Financial planning

Your business is the plan. Protect it and pay yourself first.

A profitable business can shelter far more retirement savings than any employee plan allows, up to $72,000 in a defined contribution plan for 2026 and more with a cash balance design. Most owners leave that money on the table.

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Plan design comparison Coordinated with your CPA Insurance quoted, not pushed

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Owning the business changes the planning problem in three ways. Your retirement plan can be far larger than an employee's, your compensation structure is a tax decision rather than a given, and the largest asset on your personal balance sheet is illiquid and depends on you showing up.

Start with the retirement plan, because it is the biggest lever. For 2026 the IRS set the total defined contribution limit at $72,000 per participant, the employee deferral limit at $24,500 with an $8,000 catch-up at 50 and $11,250 for ages 60 through 63, the compensation cap at $360,000, and the defined benefit annual benefit limit at $290,000, per the IRS table of cost-of-living adjustments for plan limits and its 2026 contribution limit announcement. A solo owner with $200,000 of net self-employment income can often reach $60,000 or more of deductible contributions in a one-participant 401(k), while a SEP IRA at the same income would allow considerably less.

Then there is the compensation question. If you operate as an S corporation, the IRS requires reasonable compensation for services before non-wage distributions, and that wage figure drives payroll taxes, your retirement plan contribution capacity, and your qualified business income deduction all at once. Setting it too low invites reclassification. Setting it too high wastes money on payroll tax.

Finally, protection. A funded buy-sell agreement, key person coverage on whoever generates the revenue, and a written succession plan are what keep a business from being sold at a discount during the worst week of your family's life. Advisory services are offered through a registered investment adviser, insurance is placed through licensed agents, and nothing on this page is individualized tax, legal or investment advice.

Plan design

Four retirement plans, four different situations

The right plan depends on whether you have employees, how much you want to contribute, and how stable your profit is.

Best for owner-only

Solo 401(k)

For owner-only businesses, including a spouse. You contribute as employee and employer, so you reach the $72,000 limit at a much lower income than a SEP. Roth deferrals and loans are often available.

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Easiest setup

SEP IRA

Simplest to open and fund, no annual filing, employer contributions only. Every eligible employee must receive the same percentage of pay, which gets expensive once you have staff.

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Small staff

SIMPLE IRA

For businesses under 100 employees that want employee deferrals with light administration. The 2026 deferral limit is $17,000 with a $4,000 catch-up, and the employer match is mandatory.

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Highest limits

Defined benefit or cash balance

For high, stable profits and an owner over 45 who wants to shelter far more than $72,000. Contributions are actuarially determined and largely mandatory each year, and administration costs real money.

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2026 numbers

Retirement plan limits for 2026

From IRS Notice 2025-67 and the IRS cost-of-living adjustment tables. Self-employed contribution capacity is calculated on net earnings after the deduction for one-half of self-employment tax.

Plan feature	Solo 401(k)	SEP IRA	SIMPLE IRA	Defined benefit
Employee deferral	$24,500	Not permitted	$17,000	Not applicable
Catch-up at age 50	$8,000	Not permitted	$4,000	Not applicable
Catch-up ages 60 to 63	$11,250	Not permitted	$5,250	Not applicable
Total per participant	$72,000 plus catch-up	Up to $72,000, employer only	Deferral plus required match	Benefit limit of $290,000
Compensation cap used	$360,000	$360,000	$360,000	$360,000
Employees allowed	Owner and spouse only	Any size, all must be covered	Under 100 employees	Any size
Annual filing	Form 5500-EZ once assets exceed $250,000	None	None	Form 5500 plus actuarial certification

2026 figures per IRS Notice 2025-67. A SEP allows roughly 20% of net self-employment earnings or 25% of W-2 compensation, so a solo 401(k) reaches the same dollar total at a much lower income because of the employee deferral. Plan rules are technical; design with a CPA or third-party administrator.

Annual checkpoints

The owner planning items that get missed

Run this list every year, ideally in the fourth quarter while you can still act.

Plan for my business

Reasonable compensation review. The IRS requires S corporation shareholder-employees be paid reasonable compensation for services before non-wage distributions.
QBI threshold check. The 2026 Section 199A threshold is $403,500 for joint filers and $201,750 for others, with phase-in ranges above that per Rev. Proc. 2025-32.
Plan design revisit. A plan that fit at $150,000 of profit may be leaving $40,000 of deductions unused at $400,000.
Buy-sell funding and valuation. An agreement with a stale valuation formula or no funding source is a lawsuit waiting to happen.
Key person coverage. Insure the people whose absence would break revenue, not just the owner.
Employer mandate math. At 50 full-time plus full-time-equivalent employees on average in the prior year, you become an applicable large employer under the ACA.
Succession documentation. Who signs checks, who holds the client relationships, and who has legal authority if you are unavailable for 90 days.

