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SEP, SIMPLE, or Solo 401(k)? How Houston Business Owners Can Choose the Right Retirement Plan

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The Retirement Decision Most Business Owners Put Off

Many Houston business owners reinvest every dollar into the company and promise to “deal with retirement later.” Later usually arrives at tax time, when the bill is big and the options are few. 

A retirement plan is one of the most effective tax tools a business owner has. Every dollar you contribute lowers your taxable income now and grows tax-deferred. But the three most common small business plans, the SEP IRA, the SIMPLE IRA, and the Solo 401(k), work very differently. Pick the wrong one and you could leave $20,000 or more in deductions on the table, or commit to employee costs you didn’t plan on. 

Here’s how each plan works, with real dollar comparisons.

The Three Plans at a Glance

  1. . SEP IRA (Simplified Employee Pension) 

  • How it works: Only the employer contributes, up to 25% of each eligible employee’s compensation (about 20% of net self-employment earnings for sole proprietors), capped at $72,000 for 2026. 
  • Best for: Owners with no employees, or with income that changes a lot from year to year. 
  • Key benefit: Minimal paperwork, and you can open and fund it as late as your tax filing deadline, including extensions. 
  • Watch out: You must contribute the same percentage for every eligible employee that you contribute for yourself. 

  1. SIMPLE IRA (Savings Incentive Match Plan for Employees)

  • How it works: Employees can defer up to $17,000 for 2026 (plus a $4,000 catch-up at age 50+). The employer must either match up to 3% of pay or make a 2% contribution for every eligible employee. 
  • Best for: Businesses with up to 100 employees that want a benefit with low administration and a predictable, capped employer cost. 
  • Watch out: Generally, a new SIMPLE IRA must be set up by October 1 to count for the current year, and contribution limits are lower than a 401(k). 

  1. Solo 401(k) (One-Participant 401(k))

  • How it works: You contribute as both “employee” (up to $24,500 for 2026, plus an $8,000 catch-up at age 50+, or $11,250 at ages 60–63) and “employer” (up to 25% of compensation). The combined total is capped at $72,000, not counting catch-ups. 
  • Best for: Owner-only businesses (spouse included) that want the highest contributions, plus Roth options. 
  • Watch out: You can’t have full-time employees other than a spouse. Once plan assets exceed $250,000, you must file Form 5500-EZ. 


The IRS summarizes all three on its Retirement Plans for Self-Employed People page.

Real Dollar Comparison

Scenario 1: S Corporation Owner, $100,000 W-2 Salary, Age 45, No Employees 

Plan 

How It’s Calculated 

Maximum Contribution 

SEP IRA 

25% × $100,000 

$25,000 

SIMPLE IRA 

$17,000 deferral + 3% match ($3,000) 

$20,000 

Solo 401(k) 

$24,500 deferral + 25% employer ($25,000) 

$49,500 

At a 32% federal bracket, the Solo 401(k) saves about $15,840 in federal income tax, compared with $8,000 for the SEP. That’s nearly double the tax savings on the same salary. 

At age 55, the Solo 401(k) climbs to $57,500 with the catch-up. The SIMPLE reaches $24,000, and the SEP stays at $25,000 because it has no catch-up. 

Tip: Your S corp salary drives your contribution. Our guide to business entity selection explains how salary and entity choice work together. 

Scenario 2: Dental Practice Owner With Five Employees 

Dr. Martinez runs a practice in The Woodlands. She earns $250,000, and her five staff members earn $45,000 each ($225,000 in total payroll). 

  • SEP IRA: To contribute 25% for herself ($62,500), she must also contribute 25% for each eligible employee, which is $56,250 in staff contributions. 
  • SIMPLE IRA: She defers $17,000 and receives a $7,500 match for herself. Her maximum cost for staff is a 3% match, or $6,750. 
  • Solo 401(k): Not available, because she has employees. 


For practices like hers, a SIMPLE IRA is often the starting point. As profits grow, a safe harbor 401(k) or cash balance plan can let the owner save far more. Our dental practice accounting services help model those options. 

Deadlines and Credits That Matter

  • SEP IRA: It can be opened and funded until your tax filing deadline, including extensions. That makes it the best last-minute option. 
  • Solo 401(k): A new plan can often be adopted after year-end. However, setting it up before December 31 gives you the most flexibility with employee deferrals. 
  • SIMPLE IRA: It generally must be in place by October 1. If you missed it, plan now for next year. 
  • Startup tax credit: Employers with 50 or fewer employees may qualify for up to $5,000 per year for three years to offset plan setup costs. 


Contributions run through payroll, so coordinate your plan with your payroll setup from day one. 

Which Plan Fits Your Business?

  • Solo contractors, consultants, and real estate investors: The Solo 401(k) usually wins. 
  • Uneven income or a last-minute deduction: Choose the SEP IRA. 
  • Dental, law, and professional practices with small teams: The SIMPLE IRA keeps costs predictable. 
  • Growing companies with 10+ employees: Consider a 401(k) with profit sharing, or a cash balance plan. 


With no Texas state income tax, every dollar of savings comes from your federal return.

How Riley & Company CPA Helps

Choosing a plan is a tax planning decision as much as a retirement decision. For more than 25 years, Riley & Company has helped Houston business owners: 

  • Run side-by-side contribution projections based on actual income 
  • Coordinate S corp salary and retirement contributions 
  • Weigh employee costs before committing to a plan 
  • Stay on top of deadlines, Form 5500-EZ filings, and retirement plan audits 


The SBA’s financial management guide is another helpful resource for managing business finances. 

Frequently Asked Questions

Can I have both a SEP IRA and a Solo 401(k)?

Yes, but employer contributions share the same overall limit, so having both rarely increases what you can save. Most owners are better off with one plan. 

Once you have eligible full-time employees other than your spouse, a Solo 401(k) is no longer an option. You’ll need to move to a SEP, SIMPLE, or standard 401(k), so plan before you hire. 

Yes, A spouse who earns income from the business can make their own contributions, which can potentially double your household’s savings. 

Not necessarily. A SEP IRA can be opened up until your filing deadline, including extensions, and a Solo 401(k) can often be adopted after year-end. See the IRS guide to one-participant 401(k) plans. 

Conclusion: Your Retirement Plan Is a Tax Strategy

The right plan versus the wrong one can easily mean $10,000 or more in annual tax savings, plus decades of tax-deferred growth. The best choice depends on your income, entity structure, employees, and timing. 

Ready to Find the Right Plan for Your Business?

Riley & Company CPA helps business owners in Houston, The Woodlands, Northwest Houston, and Cypress build retirement strategies that cut taxes today and build wealth for tomorrow. Contact Riley & Company today to compare your options with real numbers before key deadlines pass. 

Final Thoughts: Make 2025 a Year of Smart Moves, Not Just Survival

You don’t need to predict the future. You just need to prepare for it.
With smart cash management, thoughtful tax strategy, and the right advisory partner, you can turn uncertainty into opportunity.

Let’s talk about your business goals and challenges.