Business Owners! The time to nail down your retirement plan for this year and next is now.
If your business already has a 401k set up and you have reviewed the mechanics of it with your CPA or your Wealth Advisor in the last couple years, you may want to skip this article. If your business has had a good year and you have been thinking about starting a retirement plan, this is one deadline you probably do not want to ignore.
October is an important deadline for business owners who want to establish certain new Safe Harbor 401(k) plans for the current calendar year.
Why does that matter?
Because the right retirement plan can potentially help you:
Put significantly more money away for retirement
Reduce taxable business income
Reward and retain key employees
Avoid some of the testing issues that can limit contributions for owners and highly compensated employees
Potentially qualify for thousands of dollars in federal tax credits
And thanks to the SECURE 2.0 Act, starting a retirement plan may be significantly less expensive than many business owners realize.
First, What Is a Safe Harbor 401(k)?
A Safe Harbor 401(k) is a type of 401(k) designed to make it easier for business owners and highly compensated employees to maximize their contributions. With a traditional 401(k), annual nondiscrimination testing can sometimes restrict how much owners and higher-paid employees are able to contribute, particularly when rank-and-file employee participation is low.
A Safe Harbor 401(k) generally avoids certain nondiscrimination testing requirements when the employer agrees to make qualifying contributions for employees. For many profitable small businesses, that can be a pretty attractive trade-off. The business provides a retirement benefit to employees, while owners and key employees may have a better opportunity to maximize their own retirement savings.
Why October 1 Matters
For a newly established calendar-year Safe Harbor 401(k), the initial plan year generally needs to be at least three months long. That makes October 1 an important date for businesses trying to establish certain Safe Harbor plans before year-end. There are exceptions and alternative plan designs. In particular, the rules surrounding Safe Harbor nonelective contributions provide additional flexibility, so October 1 should not be viewed as the final deadline for every possible retirement plan strategy.
Still, if a Safe Harbor 401(k) is on your radar, waiting until November or December can significantly reduce your options. This is the time to have the conversation.
The Contribution Numbers Can Be Significant
For 2026, employees can generally contribute up to $24,500 to a 401(k). For participants age 50 or older, the general catch-up contribution limit is another $8,000. Participants who are ages 60 through 63 can potentially make an even larger catch-up contribution of $11,250 in 2026. When employee and employer contributions are combined, the general defined contribution plan limit can reach $72,000 per participant, before applicable catch-up contributions.
That can make retirement plan design particularly valuable for business owners who are generating strong cash flow but feel like they are running out of places to save tax efficiently.
Then There Are the Tax Credits
This is the part many small business owners still do not know about. SECURE 2.0 significantly expanded the tax incentives available to eligible small employers starting retirement plans.
Depending on the size of the company and other eligibility requirements, an employer may qualify for a retirement plan startup tax credit of as much as $5,000 per year for three years. Businesses with 50 or fewer employees can potentially receive a credit equal to 100% of qualifying startup costs, subject to the applicable limits.
That is potentially:
$5,000 + $5,000 + $5,000 = $15,000
There is also a separate automatic enrollment credit of $500 per year for three years for eligible employers that add a qualifying automatic enrollment feature.
That is another:
$500 + $500 + $500 = $1,500
Put those together and an eligible business could potentially qualify for up to $16,500 in tax credits over three years, before even considering another SECURE 2.0 credit tied to certain employer contributions. The employer contribution credit can potentially provide up to $1,000 per qualifying employee, with the percentage of the credit changing over the first five years and based in part on the employer's size.
Not every business will qualify for every credit, but the incentives are meaningful enough that they should at least be evaluated.
Who Should Be Paying Attention Right Now?
A retirement plan conversation is especially worth having if you own a business and:
You have had a profitable year.
A retirement plan may create an opportunity to move money from taxable business income into retirement accounts.
You want to save more for retirement.
IRAs alone may not provide enough contribution capacity for a successful business owner.
You want to reward key employees.
Employer retirement contributions can be an important part of an overall compensation and retention strategy.
You looked at a 401(k) before but thought it was too expensive.
The SECURE 2.0 tax credits may materially change that calculation.
You currently do not have a retirement plan.
This is exactly the group Congress was trying to encourage with many of the expanded tax incentives.
Your CPA is looking for additional year-end tax planning opportunities.
Retirement plan design can sometimes be one of the larger remaining planning opportunities available before year-end.
It Is About More Than Just Starting a 401(k)
The bigger question is not simply:
"Should I open a 401(k)?"
The better question is:
"What retirement plan design makes the most sense for my business?"
