Ask any small business owner about their retirement plan and you’ll hear some version of the same answer: “I’ll sell the business.”
It sounds reasonable. You’ve spent years building something valuable. Why wouldn’t that be worth something when you’re ready to leave?
Here’s the problem: business equity is not a retirement asset until the transaction closes. And most transactions don’t close the way owners expect.
THE EXIT IS NOT THE PLAN
According to BizBuySell, fewer than 20% of businesses listed for sale actually sell. The rest are closed, passed on at below-market value, or handed off under terms far less favorable than the owner anticipated.
Even when a business does sell, the timing is rarely within the owner’s control. A health event, a market shift, a key employee departure, an industry disruption — any of these can force an exit under conditions that compress valuation or eliminate a buyer entirely.
Planning to sell your business to fund retirement is not a retirement plan. It’s a bet with your financial future as the stake.
THE ACCOUNTS YOU’RE PROBABLY NOT USING
Small business owners have access to retirement vehicles that most employees can’t touch. The problem is most owners either don’t know about them or treat them as optional.
The Solo 401(k) is the highest-leverage option for self-employed owners with no full-time employees. You can contribute as both employee and employer — up to $69,000 in 2024 (plus a $7,500 catch-up contribution if you’re over 50). For a high-earning owner, this is the single fastest way to build a retirement account outside the business.
The SEP-IRA allows contributions up to 25% of net self-employment income, with a maximum of $69,000 in 2024. Setup is simple and there’s no annual filing requirement. If you have employees, you’re required to contribute for them too, which is why many owners prefer the Solo 401(k) — but for simplicity, the SEP-IRA is hard to beat.
For owners in peak earning years who are behind on retirement savings, the Defined Benefit plan is often underestimated. Contributions are calculated based on what you’d need to fund a specific annual benefit at retirement — and they can far exceed what any defined contribution plan allows. Annual contributions of $100,000 to $300,000 are not uncommon for owners over 50 playing catch-up. There are administrative costs and actuarial requirements, but the tax deduction can be substantial.
RUNNING TWO PLANS AT ONCE
The mental block most owners hit is this: the business needs capital to grow, and money going into a retirement account is money not being reinvested. You have to choose.
You don’t.
The owners who solve this treat retirement contributions like any other fixed operating cost — not a discretionary surplus that gets funded after everything else. They decide on a contribution target at the start of the year and build it into cash flow planning. The business doesn’t get a retirement contribution line item only in good years.
This requires paying yourself enough to save. That sounds obvious until you realize how many owners reinvest nearly all their cash flow back into the business and take a minimal salary to reduce payroll taxes. The strategy makes sense for growth-stage businesses, but it’s a trap for mature businesses where the owner is also the primary retirement-risk factor.
THE CASH FLOW CONVERSATION
Here’s what separates owners who build wealth from owners who just build businesses: they don’t budget based on revenue. They budget based on cash in hand.
This matters for retirement planning because the temptation is always to wait for the right time — after the next hire, after the equipment purchase, after the slow quarter recovers. That right time rarely comes.
A simple benchmark: if you’re running a profitable business and can’t contribute at least 15% of your gross income to retirement accounts, something is structurally wrong with your cash flow. Either your margins are too thin, your draws are too low, or you’re reinvesting at a rate that assumes a successful exit will fix everything later.
WHAT TO DO THIS YEAR
For most small business owners, the first move is straightforward: open a Solo 401(k) or SEP-IRA before the tax year ends. The deadline for establishing a Solo 401(k) is December 31; the SEP-IRA can be opened as late as your tax filing deadline. You don’t have to fund it immediately — just establish it.
Second, run a projection. What would you need to have saved, outside the business, to cover your basic living expenses in retirement? Work backward from that number to a monthly contribution target. If the number feels impossible, that’s important information — it means your current exit-based plan needs a contingency.
Third, work with a CPA or financial advisor who specializes in business owners. The strategies that optimize for W-2 employees don’t account for self-employment income, business structure, and the tax leverage retirement accounts offer at higher income levels.
Your business is your greatest asset. It shouldn’t be your only one.
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