Types of 401(k) plans and 2026 contribution limits

As a business owner, you’re already thinking about hiring, growth, and how to keep strong employees on your team. Benefits naturally become part of that discussion. As your company expands, you may begin considering whether offering a retirement plan — whether that’s a 401(k) for employees or a solo plan for yourself — makes sense for your workforce and your bottom line.

A 401(k) is a company-sponsored retirement plan that allows employees to save through payroll deductions, often with optional employer contributions. Plan types vary in contribution requirements, annual testing rules, and administrative complexity. The one you choose affects costs, compliance responsibilities, and the level of flexibility you have in managing it.

The sections below break down the main types of 401(k) plans so you can compare your options and decide what fits your company.

• What is a 401(k) plan?
• Types of 401(k) plans
• The traditional 401(k)
• Roth 401(k) plan
• The safe harbor 401(k)
• The SIMPLE 401(k)
• The solo 401(k)
• Other retirement plan options
• How to choose the right 401(k) plan as an employer
• Making the 401(k) decision for your business

What is a 401(k) plan?

A 401(k) plan is an employer-sponsored retirement plan established under section 401(k) of the Internal Revenue Code. 

It allows employees to contribute a portion of their wages to individual accounts within the plan through payroll deductions. Those contributions are typically invested in a menu of plan-selected securities, such as mutual funds and exchange-traded funds (ETFs), and the account balance grows or declines based on contributions and investment performance. Employers may also choose to contribute, subject to IRS rules and annual limits.

Types of 401(k) plans

If you’re considering offering a 401(k) plan, one of the first decisions you’ll make is which type works best for your business. Common types of 401(k) plans include: Traditional 401(k) plan Roth 401(k) plan Safe harbor 401(k) plan SIMPLE 401(k) plan Solo 401(k) plan.

 401(k) plan types at a glance (2026)

The traditional 401(k)

A traditional 401(k) is the most common type of employer-sponsored 401(k). Employees make contributions on a pre-tax basis through payroll deductions. Those contributions reduce their federal taxable income for the year. Taxes are paid later, when funds are withdrawn in retirement, and withdrawals are generally taxed as ordinary income.

Plan requirements

To offer a traditional 401(k), you must adopt a written plan document that complies with IRS and Department of Labor rules. As the plan sponsor, you’re responsible for operating the plan in accordance with its terms and federal regulations. Many small businesses work with a third-party administrator (TPA) or recordkeeper to help manage compliance.

Traditional 401(k) plans are typically subject to annual IRS nondiscrimination testing. These tests compare contribution rates between highly compensated employees and other eligible employees to confirm the plan does not disproportionately benefit owners or top earners.

Filing requirements

Employers or their plan administrators are responsible for filing Form 5500. This form reports information on the plan’s qualifications, financial condition, investments, and operations. 

Employee eligibility, vesting, and withdrawals

Eligibility rules are set in your plan document, within federal limits. In general, a plan may require employees to be at least age 21 and complete up to one year of service before participating.

Vesting

If you offer employer matching or nonelective contributions, you may apply a vesting schedule. Vesting determines how long an employee must work before gaining full ownership of employer contributions. 

For example, an employee might have to work for two years before receiving a 20% vested interest in their employer’s contribution.

Withdrawals

Withdrawals before age 59½ may be subject to income tax and an additional 10% early withdrawal penalty, unless an exception applies. Required minimum distributions (RMDs) generally must begin at age 73 under current law.

Contribution rules and limits for 2026

Contribution limits are adjusted periodically for inflation. Currently, the 2026 IRS employee contribution limit for a traditional 401(k) is $24,500.

• Employees age 50 or older may make an additional $8,000 catch-up contribution.
• Employees ages 60 through 63 may be eligible for a higher catch-up limit. For 2026, that enhanced catch-up amount is $11,250.

Employers may choose to match employee contributions, make nonelective contributions, or both. In 2026, the combined employer and employee contributions cannot exceed $72,000, excluding catch-up contributions.

Roth 401(k) plan

A Roth 401(k) is offered within a 401(k) plan and allows employees to make after-tax contributions through payroll deductions. Unlike a traditional 401(k), contributions do not reduce taxable income in the year they’re made. However, qualified withdrawals in retirement — including earnings — are generally tax-free.

From an employer standpoint, the administrative structure is largely the same as a traditional 401(k). The primary difference is how employee contributions are taxed.

Plan requirements

If you offer a Roth 401(k) feature, it must be part of a 401(k) plan that also allows traditional pre-tax contributions. Roth contributions are made on an after-tax basis, but the plan itself must meet the same IRS and Department of Labor requirements as any other 401(k).

As with a traditional 401(k), you are the plan sponsor and are responsible for maintaining a written plan document and operating the plan according to federal rules. 

Filing requirements

Employers or their plan administrators must file Form 5500 annually, unless the plan qualifies for a small-plan filing exception.

Employee eligibility, vesting, and withdrawals

Eligibility requirements are defined in your plan document and comply with federal guidelines. Like a traditional 401(k), the plan may require employees to be at least 21 years old and to complete up to 1 year of service before participating.

