Your CPA firm has finished a demanding filing season, collections are coming in, and the partners are deciding how much to distribute. Before those dollars leave the practice, have you agreed on how much should go toward your own retirement and the benefits you offer your staff?
You understand the deduction. The harder decision is choosing a plan that fits the firm you own. A partner nearing retirement may want to accelerate contributions while a younger partner needs cash for a buy-in. Meanwhile, the practice has salaries to fund between billing peaks and experienced staff it wants to keep. Those competing needs should shape the plan before anyone approves a contribution target.
The Firm’s Funding Budget
A strong filing season can make a generous contribution feel affordable. Will it still feel affordable when collections slow?
Start with the amount the practice can commit after payroll, technology renewals, debt payments, and operating reserves. Model collections through the full year, including any slower months, rather than treating a strong post-deadline bank balance as recurring surplus. For a Sarasota CPA firm owner approaching retirement, the budget should also leave room to build personal savings outside the practice before a partner buyout or sale.
The firm’s tax structure affects the calculation. An S corporation shareholder generally uses W-2 compensation, excluding shareholder distributions.1 For a practice taxed as a partnership, a partner’s contribution is based on adjusted net earned income, not simply the cash drawn from the firm; adjustments include the partner’s own plan contribution and half of self-employment tax. Passed-through investment income doesn’t automatically qualify.14 Have the person responsible for the firm’s tax calculations reconcile those amounts with the plan administrator.
Put an after-tax projection beside the full funding requirement, including staff contributions and administration. Agree on the effect on each owner’s cash flow and how the firm will allocate costs internally. A smaller tax bill won’t resolve a disagreement over distributions or make a recurring pension obligation affordable in a weaker year.
Plan Fit and Funding Pressure
Use the practice's collections, staffing, and partner goals to narrow the designs your plan team should price.
| Plan | Reason to Consider It | Pressure to Test |
|---|---|---|
| SEP IRA | You need discretion over each year's employer contribution. | More eligible payroll raises the cost of a uniform contribution rate.3 |
| SIMPLE IRA | Your savings target fits an IRA-based plan with employee deferrals. | The selected employer formula creates a funding obligation.4 |
| Solo 401(k) | Only the owner and possibly a working spouse are eligible. | An eligible hire changes the owner-only arrangement.5 |
| Employer 401(k) | You need employee deferrals and more design choices. | Price testing, safe harbor commitments, and any additional profit sharing separately.6 |
| Cash-Balance Pension | Recurring surplus supports a multiyear pension analysis. | Employer investment risk and actuarial funding can strain a weak year.2, 7 |
This is a screening framework, not a plan recommendation. Confirm eligibility, related-employer rules, and actual costs before selecting a design.
SEP Flexibility and Employee Costs
A Simplified Employee Pension, or SEP, can fit an owner who wants discretion over annual employer funding. Contributions can change or stop from year to year. Most SEPs require the same contribution percentage for every eligible employee, and contributions are immediately vested, meaning the employee owns them.3
For 2026, employer SEP contributions generally cannot exceed the lesser of 25% of eligible compensation or $72,000 per person. The self-employed calculation requires the adjustments above. A new SEP doesn’t offer salary deferrals or age-based catch-up contributions.8, 9
Before settling on that percentage, look at who’s coming back next filing season. Under the most restrictive permitted standard eligibility terms, employees generally qualify at age 21 after working in any three of the preceding five years and earning at least $800 in 2026. A plan may use easier entry requirements.8, 9 A seasonal employee can therefore become eligible sooner than an owner expects, increasing the cost of the owner’s chosen contribution percentage.
SIMPLE Contributions and Capacity
A Savings Incentive Match Plan for Employees, or SIMPLE IRA, adds employee salary contributions with relatively limited administration. It generally fits employers with no more than 100 employees who earned at least $5,000 in the preceding year, and it generally must be the employer’s only retirement plan.10
The 2026 base salary-deferral limit is $17,000, or $18,100 under the applicable higher-limit provisions, before catch-ups.9 The usual employer obligation is a dollar-for-dollar match up to 3% of compensation or a 2% contribution for eligible employees regardless of their deferrals. Qualifying employers with 25 or fewer counted employees generally use the higher limits automatically. Those with 26–100 counted employees must elect them and provide 4% matching or 3% nonelective contributions.11 All SIMPLE contributions vest immediately.4
Where permitted, SIMPLE catch-ups for 2026 are generally $4,000 at age 50 or older, or $3,850 under the applicable higher-limit provisions. Participants turning 60–63 use a $5,250 catch-up instead.9 Your provider should confirm plan-history eligibility and the applicable limits before payroll is configured.
