Tax-free retirement plans allow business owners to make after-tax contributions, enabling the funds to grow and be withdrawn completely tax-free in retirement. The best option depends on your business size, income level, and employee count.
Best for: Owner-only businesses or sole proprietors with no employees (except a spouse).
Key Features: Features a designated Roth option, allowing you to contribute both as an employee (salary deferral) and as an employer (profit sharing).
Contribution Limit: Up to $72,000, and $80,000 if you’re age 50 or older with catch-up contributions included.
Best for: Business owners with employees who want to maximize savings and build tax-free wealth.
Key Features: Similar to a traditional 401(k), but funded with after-tax dollars. Employers must also offer a traditional pre-tax 401(k) option alongside it.
Contribution Limit: Up to $24,500 in employee deferrals, with overall contribution limits extending much higher.
Best for: Self-employed individuals or small business owners whose income falls within allowable limits.
Key Features: Offers tax-free growth and tax-free qualified withdrawals. However, unlike Roth 401(k)s, Roth IRAs have strict income phase-out limits.
Contribution Limit: $7,500, or $8,600 if age 50 or older.
Best for: High-earning business owners (e.g., partnerships or LLCs) who want to aggressively shelter large amounts of income and have no employees, or are willing to fund employee plans.
Key Features: Functions like a pension but acts like a 401(k) in terms of account balances. It guarantees a specific benefit at retirement.
Contribution Limit: Can easily exceed $200,000 depending on age and income.
The right plan depends on whether you have employees, your income level, and whether you’re focused on maximizing your own savings or providing a benefit to your team. Let’s talk through what fits your business.
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