Vesting

If you offer employer matching or nonelective contributions, you may apply a vesting schedule. Vesting determines when employees gain full ownership of employer contributions. Roth employee contributions are always fully vested.

Withdrawals

Qualified Roth withdrawals are generally tax-free if the account has been held for at least five years and the participant is age 59½ or older.

Under current law, required minimum distributions (RMDs) do not apply to designated Roth 401(k) accounts during the participant’s lifetime. Pre-tax balances within the same plan remain subject to RMD rules, which generally begin at age 73.

Contribution rules and limits for 2026

Roth 401(k) contribution limits are combined with traditional 401(k) limits because both fall under the same elective deferral cap.

Employees may contribute up to $24,500, plus an $8,000 catch-up if age 50 or older, or $11,250 if ages 60 through 63, if the plan allows.

Employers may choose to match employee contributions, make nonelective contributions, or both. Total combined employer and employee contributions are also subject to annual IRS limits of $72,000, not including catch-up contributions.

 The safe harbor 401(k)

A safe harbor 401(k) is designed to automatically satisfy annual IRS nondiscrimination testing requirements that apply to traditional and Roth 401(k) plans. In exchange for avoiding those annual tests, employers must commit to making specific contributions that are fully vested.

For businesses with owners or highly compensated employees who want to maximize their own contributions, a safe harbor structure can provide greater predictability. It generally lets you contribute up to annual limits without worrying about failed nondiscrimination tests or unexpected refunds.

Plan requirements

To qualify as a safe harbor plan, you must follow specific IRS contribution and notice rules.

• Employers are required to provide eligible employees with a written annual notice explaining their rights and obligations under the plan. The notice must describe the safe harbor contribution formula and how employees can make deferral elections.
• The notice must generally be provided at least 30 days and no more than 90 days before the start of each plan year.

Filing requirements

Employers or their plan administrators must file Form 5500 annually, unless the plan qualifies for a small-plan filing exception.

Employee eligibility, vesting, and withdrawals

Eligibility rules are defined in your plan document, within federal limits. A plan may require employees to be at least age 21 and complete up to one year of service before participating.

Vesting

Safe harbor employer contributions must be 100% vested immediately. Employees have full ownership of those contributions as soon as they are made.

Withdrawals

Withdrawals before age 59½ may be subject to income tax and an additional 10% early withdrawal penalty, unless an exception applies. Required minimum distributions (RMDs) generally begin at age 73 for pre-tax balances.

Contribution rules and limits for 2026

Safe harbor plans require mandatory employer contributions. You may choose one of the following structures:

• Basic match: 100% match on the first 3% of compensation deferred, plus 50% match on deferrals between 3% and 5%.
• Enhanced match: At least a 100% match on the first 4% of compensation deferred.
• Nonelective contribution: At least 3% of compensation for all eligible employees, regardless of whether they make deferrals.

Like other 401(k) plans, total combined employer and employee contributions are subject to the annual IRS limit of $72,000 in 2026, not including catch-up contributions.

The SIMPLE 401(k)

A SIMPLE 401(k) is intended for employers that want a streamlined retirement plan with fewer compliance requirements than a traditional 401(k).

To qualify, your business must have 100 or fewer employees who earned at least $5,000 in compensation during the preceding year. You also generally cannot maintain another qualified retirement plan in the same year.

Like a safe harbor plan, a SIMPLE 401(k) is not subject to annual nondiscrimination testing. In exchange, employers must make required contributions that are immediately vested.

Plan requirements

To establish a SIMPLE 401(k), you must adopt a written plan document and provide eligible employees with required annual notices explaining their rights and contribution options.

Because this plan is designed to remain simple, contribution formulas are fixed, and additional employer contribution types are not permitted.

Filing requirements

Employers or their plan administrators must file Form 5500 annually.

Employee eligibility, vesting, and withdrawals

Eligibility rules must follow IRS guidelines and be outlined in your plan document.

By default, employees are eligible if they:

• Earned at least $5,000 in compensation during any two preceding years, and
• Are expected to earn at least $5,000 in the current year

You may adopt less restrictive eligibility requirements, but not more restrictive ones.

Vesting

All employer contributions are immediately 100% vested. Employees have full ownership as soon as contributions are made.

Withdrawals

Withdrawals before age 59½ are generally subject to income tax and a 10% early withdrawal penalty. If a withdrawal occurs within the first two years of participation, the penalty may increase to 25%, unless an exception applies.

Required minimum distributions (RMDs) generally begin at age 73 for pre-tax balances.

Contribution rules and limits for 2026

SIMPLE 401(k) plans require mandatory employer contributions. You must adopt one of the following methods:

Matching option

• Match employee deferrals dollar-for-dollar up to 3% of compensation.

Nonelective option

• Contribute 2% of compensation for each eligible employee, regardless of whether the employee makes deferrals.

No other employer contributions are permitted.

For 2026, employees may contribute up to $17,000.

