As your agency grows past the half-million and million-dollar marks, taxes become one of your biggest expenses. One of the best ways to bring that bill down is by using the right retirement plan.
The problem is that choosing the wrong plan can cost your agency thousands in unnecessary contributions, fees, and compliance requirements. Retirement plans are powerful, but only when they match your team size, cash flow, and growth stage.
Here is a clear breakdown of the three plans agency owners typically consider, plus when you might want to skip a retirement plan altogether.
Why retirement plans matter
Retirement plans reduce taxable income and build long-term wealth at the same time. With the right setup you can shelter tens of thousands of dollars from tax each year. But the key phrase is the right setup.
SEP
Best for solo owners with no W2 employees. A SEP is simple and lets you contribute twenty five percent of your salary up to a high annual limit.
Where agencies get burned
A SEP requires you to contribute the same percentage to every eligible employee that you contribute to yourself. If you put thirty thousand away for yourself and have a project manager earning sixty thousand, that person gets seventy five hundred. As your team grows, this becomes painfully expensive. Use this only if you are solo and staying solo for a while.
Solo 401k
Best for owners with no employees or only a spouse on payroll. A Solo 401k allows both employee and employer contributions, usually letting you save more than a SEP for the same salary.
The limitation
Once you hire full-time employees, you cannot keep a Solo 401k. You must convert to a full 401k plan, which means new rules and added cost. Great if you want to save aggressively and are not planning to hire soon.
Safe Harbor 401k
Best for agencies with employees or agencies planning to hire soon. A Safe Harbor plan avoids compliance testing by using a simple employer match. It keeps things predictable for both the owner and the team.
Why it works so well for agencies
- Owners get to max out contributions without testing issues
- Employees get a clear, consistent match
- The employer match is deductible
- It helps with recruiting and retention
This is the natural fit once your agency is growing past a few full-time team members.
Not every agency should run a retirement plan
This is the part most accountants gloss over. There are situations where it is better not to start a retirement plan yet.
1. Cash flow is tight, or you are in hypergrowth
Retirement contributions are a cash draw. If you need liquidity for hiring, payroll, ads, or growth investments, tying up money in a retirement plan may slow you down. It is okay to wait.
2. You can get the benefit with something simpler
If you want to save a smaller amount, you can personally contribute to an IRA. Contribution limits rise to seventy five hundred in 2026. And even if you make too much for a Roth, you can use a backdoor strategy to get money into a Roth IRA each year.
For some agency owners, especially those reinvesting heavily into growth, this is the smarter route for now.
How to make the right call
Here is a simple framework.
Solo owner, no plans to hire
Solo 401k for maximum savings. SEP only if you want the simplest possible setup.
Solo now, but planning to hire
Skip the Solo 401k and go straight to a Safe Harbor plan when you are ready.
Already have employees
Safe Harbor 401k is almost always the correct fit.
Cash flow is tight or you are scaling quickly
Use an IRA or Roth IRA instead and revisit a full retirement plan later.
Final thoughts
Retirement plans can be one of the strongest tax moves for agency owners. The right plan saves you money and builds long-term wealth.
The wrong plan costs you thousands and can drain cash from your business at the worst time.