That structure can suit an owner whose savings target fits the available room. Eligibility generally includes employees who earned $5,000 in any two prior years and are expected to earn $5,000 this year; less restrictive terms are permitted.10 When comparing SEP and SIMPLE funding arrangements, use the full eligible payroll and realistic participation assumptions.
A match makes employer costs sensitive to participation, while nonelective funding provides a payroll-based forecast. The promised SIMPLE match can’t simply be suspended midyear when profits disappoint.10
Solo 401(k) Capacity
If you’re running the practice on your own, the calculation changes. When the business has no eligible common-law employees other than the owner’s spouse, a one-participant, or solo, 401(k) may combine salary deferrals with employer contributions. Hiring someone who becomes eligible changes the plan’s coverage and administration; the solo label doesn’t permit you to exclude that employee.5
In 2026, the regular 401(k) salary-deferral limit is $24,500. Total annual additions, including ordinary deferrals and employer contributions, generally cannot exceed the lesser of $72,000 or 100% of compensation. Eligible catch-ups sit above that ceiling, subject to their applicable tax treatment. The usual age-50 catch-up is $8,000, replaced by $11,250 for participants turning 60–63 during 2026, when permitted.12
Because salary deferrals share the funding with the employer contribution, a solo 401(k) can reach a given savings target with less business income than an employer-only SEP. Deferrals to another employer’s 401(k) generally use the same personal deferral allowance, though, so disclose other plans before calculating what remains.5
401(k) Design With Employees
A traditional employer 401(k) offers flexibility over matching and profit-sharing contributions. However, annual nondiscrimination testing can constrain owner deferrals when employee participation is low.6 A safe harbor design exchanges some funding flexibility for relief from the salary-deferral test and, when the relevant requirements are met, the matching-contribution test. Adding profit sharing still requires review of coverage and allocations and can remove the exemption from top-heavy rules, which can require minimum contributions for non-key employees.6
A conventional safe harbor can use a 3% nonelective contribution, paid to eligible employees regardless of their own saving.13 Those required contributions vest immediately. A qualified automatic contribution arrangement, a different safe harbor design, can instead require up to two years of service for full vesting.2, 6 Additional profit-sharing contributions may follow a separate permitted vesting schedule.6
Ask the third-party administrator, or TPA, to model the firm’s full census under more than one design. Include equity owners, non-equity professionals, administrative staff, and recurring seasonal employees, with compensation, ages, service hours, and related-business ownership. Job titles alone don’t establish eligibility. An owner-weighted profit-sharing allocation needs testing; different percentages for partners and staff require a permissible design.2 Price the benefit for the whole team before deciding whether it supports your hiring and retention goals.
The Cost Behind the Owner’s Deposit
What does a $40,000 retirement deposit cost the practice?
The hypothetical comparison below holds the owner’s retirement deposit at $40,000. With $200,000 of eligible W-2 compensation and four employees earning $60,000 each, a uniform 20% SEP contribution costs $88,000 before assumed administration. A 401(k) with a $24,500 owner deferral and a uniform 7.75% employer contribution costs the employer $34,100 before administration.
Owner Savings and Employer Outlay
Hypothetical annual comparison for 2026. The owner's deposit is equal; employee benefits and funding sources differ.
Employer Contributions Plus Assumed Administration
| Funding Detail | SEP | 401(k) |
|---|---|---|
| Owner salary deferral | $0 | $24,500 |
| Employer contribution to owner | $40,000 | $15,500 |
| Employer contribution to four staff | $48,000 | $18,600 |
| Assumed annual administration | $500 | $3,000 |
| Employer outlay + owner deferral | $88,500 | $61,600 |
| Employer benefit per staff member | $12,000 | $4,650 |
Illustrative PracticeS corporation; owner age 45 earning $200,000 in eligible W-2 pay; four unrelated, non-key staff earning $60,000 each. All eligible all year; no other plans or related employers.
Plan DesignSEP: 20% for everyone. 401(k): $24,500 from the owner's existing pay, plus 3% safe harbor nonelective funding and 4.75% profit sharing for everyone. Immediate vesting; no extra matching or forfeitures.3, 12, 13
Cost AssumptionsAnnual administration: $500 for SEP; $3,000 for 401(k). Illustrative, not quoted fees. Excludes startup and investment costs, other plan charges, taxes, and credits. Staff deferrals don't change the employer costs shown.
The 401(k) uses owner pay and provides $7,350 less per staff member. This is a funding comparison, not equivalent benefits or projected tax savings. Confirm eligibility, deadlines, and actual costs with your plan team.
