Retirement Planning for Claremont Business Owners: SEP IRA, Solo 401(k), or Defined Benefit Plan?

Business Planning
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Owning a business in Claremont, CA, comes with unique rewards and challenges. As you build your company, you’re also responsible for building your financial future, and that means choosing the right retirement plan.

Unlike employees of larger organizations, business owners often need to create their own retirement savings structure. The good news? There are several powerful tax-advantaged options designed specifically for entrepreneurs and self-employed professionals.

In this guide, we’ll compare three of the most popular retirement plans for Claremont business owners—SEP IRAs, Solo 401(k)s, and Defined Benefit Plans—to help you understand which might fit your needs best.

Why Retirement Planning Matters for Business Owners

When you’re self-employed, you don’t have the built-in benefits of a corporate 401(k) or pension plan. That means:

  • You’re responsible for your own retirement savings.

  • Taxes matter even more. The right plan can help you lower your taxable income today while building wealth for the future.

  • Flexibility is key. Your income may fluctuate from year to year, so your retirement plan should adapt with you.

By putting the right structure in place, you can help protect your financial security and take advantage of significant tax benefits.

Option 1: SEP IRA

A Simplified Employee Pension (SEP) IRA is one of the easiest retirement accounts for small business owners to establish.

Key features of a SEP IRA include:

  • Contribution Limit: Up to 25% of compensation, capped at $70,000 for 2025. (The IRS compensation cap used in the formula is $350,000.)

  • Flexible Funding: You don’t have to contribute every year.

  • Simple Administration: Minimal paperwork relative to other plans.

Best for: Business owners with few (or no) employees who want contribution flexibility.

Considerations: If you have eligible employees, you must contribute the same percentage of pay for them as you do for yourself.

Option 2: Solo 401(k)

A Solo 401(k)—also called an Individual 401(k)—is designed for business owners with no common-law employees (other than a spouse).

Key features include:

  • Employee Salary Deferral: Up to $23,500.

  • Employer Contribution: Generally up to 25% of compensation, with a combined plan limit (employee + employer) of $70,000 (any catch-up contributions are on top of this).

  • Catch-Up Contributions: Age 50-plus catch-up contributions can total $7,500 in 2025. For ages 60–63, the SECURE Act 2.0 allows a “super catch-up” of $11,250 (plan permitting).

  • Roth Option: Many Solo 401(k)s allow Roth deferrals; loans may be available if your plan includes that feature.

Best for: High-earning sole proprietors or owners (with no employees) who want to maximize contributions and may want Roth flexibility.

Considerations: More setup and ongoing administration than a SEP IRA (e.g., Form 5500-EZ is required once plan assets exceed $250,000).

Option 3: Defined Benefit Plan

A Defined Benefit (DB) Plan works more like a traditional pension and allows very large, deductible contributions. This feature can be especially attractive for owners in their 50s or 60s who are looking to accelerate their savings.

Key features include:

  • Contributions are actuarially determined to fund a promised annual benefit at retirement (no single “contribution limit”).

  • The annual benefit limit under IRC §415(b) is $280,000 in 2025.

Best for: Owners with consistently high income who want to make substantial pre-tax contributions and can commit to annual funding.

Considerations: Higher setup and administration costs (you’ll need an actuary); less flexibility than SEP IRAs or Solo 401(k)s.

How to Choose the Right Plan

Ask yourself:

  • Do you have employees? If yes, a Solo 401(k) generally isn’t available (unless only your spouse is employed). SEP IRAs require equal percentage contributions for eligible employees, which can raise costs.

  • How much do you want to save? If you’re aiming for maximum deductions, a Defined Benefit Plan may outpace a SEP IRA or Solo 401(k).

  • Do you need flexibility? SEP IRAs allow you to skip or vary contributions; Defined Benefit Plans require consistent funding.

  • Do you want Roth options? The Solo 401(k) can offer Roth deferrals, which you won’t get with a SEP IRA or DB Plan.

Why Work with a Fiduciary Advisor in Claremont

Choosing a retirement plan isn’t just about the account type—it’s about how it fits into your overall tax, business, and life plan. At Evermont Wealth, we help Claremont business owners:

  • Compare the SEP IRA, Solo 401(k), and Defined Benefit Plan side-by-side

  • Maximize tax savings in high-cost Southern California

  • Align retirement savings with succession or exit plans

  • Maintain flexibility for fluctuating income

As a fee-only, fiduciary Registered Investment Advisor (RIA), we don’t earn commissions or sell products. Our focus is building a retirement plan that serves you and your business.

If you’re a Claremont business owner, the right retirement plan can help you establish your financial future while reducing today’s tax burden. Schedule a free consultation today.

 

This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.

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