QBI deduction and S-corp compensation, together

The qualified business income deduction lets eligible owners of sole proprietorships, partnerships, S corporations and some trusts deduct up to 20% of qualified business income, as the IRS describes on its qualified business income deduction page. Below the income thresholds the calculation is straightforward. Above them, limitations based on W-2 wages and the unadjusted basis of qualified property apply, and specified service trades or businesses such as health, law, accounting and consulting can lose the deduction entirely as income rises.

For 2026, Rev. Proc. 2025-32 sets the threshold amount at $403,500 for married filing jointly and $201,750 for other returns, with phase-in range tops of $553,500 and $276,750 respectively. Those figures are the difference between a full deduction, a partial one, and none.

Now connect it to payroll. The IRS states that S corporations must pay reasonable compensation to a shareholder-employee for services provided before non-wage distributions may be made, per its guidance on S corporation compensation and medical insurance issues. Wages reduce your qualified business income, which reduces the QBI deduction, but wages also create the W-2 wage base that supports the deduction above the thresholds, fund your retirement plan contribution capacity, and generate Social Security credits. There is a genuine optimum, and it is specific to your numbers.

Document how you set your salary. Use comparable-position compensation data, your hours, your duties, and what you would pay someone else to do the job. Reclassification cases are usually won and lost on documentation.

Buy-sell agreements, key person coverage, and the Connelly trap

A buy-sell agreement is a contract among owners that says what happens to an ownership interest on death, disability, retirement, divorce or a dispute. It should fix the triggering events, the valuation method, the payment terms, and the funding source. Without funding, the agreement is a promise that the surviving owners will find several hundred thousand dollars during a crisis.

Life insurance is the usual funding mechanism, structured in one of two ways. In a cross-purchase arrangement, each owner buys a policy on the others and uses the proceeds to buy the deceased owner's shares. In an entity redemption or stock redemption arrangement, the company owns the policies and uses the proceeds to redeem the shares.

That distinction became a tax issue in Connelly v. United States, decided by the Supreme Court on June 6, 2024. The Court held that life insurance proceeds a corporation receives to fund a redemption obligation must be counted in valuing the company for estate tax purposes, and the redemption obligation itself did not offset that value, per the Supreme Court opinion in Connelly. In practical terms, a redemption structure can inflate the estate tax value of the deceased owner's shares. Cross-purchase arrangements, or insurance LLC structures, avoid that result but add administrative complexity, especially with more than two or three owners. If your agreement uses entity redemption, have it reviewed by counsel.

Key person insurance is separate and simpler. The business owns the policy on an employee whose loss would materially damage revenue, and uses the proceeds to cover lost profit, recruiting costs, and lender requirements. Premiums are generally not deductible, and lenders frequently require a policy as a condition of a loan.

Group benefits and the thresholds that change your obligations

Employee count changes your legal duties in steps, and the steps arrive faster than owners expect.

Employee count	What changes
1 employee beyond owner and spouse	A solo 401(k) no longer works. You need a plan that covers eligible employees, typically a 401(k), SEP or SIMPLE.
Under 25 full-time equivalents	You may qualify for the small business health care tax credit if you cover at least half of employee-only premium through a SHOP plan.
Under 50 full-time and equivalents	No ACA employer mandate. Coverage is optional, and QSEHRA arrangements let you reimburse individual premiums instead.
50 or more full-time and equivalents	You are an applicable large employer, subject to the ACA employer shared responsibility provisions and annual information reporting.
100 or more employees	A SIMPLE IRA is no longer available, and defined contribution plan testing and audit requirements grow.

The 50-employee line is measured on the average size of your workforce during the prior calendar year, counting full-time employees plus full-time equivalents built from part-time hours, per the IRS guidance on determining applicable large employer status. Seasonal workforce rules can affect the calculation. Cross the line and you owe coverage offers, affordability testing and reporting, so a business approaching 45 full-time equivalents should be modeling the cost a year in advance.

Succession and exit planning

Most owners have an exit strategy in their head and nothing on paper. The gap costs money in three ways: buyers discount for key person dependence, an unexpected death forces a distressed sale, and an owner who has never diversified outside the business has no ability to negotiate.