Before choosing the smaller number, look at where the money comes from and what your staff receives. The owner redirects $24,500 of existing pay, and employees receive smaller employer contributions. The illustration therefore compares funding choices rather than equivalent employee benefits or guaranteed tax savings. For your practice, weigh the difference against the benefits you want to offer experienced preparers, managers, and administrative staff. A multi-partner firm needs its own compensation and allocation model.
Cash-Balance Funding Commitments
A CPA practice with recurring surplus profits and partners seeking larger retirement contributions may have reason to request a cash-balance analysis. A senior partner approaching retirement may have different funding goals from a recently admitted owner, and the staff census must be included before judging the economics. Before paying for a full actuarial design, agree on what the firm could contribute under ordinary conditions. A target that depends on a few unusually large client engagements may be easier to pursue through discretionary funding.
A cash-balance plan is a defined benefit pension. Its benefit formula credits participants with pay and interest amounts, while the employer bears investment risk.7 Contribution and deduction calculations require actuarial work; there’s no universal annual contribution cap that can be quoted for every owner.2 Age, compensation, promised benefits, plan assets, and assumptions affect the result. Minimum funding requirements can continue through a weak profit year.2
For a multi-partner CPA firm, model different retirement dates alongside the cost of admitting a new partner or buying out a departing one. Request a multiyear funding range and a scenario with slower collections and disappointing investment results. Ask what obligations remain after a merger, sale, or decision to stop future accruals. Accrued benefits generally can’t simply be taken away.7 The owners need to understand those commitments before adding pension funding to a succession agreement.
Implementation and the Annual Review
Timing should be settled before the tax return is underway. A SEP can generally be established and funded by the employer’s return deadline, including extensions.8 For an existing business adopting its first SIMPLE, October 1 is generally the latest effective date; special rules apply to newly formed employers and prior SIMPLE arrangements.10 For a 401(k), confirm adoption, salary-election, notice, and deposit deadlines separately rather than assuming one tax-filing deadline covers everything.
Compare the full fee schedule, including recordkeeping, administration, investment expenses, advisory charges, and termination costs. Ask for dollar estimates at current and projected asset levels, separating costs paid by the business from charges to participant accounts. Hiring providers also leaves the employer with responsibility to select and monitor them prudently.13 Payroll integration can reduce repeated manual work, but someone still needs to reconcile contributions and check that the census is complete.
In Conclusion
You spend your working life helping clients make sound financial decisions. When it comes to your own retirement, how much are you counting on the eventual value of your practice, and how much are you building outside it?
That’s where WealthGen Advisors can help. We look at your firm’s retirement plan alongside your personal investments, household spending, and plans for leaving the practice. Together, we can assess what you need to accumulate, what the firm can afford to fund, and which tradeoffs to take back to your partners and plan administrator. The aim is to give you a clearer basis for deciding when you can step back and how you’ll pay for life afterward.
Before another year’s distributions are committed, give your own retirement the attention you give your clients’ finances. Click the button below to schedule a meeting with WealthGen Advisors.
Sources
Rules and limits checked September 8, 2026. Numbered references support specific claims above. Annual limits come from the 2026 notice, not older examples.
- Internal Revenue ServiceS Corporation Retirement Contributions and W-2 Compensation
- Internal Revenue ServicePublication 560, Retirement Plans for Small Business
- Internal Revenue ServiceSimplified Employee Pension Plan (SEP)
- Internal Revenue ServiceSIMPLE IRA Plan, Funding and Vesting
- Internal Revenue ServiceOne-Participant 401(k) Plans
- Internal Revenue Service401(k) Plan Overview, Testing and Safe Harbor Designs
- U.S. Department of LaborCash Balance Pension Plans, Benefits and Employer Risk
- Internal Revenue ServiceSEP FAQs, Contributions, Eligibility, and Deadlines
- Internal Revenue ServiceNotice 2025-67, Retirement Plan Limits for 2026
- Internal Revenue ServiceSIMPLE IRA FAQs, Eligibility and Employer Obligations
- Internal Revenue ServiceNotice 2024-2, Section E, Higher SIMPLE Contribution Limits
- Internal Revenue Service401(k) and Profit-Sharing Plan Contribution Limits
- U.S. Department of Labor401(k) Plans for Small Businesses
- Internal Revenue ServicePartner Compensation for Retirement Plans
Educational information only. Plan provisions, eligibility, tax treatment, costs, and deadlines require individual review with the firm's tax lead and retirement-plan professionals. The hypothetical comparison uses stated assumptions and is not an actuarial calculation, provider quote, or projection of investment returns.
