have only $6.4M after taxes if invested outside retirement accounts. The tax-deferred advantage: $2.8M additional wealth.

Multiple Plan Stacking

Unlike employees limited to a single 401(k), business owners can combine multiple plans: Solo 401(k) + defined benefit + cash balance. Each plan has independent contribution limits. Proper structuring maximizes tax-deferred savings without IRS issues.

Flexibility and Control

Business owners control contribution timing - make large contributions in high-income years, reduce in lean years. Plans can be designed for your specific age, income, and retirement goals. This flexibility is unavailable to W-2 employees locked into employer plans.

Implementation

Proven Strategies

Solo 401(k) Maximization

Establish a Solo 401(k) for maximum flexibility with no employees. Contribute up to $23K employee deferral + 25% of net self-employment income as employer contribution (up to $69K total for 2024). Add $7,500 catch-up if over 50. Includes Roth option for tax diversification.

Best for: Solo business owners or those with only spouse as employee who want simple administration with high contribution limits.

Example:

Business owner age 52, $300K net income. Employee deferral: $23K + $7,500 catch-up = $30,500. Employer contribution: 25% of income = $69K (capped at $69K total). Max contribution: $76,500.

Defined Benefit Plan Addition

Add a defined benefit pension plan on top of your 401(k) for dramatically higher contributions. Defined benefit plans allow contributions based on actuarial calculations of the benefit needed at retirement. Older business owners with high income can contribute $150K-$250K+ annually.

Best for: Business owners over 45 with consistent high income ($300K+) who want to maximize tax-deferred savings and accelerate retirement wealth.

Example:

Age 55 business owner, income $500K. Solo 401(k): $76,500. Defined benefit plan: $180,000. Total tax-deferred: $256,500. At 37% bracket = $95K annual tax savings.

Cash Balance Plan Hybrid

Cash balance plans combine defined benefit tax advantages with defined contribution simplicity. Contributions are defined (like 401k) but expressed as a account balance that grows at a stated rate. Easier to administer than traditional DB plans while allowing $100K-$200K+ annual contributions.

Best for: Business owners wanting high contributions with more predictable costs and simpler administration than traditional defined benefit plans.

Example:

Age 50 business owner. Cash balance contribution: $150K annually. After 15 years at 5% crediting rate: $3.4M accumulated. Total contributions: $2.25M. Tax savings at 37%: $833K.

Avoid These Pitfalls

Common Mistakes

Settling for SEP-IRA Only

Many accountants recommend SEP-IRAs for simplicity, but they lack employee deferral, have lower effective limits for S-Corp owners, and offer no Roth option. Solo 401(k) is almost always better and not much more complex.

Starting Retirement Planning Too Late

Defined benefit and cash balance plans favor older participants. Starting at 55 instead of 45 can mean $100K+ less in annual contribution limits. Early planning allows maximum accumulation during peak earning years.

Ignoring Plan Design Complexity

Advanced retirement plans require proper actuarial design, annual compliance testing, and funding commitments. Working with specialists prevents IRS problems and ensures you actually receive the promised benefits.

Questions

Common Questions

Here are the most common questions we receive about this topic.

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Both allow employer contributions up to 25% of compensation, but Solo 401(k) adds employee deferral ($23K + $7,500 catch-up). Solo 401(k) also offers Roth option, loan provisions, and higher effective contributions for S-Corp owners. Solo 401(k) is superior in almost every case.

Yes, but plan design becomes more complex. You generally must offer comparable benefits to employees. Options include traditional 401(k) with employer match, SIMPLE IRA, or age-weighted/new comparability plans that legally favor older, higher-paid owners while covering employees.

Defined benefit plans promise a specific retirement benefit (e.g., $200K/year at age 65). Contributions are calculated actuarially based on years to retirement, investment assumptions, and promised benefit. Older participants need larger contributions to fund the same benefit, hence higher limits.

Solo 401(k) and SEP-IRA contributions are discretionary - contribute more in good years, less in bad years. Defined benefit plans have required minimum contributions that can be challenging in low-income years. Cash balance plans offer some flexibility. Plan design should account for income variability.

Yes - retirement contributions reduce taxable income but do not affect QBI calculation for most businesses. You can maximize both strategies. In fact, retirement contributions can help stay under QBI income thresholds for specified service businesses.

Ready to Maximize Your Retirement Savings?

Every business situation is unique. Let us design a retirement plan strategy that maximizes your tax savings and builds wealth for your future.

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