Work the sequence. Get a defensible valuation, updated every two or three years, so you know what the asset is worth rather than what you hope. Reduce owner dependence by documenting processes, moving client relationships to a team, and building a management layer that can operate for a quarter without you. Clean up the financials, because normalized statements and separated personal expenses can move a multiple more than a good year of revenue. Then choose the path: sale to a third party, sale to a strategic buyer, transfer to family, a management buyout, or an employee stock ownership plan.

Diversify along the way. Funding a solo 401(k) or cash balance plan every year moves money out of the business and into assets a lawsuit or a downturn cannot reach in the same way. It is the closest thing to a hedge on your own concentration risk.

Choose the plan design that fits this year’s profit. And revisit it annually rather than leaving a SEP in place out of habit.
Set and document reasonable compensation. Then check its interaction with your QBI deduction and plan contribution capacity.
Sign or update a funded buy-sell agreement. With a current valuation method and a review of the redemption structure after Connelly.
Insure the key people. Including anyone whose departure would trigger a loan covenant.
Model the 50-employee threshold. Before you cross it, not after the first reporting deadline.
Get a real valuation. And keep it current so any exit conversation starts from evidence.
Build a 90-day continuity plan. Signing authority, payroll access, client communication, and who is in charge.

Plan rules, state law and insurance availability vary, and thresholds change annually. Work with a CPA and an attorney on execution. Advisory services are offered through a registered investment adviser, and nothing here is individualized advice.

Sources & further reading

Learn first, buy second

Guides for owners and self-employed professionals

Due diligence

How to choose a financial advisor

Business owners need coordination between the CPA, the attorney and the investment plan.

Read the guide

Tax strategy

Roth conversion basics

Low-profit years and the gap before Social Security are conversion opportunities.

Read the guide

Calculator

How much life insurance do I need?

Buy-sell funding and key person coverage sit on top of your personal need.

Read the guide

Questions

Frequently asked questions

Solo 401(k) or SEP IRA?

For an owner-only business, a solo 401(k) almost always wins. Both share the $72,000 total limit for 2026, but the solo 401(k) lets you contribute $24,500 as an employee deferral plus an employer contribution, so you reach a given dollar amount at a much lower income. A SEP allows employer money only, roughly 20% of net self-employment earnings. The SEP’s advantage is simplicity and no Form 5500.

How much can I put away in 2026?

Up to $72,000 per participant in a defined contribution plan, plus catch-up contributions of $8,000 at 50 or $11,250 at ages 60 through 63, per IRS Notice 2025-67. The compensation counted is capped at $360,000. A defined benefit or cash balance plan can support far larger contributions, with an annual benefit limit of $290,000, subject to actuarial calculation.

What counts as reasonable compensation for an S corporation?

What you would have to pay someone else to do your job, supported by comparable data, your hours, and your duties. The IRS is explicit that reasonable compensation must be paid for services before non-wage distributions are made. There is no safe-harbor percentage, so document your methodology and revisit it as the business grows.

Do I qualify for the QBI deduction?

Eligible pass-through owners can deduct up to 20% of qualified business income. For 2026 the threshold amounts are $403,500 for joint filers and $201,750 for others, with phase-in ranges above those figures. Above the phase-in, W-2 wage and property limitations apply, and specified service businesses such as law, health, accounting and consulting can lose the deduction entirely.

How should a buy-sell agreement be funded?

Usually with life insurance, either cross-purchase where owners insure each other, or entity redemption where the company owns the policies. After the Supreme Court’s 2024 decision in Connelly v. United States, redemption-funded proceeds are counted in valuing the company for estate tax purposes, which can raise the taxable value of the deceased owner’s shares. Have counsel review your structure.

When do I have to offer health insurance?

When you average 50 or more full-time employees, including full-time equivalents, during the prior calendar year, at which point the ACA employer shared responsibility provisions and reporting requirements apply. Below that you are not required to offer coverage, and options like a QSEHRA let you reimburse employees for individual market premiums instead.

When should I start succession planning?

At least three to five years before you want to exit, and immediately for the continuity piece. Buyers discount heavily for owner dependence, so the work of documenting processes, transferring client relationships and building a management layer takes years to show up in the price. The 90-day continuity plan should exist regardless of your timeline.

Find out what your business could be sheltering

We will compare plan designs against your actual profit, coordinate with your CPA on compensation, and price the coverage that keeps the business intact.

Plan for my business