Depending on the owner's age, income, employee demographics, cash flow and retirement goals, the answer could involve:
A traditional 401(k)
A Safe Harbor 401(k)
A profit-sharing plan
A combination of Safe Harbor and profit-sharing contributions
A cash balance or defined benefit plan
A SEP IRA
A SIMPLE IRA
A combination of retirement strategies
For certain highly profitable businesses, combining a 401(k) with profit sharing or a cash balance plan can create substantially larger deductible retirement contributions than a basic 401(k) alone.
That is why plan design matters.
Don't Wait Until December to Start the Conversation
Every year, business owners start asking about retirement plans in November or December. And every year, some discover that the strategy they would have preferred is no longer available because they waited too long. October 1 does not close the door on every retirement planning opportunity. In fact, current law provides more year-end flexibility than existed in the past, and some retirement plans can be established after year-end under certain circumstances. Waiting can eliminate choices.
If you own a business, have had a profitable 2026, and want to maximize retirement savings while potentially reducing taxes, now is a very good time to run the numbers. A short retirement plan analysis can help answer three basic questions:
How much could you contribute?
How much would you need to contribute for employees?
What would the potential tax savings and tax credits look like?
Once you know those numbers, you can decide whether establishing a plan actually makes sense. With October 1 approaching, this is one decision that is worth evaluating sooner rather than later.
This article is for general educational purposes and should not be considered individualized tax, legal or investment advice. Retirement plan rules and available tax credits depend on the facts and circumstances of each business. Business owners should coordinate retirement plan decisions with their financial advisor, CPA and retirement plan administrator.
Quick Answers
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October 1 is an important date for businesses that want to establish certain new Safe Harbor 401(k) plans on a calendar-year basis. In many cases, the Safe Harbor arrangement needs to be in place for at least the final three months of the plan year.
That does not mean every retirement plan opportunity disappears after October 1. Other options and later deadlines may still be available.
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Possibly.
October 1 is not a universal deadline for starting every type of 401(k) or retirement plan. Depending on the plan design, contribution structure and business circumstances, you may still have retirement planning options later in the year.
The key point is that your choices may become more limited as the year progresses.
How much can a business owner contribute to a 401(k) in 2026?
The employee 401(k) deferral limit for 2026 is generally $24,500.
Employees age 50 and older may also qualify for catch-up contributions, and those ages 60 through 63 may qualify for the larger SECURE 2.0 catch-up amount.
With employer contributions included, total contributions can potentially be significantly higher.
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Potentially, yes.
Employer contributions to an eligible retirement plan are generally deductible to the business, subject to applicable limits and rules.
For a profitable business, retirement plan contributions can sometimes become an important part of year-end tax planning.
Does the business owner have to contribute for employees?
In a Safe Harbor 401(k), generally yes.
The employer typically satisfies the Safe Harbor rules by providing either a qualifying employer match or a nonelective contribution for eligible employees.
This is why it is important to model the numbers before setting up the plan. You want to understand both the benefit to the owners and the cost of employee contributions.
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No.
Safe Harbor plans are often especially useful for small and midsize businesses where the owners and a small group of highly compensated employees want to maximize retirement savings.
Professional practices, consulting firms, medical practices, law firms and other closely held businesses are common examples.
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A retirement plan may still make sense.
In fact, smaller businesses can sometimes benefit significantly from thoughtful plan design because the owner may be able to make relatively large retirement contributions compared with the total cost of employee contributions.
The calculation depends heavily on the ages, compensation and number of employees.
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If you are self-employed or own a business with no eligible employees other than a spouse, you may have additional options, including a Solo 401(k).
The contribution rules and deadlines for a Solo 401(k) can be different from those for a traditional Safe Harbor 401(k).
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For an eligible employer, the combination of the retirement plan startup credit and the automatic enrollment credit can potentially total as much as $16,500 over three years.
There may also be additional credits available for qualifying employer contributions.
Eligibility depends on several factors, including the number of employees, whether the business previously maintained a retirement plan and the structure of the new plan.
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Potentially.
Tax credits and tax deductions are different.
A deduction generally reduces the amount of income subject to tax. A credit generally reduces the tax itself.
Depending on the circumstances, a business may be eligible for retirement plan tax credits while also receiving deductions for qualifying employer retirement contributions.
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No.
For some businesses, a Safe Harbor 401(k) is a great fit. For others, a traditional 401(k), SEP IRA, SIMPLE IRA, profit-sharing plan or cash balance plan may work better.
There is no single retirement plan that is best for every business.
What information is needed to evaluate a retirement plan?
A basic analysis usually starts with:
Number of employees
Employee ages
Employee compensation
Owner compensation
Business profitability
Desired owner contribution
Current retirement plans
Expected employee turnover
Cash flow available for employer contributions
With this information, a retirement plan professional can often compare several plan designs and estimate the potential costs, contributions and tax benefits.