Business owners face unique retirement planning challenges. Learn how to manage taxes, income, succession, and diversification across business and personal assets. 

Tailoring Retirement Plans for Small Business Owners

For small business owners, retirement planning often involves coordinating both personal and business finances. Decisions about when and how to retire are influenced by factors like income flow, business value, and the timing of a potential sale or transition.

Whether you plan to sell your business, pass it down, or gradually reduce your involvement, the planning process should account for how your business interacts with your personal retirement strategy and legacy goals.

Here are key factors to consider when planning for retirement as a business owner:

• Income predictability and contribution flexibility
• Tax bracket management and available deductions
• Succession or exit timeline
• Personal and business liquidity needs
• Risk of relying solely on a business sale
• Integration of estate and legacy goals
• Diversification outside of the business
• Access to and use of tax-advantaged retirement accounts
• Ongoing plan management and regulatory updates

Several Key Steps in Retirement Planning for Business Owners

1. Use Retirement Accounts to Build Personal Wealth

For business owners, choosing a retirement plan means weighing both personal savings goals and the operational needs of the business. The first step is selecting the right account structure.

Common options include:

• SEP IRA: Employer-funded only, with up to 25% of compensation or $70,000 in 2025. Flexible funding with low administrative burden.

• SIMPLE IRA: Designed for businesses with 100 or fewer employees. Requires employer matching but is typically easy to administer.
• Solo 401(k): Allows both employer and employee contributions, up to $70,000 in 2025—catch-up contributions may be available for plan participants age 50 and older. Ideal for sole proprietors or owner-and-spouse operations.
• Traditional or Safe Harbor 401(k): Better suited for growing businesses or those seeking employee retention tools. May include Roth options and comes with higher complexity.
• Defined Benefit / Cash Balance Plans: Allows large annual contributions, depending on age and income. Often used by high-income owners who want to accelerate savings.
• ESOP (Employee Stock Ownership Plan): Can support both retirement savings and ownership succession by transferring ownership of the company to employees over time.

Choosing the right structure depends on your income, staffing plans, and how much flexibility you want in funding contributions.

2. Align the Plan with Your Business Model

Different plans are better suited to different business types. A Solo 401(k) may work well for a sole proprietor, but not for a company with employees. Similarly, a defined benefit plan may appeal to a high-earning owner seeking predictable contributions, but it requires consistent funding and regulatory oversight.

Key considerations include:

• Staffing: Some plans exclude non-owners (Solo 401(k)), while others require contributions for all eligible employees (SIMPLE IRA, SEP IRA).
• Cash flow: SEP IRAs allow discretionary contributions. SIMPLE IRAs and defined benefit plans have more rigid funding requirements.

• Administration: Low-burden plans include SEP and SIMPLE IRAs. Higher-complexity plans like 401(k)s and cash balance plans may require third-party administrators and more recordkeeping.

Think about how your business may evolve. A Solo 401(k) may work well for owner-only businesses, but as income increases or employees are added, shifting to a traditional 401(k) or layering in a defined benefit plan may offer more flexibility and higher contribution potential.

3. Use Retirement Contributions as a Tax Strategy

Business owners often use retirement contributions to reduce taxable income, both on the business and personal side. Contributions to SEP IRAs, Solo 401(k)s, and defined benefit plans may be deductible, and plan design can be used to control taxable income over time.

Consider:

• Catch-up contributions for those 50+, with expanded limits under SECURE 2.0
• Startup plan tax credits, which offer up to $5,000 per year for three years for new 401(k) plans
• Credits for automatic enrollment features, worth up to $500 annually
• Roth matching, now allowed under SECURE 2.0, for owners who prefer post-tax growth

Plan structure affects not only your savings ability but also your tax bracket in retirement. Use contribution timing and withdrawal strategy together to support more consistent long-term income planning.

4. Coordinate Retirement Withdrawals Across Account Types

After stepping away from full-time work or exiting your business, the way you structure withdrawals from different accounts can have a significant impact on taxes and long-term outcomes. Many business owners retire with a mix of taxable brokerage assets, traditional retirement accounts, Roth accounts, and possibly proceeds from a business sale.

Coordinating how and when to draw from each source can help manage income tax brackets, avoid or reduce Medicare IRMAA surcharges, and support portfolio longevity.

Strategies may include:

• Withdrawing from taxable accounts first to allow tax-deferred accounts to grow
• Filling lower tax brackets in early retirement with Roth conversions
• Preserving Roth assets for later retirement or legacy goals
• Blending withdrawals across accounts based on income needs and tax exposure

If your business exit generates a large liquidity event, you may want to plan around capital gains exposure and how that influx of cash affects other withdrawal timing decisions.

5. Diversify Beyond Your Business

Many owners invest heavily—and sometimes exclusively—in their own business. While this reflects commitment, it can also concentrate risk. A downturn in your industry, changes in regulation, or unexpected personal events can impact both business value and retirement readiness.

