If you have no employees, a Solo 401(k) almost always wins. If you have employees and want to maximise your own deferrals, a safe harbor 401(k) removes the testing that otherwise holds you back. A SIMPLE IRA is the low-effort middle ground. A SEP is simplest but forces you to fund every employee at the same percentage as yourself.
The comparison, in one table
Four plan types cover the vast majority of California small businesses. Most owners are sold the one their payroll provider happens to offer rather than the one that fits — so before any sales conversation, here is the whole landscape side by side. (Dollar figures are the announced 2026 amounts; the IRS adjusts them most years, so confirm the current numbers at irs.gov.)
| SEP IRA | SIMPLE IRA | Safe harbor 401(k) | Solo 401(k) | |
|---|---|---|---|---|
| Best for | Owner-only or very few staff | Under 100 employees, low effort | Employees, owner wants to max out | No employees (spouse OK) |
| 2026 employee deferral | None permitted | $17,000 | $24,500 | $24,500 |
| Employer contribution | Up to 25% of pay | 3% match or 2% flat | 3–4% of pay required | Up to 25% of pay |
| Must fund staff equally | Yes — same % as you | No | No | N/A |
| Nondiscrimination testing | None | None | Waived by design | None |
| Loans permitted | No | No | Optional | Optional |
| Satisfies the CalSavers mandate | Yes | Yes | Yes | Owner-only is exempt anyway |
The four, one at a time
SEP IRA. The simplest to open — often a single form — and funded entirely by the employer, up to 25% of compensation. The catch sits in that fourth row of the table: whatever percentage of pay you contribute for yourself, you must generally contribute for every eligible employee. Owner-only businesses love SEPs. Businesses with staff tend to regret them the year the owner wants to save seriously.
SIMPLE IRA. Built for employers with 100 or fewer employees who want something real without administration. Employees defer their own pay; the employer adds either a match (commonly 3% of pay for those who defer) or a 2% contribution for everyone. No annual testing, no Form 5500. The trade-off is the lower deferral ceiling and less design flexibility — no loans, no Roth in older documents, and rigid contribution formulas.
Safe harbor 401(k). A regular 401(k) with a mandatory employer contribution — typically a 3% nonelective contribution or a match in the 3.5–4% range — in exchange for which the plan skips the ADP/ACP nondiscrimination testing that otherwise limits how much highly compensated owners can defer. If you have employees and want to put away real money for yourself, this is usually where the analysis lands. The design menu is its own subject — see our safe harbor designs guide.
Solo 401(k). For businesses with no employees other than the owner (and a spouse). It combines the employee deferral and the employer contribution in one plan, which produces the highest contribution potential at modest income levels of any option here. It stops working the moment a common-law employee qualifies — a trap with sharper teeth than most owners realise, covered in the solo 401(k) guide.
The mistake we see most
An owner with six employees opens a SEP because it was the easiest thing to set up. Two years later they want to put away $40,000 for themselves — and discover that doing so requires contributing the same 25% of pay for all six employees. The plan that was simplest to start became the most expensive to use.
A safe harbor 401(k) would have cost more to establish and far less to operate at that contribution level. This is the single most common avoidable cost we find when reviewing an existing plan. The general rule: the right plan depends on what you want to contribute for yourself, not on which form is shortest. Choose the destination first, then the vehicle.
How the CalSavers mandate changes the maths
California employers with even one employee must now either register for CalSavers or offer a qualifying plan of their own (Cal. Gov. Code § 100032 et seq.). Before the mandate, an owner could simply offer nothing; that option is gone. Since the choice is now between CalSavers and a real plan rather than between a plan and nothing, the relevant comparison has shifted — and the SECURE 2.0 startup credits, which can cover up to 100% of eligible startup costs for employers with 50 or fewer employees for the first three years, offset much of what used to be the objection. Details and eligibility in our tax credit guide, and the full comparison in CalSavers vs a 401(k).
Every plan in the table satisfies the mandate. CalSavers itself is a Roth IRA under the hood — with IRA-level limits and no employer contribution allowed — which is why owners who want to save meaningfully for themselves usually end up looking past it.
A decision path that actually works
- No employees, none coming soon? Solo 401(k) almost always wins; a SEP is the simpler runner-up if you only contribute in good years and your income is high.
- Employees, and you want to save modestly? A SIMPLE IRA covers the mandate at the lowest running cost and effort.
- Employees, and you want to max your own retirement savings? Safe harbor 401(k) — and if you're a high-income owner over roughly 45, ask about layering a cash balance plan on top.
- Under ten employees and cost-obsessed? Price a pooled employer plan against a standalone safe harbor design before deciding. Our cost guide explains what you're pricing.
Two numbers drive everything: your target contribution for yourself, and your payroll. Bring those two to any conversation — with us or anyone else — and the right answer usually falls out in minutes. Our plan cost estimator and CalSavers vs 401(k) calculator do the first-pass arithmetic.
Common questions
Can I have both a SEP and a 401(k)?
Technically yes, but the combined limits and coverage rules make it rarely worthwhile. Most owners in this position are better served by terminating one and consolidating. If you already have both, have a TPA check the combined deduction limits before the next contribution.
What is a pooled employer plan?
A PEP lets unrelated employers join a single 401(k), sharing administration and much of the fiduciary burden. It can lower cost and effort for very small employers, with less customisation in exchange. Full explainer →
Does a Solo 401(k) work if I have a part-time employee?
Only while they stay under the plan's eligibility thresholds — historically 1,000 hours a year, and now also the long-term part-time rules, under which employees with consecutive 500-hour years must be allowed to defer. Once anyone qualifies, the plan is no longer owner-only and must be restructured. Details in the solo 401(k) guide.
Can I switch plan types later?
Yes, with timing rules. SIMPLE IRAs generally run on a calendar-year basis with notice deadlines, and replacing one mid-year has restrictions (SECURE 2.0 loosened some of them). SEPs can usually be stopped and replaced more freely. Plan the switch with a TPA a quarter ahead rather than in December.
Sources
- IRS, Retirement Topics — Contribution Limits and Choosing a Retirement Plan, irs.gov
- IRS, SEP Plan FAQs and SIMPLE IRA Plan FAQs, irs.gov
- SECURE 2.0 Act of 2022, §§ 102 and 121 (startup credits); IRS Form 8881 instructions, irs.gov
- Cal. Gov. Code § 100032 et seq. (CalSavers); calsavers.com
- U.S. Department of Labor, Choosing a Retirement Solution for Your Small Business, dol.gov
Not sure which one fits?
We will look at your census, your goals, and what you actually want to put away — then tell you which plan gets you there for the least.