There are five or six real options and most owners get sold whichever one their payroll company happens to offer. This is the comparison I walk through with clients — the numbers, the tradeoffs, and who each plan genuinely fits.
The short answer: if it’s just you (or you and a spouse), a Solo 401(k) will almost always let you put away the most for the least cost. If you have employees and you want to contribute meaningfully for yourself, you need a Safe Harbor 401(k), usually with profit sharing on top. A SIMPLE IRA makes sense when you want something cheap and easy and you are not trying to maximize the owner’s number. Everything below is the reasoning behind that.
I’m a PPC® — Professional Plan Consultant — and plan design is the part of this work I do most. I’ve looked at a lot of plans across mid-Michigan, and the pattern is consistent: the plan was appropriate when it was set up, the business grew, and nobody ever revisited it. The payroll provider that sold it isn’t going to call and suggest something better.
| SIMPLE IRA | SEP-IRA | Solo 401(k) | Safe Harbor 401(k) | Cash Balance / DB | |
|---|---|---|---|---|---|
| Employee deferral (2026) | $17,000 ($20,000 age 50+) | None — employer only | $24,500 ($32,500 age 50+) | $24,500 ($32,500 age 50+) | N/A — paired with a 401(k) |
| Total per person | ~$20,000 realistic | Up to $72,000 (25% of comp) | Up to $72,000 ($80,000 age 50+) | Up to $72,000 ($80,000 age 50+) | $150,000–$300,000+ age dependent |
| Employer contribution | Required: 3% match or 2% to all | Discretionary, but same % for everyone including you | Discretionary | Required Safe Harbor, plus discretionary profit sharing | Required — actuarially determined |
| Works with employees? | Yes | Yes, but expensive — uniform percentage | No — owner and spouse only | Yes — this is the design for it | Yes, with a companion 401(k) |
| Roth option | Limited | No | Yes | Yes | No |
| Loans allowed | No | No | Usually | Usually | No |
| Annual filing | None | None | Form 5500-EZ over $250k | Form 5500 | Form 5500 + actuary |
| Roughly what it costs | Near zero | Near zero | $0–$1,500/yr | $2,000–$5,000/yr plus contributions | $4,000–$10,000/yr plus actuary |
| Setup deadline | Oct 1 for current year | Tax filing deadline incl. extensions | Dec 31 to defer for that year | Oct 1 for Safe Harbor | Generally by year end |
A new Safe Harbor 401(k) generally has to be effective by October 1, because the plan year has to run at least three months. And if you’re leaving a SIMPLE IRA, you generally have to notify employees by early November for a January 1 change. That means this is a fall decision. If you start thinking about it in February, you’ve usually lost the year.
The best deal in the tax code for a one-person business, and it isn’t close. You contribute as the employee and as the employer, which is how a single person gets to $72,000. Add a spouse doing real work at a defensible wage and you have two participants with their own ceilings.
One caveat: hire your first non-spouse employee and this plan has to convert.
This is where most growing businesses land. Safe Harbor means you commit to a contribution — typically a 4% match or 3% to everyone — and in exchange the plan automatically passes nondiscrimination testing. No more capped deferrals, no more refund checks in March.
Profit sharing sits on top and is discretionary each year. With a new comparability allocation, a larger share can be directed toward older and higher-paid participants, which in most small businesses means the owner. There is a real staff cost. The question is never whether you fund employees, it’s what ratio the math actually produces for your census.
Deadline: generally effective by October 1.
Genuinely fine for what it is. No filing, no testing, almost no cost. It works when the goal is offering something rather than maximizing the owner’s number.
Where it breaks down is growth. The deferral limit is $7,000 below a 401(k), the employer options are rigid, and there’s no profit sharing lever at all. If you’re profitable and trying to shelter income, you will hit the ceiling and stay there.
Employer money only, and the same percentage of pay for everyone who qualifies. That’s the whole design. Excellent for a solo consultant with lumpy income — you can fund it after the year ends, right up to your filing deadline with extensions.
It gets expensive fast with employees. Contribute 20% for yourself and you contribute 20% for each of them. For most businesses with staff, a Solo 401(k) or Safe Harbor plan does more for less.
The heavy machinery. Layered on top of a 401(k), a cash balance plan can move $150,000 to $300,000 or more per year out of taxable income, with the limit rising sharply with age.
The tradeoffs are real: an actuary is required, contributions are largely mandatory once set, and you need income stable enough to fund it for several years. But for a 52-year-old owner clearing $600,000 who started saving late, nothing else comes close.
Your employee census, not your revenue. Ages, salaries, and tenure determine what a profit sharing formula can do for you. Two businesses with identical revenue can get wildly different answers. This is why a real recommendation requires running your actual census, not a rule of thumb.
What you’re trying to accomplish. Sheltering income and attracting employees are different goals and they point at different designs. Most owners want some of both, and the ratio matters.
Whether the money is there consistently. Safe Harbor and defined benefit plans create real obligations. There’s no shame in choosing a plan you can fund every year over one that looks better on a spreadsheet.
It depends on whether you have employees and how much you want to contribute. No employees besides you and a spouse, a Solo 401(k) is almost always the answer. Employees plus a real desire to save for yourself, a Safe Harbor 401(k) with profit sharing. Small budget and modest goals, a SIMPLE IRA is defensible.
A SIMPLE IRA allows $17,000 in employee deferrals in 2026 with rigid employer rules. A 401(k) allows $24,500 in deferrals and up to $72,000 in total annual additions per person, plus Safe Harbor and profit sharing designs, Roth deferrals, and loans. The tradeoff is administration and cost.
Generally October 1, because the plan year has to run at least three months. If you’re terminating a SIMPLE IRA to make the switch, employee notice is generally required by early November for a January 1 effective date.
In 2026, total annual additions to one person’s account are capped at $72,000, or $80,000 at age 50 and up. Your own deferral tops out at $24,500 — the rest has to come from employer match and profit sharing, which is exactly why plan design matters.
Generally no. Once you have a non-spouse employee who meets the plan’s eligibility requirements, a Solo 401(k) no longer works and the plan has to convert to a regular 401(k). Long-term part-time rules have also tightened, so employees you assumed were excluded may now need to be covered.
Send me two things: your current plan document and your employee census with ages and compensation. I’ll model what each design would actually produce for you and tell you what I see — whether or not you end up working with me. It takes about an hour and it’s the only way to answer this question honestly.
Schedule a free 30-minute call →
2026 contribution limits; these adjust annually. Costs shown are typical ranges and vary by provider and plan complexity. This is general information, not individualized tax or legal advice — plan selection should be reviewed with your tax professional. DeMull Financial does not provide tax or legal advice.