For a business owner, the company 401(k) is two things at once: a benefit for employees and one of the largest tax-advantaged places to save for your own retirement. How much you can personally put in depends less on the IRS limits than on how the plan is designed, because nondiscrimination testing can cap what owners and other highly paid employees save if rank-and-file employees save little. Safe harbor and profit-sharing designs are the usual ways around that.
What are the 2026 limits?
For 2026, the IRS limits are (IRS, November 2025):
- $24,500 in employee deferrals, pre-tax or Roth.
- $8,000 more in catch-up deferrals from age 50, or $11,250 for ages 60 through 63.
- $72,000 in total additions to one person's account from all sources, before catch-ups.
- $360,000 as the most compensation that can be counted for contributions.
The gap between $24,500 and $72,000 is employer money: matching and profit-sharing contributions. For an owner, that gap is where most of the opportunity sits.
Why can't owners always use the full limit?
Traditional 401(k) plans must pass annual tests that compare what highly compensated employees defer with what everyone else defers. If the gap is too wide, the plan fails, and the usual fix is refunding some of the highly paid employees' contributions. A separate top-heavy rule applies when more than 60% of plan assets belong to key employees, which is common in small companies, and it can require a minimum employer contribution for everyone else.
Many owners think they have a 401(k) problem. Usually they have a plan design problem.
What is a safe harbor 401(k)?
A safe harbor plan promises a set employer contribution to employees, fully vested. In exchange, the plan is treated as passing the deferral tests, and usually the top-heavy test too. Common designs are a basic match of 100% of the first 3% of pay plus 50% of the next 2%, an enhanced match of 100% of the first 4%, or a 3% contribution to every eligible employee whether they defer or not. Owners can then defer the full amount without fear of refunds. Notice and timing rules apply when adding or changing safe harbor provisions.
How does profit sharing help owners?
A profit-sharing contribution is a discretionary employer contribution, decided each year. With a design often called "new comparability" or cross-tested, the plan can give different groups different contribution rates, as long as the overall result passes testing, which often allows larger contributions for older owners relative to a younger staff. Combined with a safe harbor contribution and the owner's own deferrals, this is how many owners reach the $72,000 total. For owners who want to save beyond that, a cash balance plan can be added on top; see cash balance plans for practice owners.
What changed with SECURE 2.0?
- Roth catch-ups for higher earners. Employees whose prior-year wages from the employer exceeded an indexed threshold must make catch-up contributions as Roth. For 2026, the threshold is $150,000 of 2025 FICA wages from the employer (IRS, Notice 2025-67, November 2025). The final regulations, published September 16, 2025 (T.D. 10033), generally apply from 2027, with a reasonable, good-faith reading of the rule expected in 2026.
- The age 60 to 63 catch-up. The higher $11,250 catch-up for those ages, if the plan allows it.
- Startup credits. Small employers starting a new plan may qualify for tax credits. The startup credit covers up to $5,000 a year of plan costs for three years: 100% of eligible costs for employers with 50 or fewer employees, 50% for 51 to 100. A separate credit covers up to $1,000 per employee a year of employer contributions to a defined contribution plan over five years, phasing down after year two. The employer must have had 100 or fewer employees earning at least $5,000 in the prior year (IRS, Retirement Plans Startup Costs Tax Credit, updated May 2026).
- Automatic enrollment. Most new 401(k) plans established after December 29, 2022 must automatically enroll eligible employees starting in 2025, with exceptions for new and very small businesses.
What duties come with sponsoring the plan?
As the plan sponsor, your company is a fiduciary under ERISA. That means choosing and monitoring the investment menu prudently, making sure fees are reasonable, and running the plan for the sole benefit of participants, including you. Many owners do not realize the investment lineup is their personal legal responsibility unless they formally hand it to an investment manager. A 3(38) investment fiduciary takes on selecting, monitoring and replacing the funds, which narrows your duty to prudently hiring and monitoring them. We explain that in what a 3(38) fiduciary actually does.
A hypothetical example
Hypothetical. The owner of a Utah company with 20 employees wants to save the most she can. Her plan has no safe harbor, and each spring some of her deferrals are refunded because staff participation is low. Her advisor and the plan's administrator model a safe harbor 3% contribution for all eligible employees plus a cross-tested profit-sharing contribution. The company's cost for employees rises. In exchange, her own deferrals are no longer refunded, the employer contributions reach her account too, and her team gets a richer benefit. Whether the trade is worth it depends on the company's cash flow and how much the benefit helps hiring and retention.
Your company 401(k) does not have to be a second job. Our page for Utah employers explains how we serve as a 3(38) investment fiduciary, run trustee meetings, coordinate the plan's vendors and help design plans owners can actually use.
Educational only. Not investment, tax, or legal advice. Every situation is different; the right answer depends on the numbers, and that's what the strategy session is for. Investing involves risk, including possible loss of principal.