Building outside assets is a way to reduce dependence on a successful business exit. Use retirement plans and taxable accounts to build diversified portfolios across:

• Public equities and bonds
• Real estate or alternative assets
• Income-producing vehicles such as annuities or bond ladders

This can support flexibility in retirement and reduce pressure to sell your business on a specific timeline.

6. Prepare for Succession and Exit

If the business is your largest asset, planning how and when to step away becomes a major component of retirement. A sale or partial exit may generate retirement income, but it may also come with uncertainty around valuation, timing, and taxation.

Options to consider:

• ESOPs for gradual ownership transition to employees
• Defined benefit plans to create consistent income streams prior to a sale
• Buy-sell agreements for multi-owner firms
• Gifting strategies or family limited partnerships (FLPs) if passing the business to heirs

Start early. Coordinating exit planning with your retirement timeline gives you more flexibility in how you structure the transition and use the proceeds.

7. Use Key Person Insurance to Protect Business Value

If your business relies heavily on your skills, relationships, or presence, a sudden illness or death could reduce its value or halt operations entirely. Key person insurance provides liquidity to help the business continue running or fund a transition.

Policies can:

• Cover operating expenses while the business adjusts
• Fund buyout provisions in buy-sell agreements
• Provide the owner’s family with proceeds if the business cannot be sold quickly

Key person insurance can be paired with personal life insurance and estate planning to address both business continuity and family needs.

8. Incorporate Business Interests into Estate Planning

Business ownership adds complexity to estate planning, particularly when the business represents a large portion of total wealth. Your retirement plan should integrate with your estate documents to address both liquidity and long-term intent.

Strategies may include:

• Transferring shares gradually using gifting strategies or valuation discounts
• Establishing a trust or FLP to control how and when heirs gain ownership
• Coordinating retirement account beneficiary designations with business succession goals
• Planning for estate tax liquidity using life insurance or structured sales

Even if you plan to sell your business during your lifetime, it's important to include it in your estate plan to account for timing, valuation, and contingencies.

9. Monitor Legislation and Plan Design

Rules governing company retirement plans continue to evolve. SECURE 2.0 introduced a number of changes affecting business owners, including:

• Required auto-enrollment in new 401(k) plans
• Expanded Roth options and matching
• New eligibility for part-time employees
• Higher catch-up limits for participants age 60–63
• Incentives for pooled retirement plans (PEPs and MEPs)

Review your plan design every year or two to assess whether it still fits your business, tax strategy, and income needs.

10. Adjust As Your Business and Priorities Evolve

Your company retirement plan may need to change as your business grows or your personal goals shift. Common transitions include:

• Moving from a Solo 401(k) to a traditional 401(k) as you add employees
• Adding a defined benefit or cash balance plan as income increases
• Revisiting contribution levels and withdrawal strategies based on new tax rules or financial needs
• Updating succession or estate documents after a major event

A retirement strategy that works well in your 40s may need adjustment in your 50s or 60s. Aligning your business decisions with your retirement goals helps create a more flexible and informed plan.

Bringing It All Together with the Right Advisory Team

Retirement planning for business owners often spans tax strategy, succession planning, investment management, and the transition from business income to personal cash flow.

Working with an advisory team that understands both personal wealth management and business dynamics can help connect the pieces. A business planning advisor can assist with aligning ownership structures, identifying tax-efficient savings opportunities, and preparing for pivotal transitions like an exit or liquidity event.

Collaborating with tax professionals, estate attorneys, and financial planners as part of a coordinated effort can also help reduce blind spots as your priorities evolve.

Whether you’re early in the process or thinking about how to exit in the next few years, a multi-disciplinary team can help guide planning decisions that support both your retirement goals and the long-term success of your business. Contact an advisor near you to discuss your needs.

DISCLOSURES

• EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
• Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.

• There is no guarantee or warrantee that a client or prospective client that engages EP Wealth Advisors, LLC in Business Planning services will experience investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied service, offering, report, or analysis represented here will be offered or delivered. The services offered to clients will vary and depend on several factors.
• There is no guarantee that all the services detailed herein will be offered to a client. The services EPWA offers clients is dependent on the requirements of each client. In many instances, clients or prospective clients may not have a need for all or some of the services detailed.
• The need for an advisor or business planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
• Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.  
• An estate plan is a helpful tool that can assist individuals in managing and arranging affairs in the event of death or incapacity. However, the scope and extent of the plan varies depending on the unique circumstances and desires of the individual client. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as legal advice. Please consult a legal professional to determine the extent, scope, and the drafting and creation of the appropriate estate documents. EP Wealth Advisors is not in the business of providing legal advice or preparing legal documents. Our review is limited to and in association with Financial Planning only.
• Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
• Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
• EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.