Employees age 50 or older may make an additional $4,000 catch-up contribution.

Employees ages 60 through 63 may be eligible for a higher catch-up contribution of $5,250, if the plan allows.

The solo 401(k)

A solo 401(k), also known as a one-participant 401(k), is designed for business owners who have no employees other than a spouse. It allows you to contribute both as the employee and as the employer, which increases how much you can save each year.

This structure is commonly used by sole proprietors, independent contractors, and owner-only businesses.

Plan requirements

To establish a solo 401(k), you must have self-employment income and an Employer Identification Number (EIN). Your business cannot have any common-law employees other than a spouse.

Because there are no non-owner employees, solo 401(k) plans are not subject to nondiscrimination testing.

Filing requirements

If total plan assets exceed $250,000 at year-end, you must file Form 5500-EZ annually. If assets are below that threshold, filing is generally not required until the plan is terminated.

Employee eligibility and withdrawals

Only the business owner and, if applicable, the owner’s spouse may participate.

Vesting

All contributions are immediately 100% vested.

Withdrawals

Withdrawals before age 59½ are generally subject to income tax and a 10% early withdrawal penalty, unless an exception applies.

Required minimum distributions (RMDs) generally begin at age 73 for pre-tax balances.

Contribution rules and limits for 2026

A solo 401(k) allows two types of contributions:

Employee contributions

• You may contribute up to $24,500 in 2026.
• If you are age 50 or older, you may contribute an additional $8,000 catch-up amount.
• If you are ages 60 through 63, you may be eligible for an enhanced catch-up contribution of $11,250, if the plan allows.

Employer contributions

You may also contribute as the employer. Employer contributions are generally limited to 25% of compensation (or about 20% of net self-employment income for sole proprietors, based on IRS calculations).

Total combined contributions

For 2026, total employer and employee contributions cannot exceed $72,000, not including catch-up contributions.

Plan requirements

If you offer a Roth 401(k), you must also provide a traditional 401(k). Just like traditional 401(k) plan requirements, it’s important to comply with IRS laws and regulations. This means knowing what your service agreement does and doesn’t cover, staying in contact with your plan’s service provider, and informing participating employees about the plan’s details.

Other retirement plan options

A 401(k) isn’t the only way to offer retirement benefits for your employees. Depending on your company’s size, budget, and administrative capacity, other plans may be worth considering.

SEP IRA

A Simplified Employee Pension (SEP) IRA allows employers to make tax-deductible contributions directly to employee IRAs. Only the employer contributes. Contribution amounts can vary from year to year, which gives flexibility if revenue fluctuates.

SIMPLE IRA

A SIMPLE IRA is available to businesses with 100 or fewer employees. It requires employer contributions but involves fewer administrative requirements than a traditional 401(k). Unlike a SIMPLE 401(k), it does not require Form 5500 filing.

Defined benefit plan

A defined benefit plan provides a fixed retirement benefit based on a formula. It is a pension-style plan. Contributions are determined actuarially and can be higher than 401(k) limits. These plans are more complex and typically involve higher administrative costs.

How to choose the right 401(k) plan as an employer

Selecting a 401(k) plan largely depends on your workforce, budget, and how much administrative responsibility you’re prepared to handle. Let’s break it down.

Start with your workforce

If your company includes owners or highly compensated employees who want to contribute the maximum each year, certain plans — like safe harbor 401(k)s — can make that easier by avoiding annual nondiscrimination testing.

If you have 100 or fewer employees and want fewer compliance requirements, a SIMPLE 401(k) may be worth reviewing.

Consider your contribution budget

Some plans give you flexibility. Traditional 401(k) plans allow you to decide whether to match contributions and how much to contribute each year.

Others require mandatory employer contributions. With safe harbor and SIMPLE plans, employer contributions aren’t optional. You must contribute a specific percentage of pay, and employees own that money right away. That fixed cost should be factored into your ongoing payroll planning.

Before choosing a plan, model the annual employer contribution under different participation scenarios so you understand the financial impact.

Understand the administrative workload

Plan structure affects compliance requirements. Traditional plans often require annual nondiscrimination testing. Safe harbor plans avoid that testing but require annual notices and fixed contributions. SIMPLE plans reduce testing but limit flexibility.

You’ll also need to manage plan documents, filings, and employee communications. Many employers work with third-party administrators to handle these responsibilities.

Think ahead

Your workforce may grow. Compensation levels may change. What works today may not be the best fit in three years.

If expansion is likely, choose a structure that can scale without forcing you to redesign the plan. Making the right choice at the outset can reduce future administrative changes and employee disruption.

Making the 401(k) decision for your business

The 401(k) plan you select should fit your workforce today and remain manageable as your business evolves. Before finalizing a plan, review projected employer costs and ongoing compliance responsibilities. A plan provider or financial advisor can help you compare options side by side.

Once your plan is in place, keeping payroll and retirement contributions aligned is key. QuickBooks helps you manage 401(k) deductions, tax reporting, and employee compensation in one place, so administration stays organized as your business grows.