For business owners, year-end retirement planning is about more than saving. A retirement plan can be one of the largest deductions available to you, and a Roth conversion can reshape your tax picture for years to come. But the deadlines are not all the same. Some decisions can wait until you file your 2026 return. Others have to be made by December 31.
Here is what to review while there is still time to act, starting with the deadlines.
Plans you can still set up for 2026
The type of plan you choose determines how much you can contribute and how long you have.
SEP IRA. A SEP is the simplest option and the most forgiving on timing. You can set up and fund a SEP for 2026 as late as your tax return due date, including extensions. Employer contributions are generally limited to 25% of each participant’s compensation (a lower effective percentage for self-employed owners), up to $72,000 for 2026. If you have eligible employees, you generally have to contribute the same percentage of pay for them.
Solo 401(k). For an owner with no employees other than a spouse, a solo 401(k) usually allows larger contributions at moderate income levels, because you can contribute both as the employee and as the employer. The 2026 employee deferral limit is $24,500, shared across every 401(k) or similar plan you participate in, so a deferral at another job counts against it. Owners 50 and older can add catch-up contributions, although for 2026 anyone whose 2025 wages from the sponsoring employer topped $150,000 must make those catch-ups as Roth contributions, which are not deductible. Timing depends on how your business is set up:
- A sole proprietor with no employees can now adopt a first-year 401(k) after year-end and still make employee deferrals for that year, as long as both the plan and the deferrals are in place by the original tax filing deadline (without extensions).
- If you are paid W-2 wages, such as through an S corporation, deferrals come out of your paychecks. Put the plan in place and make your deferral election before your final 2026 payroll, or there will be no 2026 pay left to defer.
Profit-sharing and cash-balance plans. These can be adopted as late as the business’s tax filing deadline, including extensions, and can allow much larger deductions for high-income owners. Cash-balance and other defined benefit plans come with ongoing funding requirements and minimum funding deadlines that can fall before your extended filing date, so they need careful modeling first.
SIMPLE IRA. A SIMPLE IRA generally had to be set up by October 1 to cover 2026, so it is no longer an option for this year for most existing businesses. If it fits your business, put it on the calendar for 2027.
If you already have a plan, check whether you are on track to use the full contribution limit, and confirm any deferral changes with your payroll provider before the last paychecks of the year.
A Roth conversion has to happen by December 31
A Roth conversion moves money from a traditional IRA, SEP IRA, or similar account into a Roth IRA. You pay income tax now on the taxable portion of what you convert. In exchange, qualified withdrawals later are tax-free, and Roth IRAs have no required minimum distributions during your lifetime.
Unlike most retirement contributions, a 2026 conversion must be completed by December 31, 2026. A conversion also cannot be undone once it is made, so get the size right the first time.
Conversions often make the most sense in a year when your income is lower than usual, such as:
- A slow year for the business
- A year with large deductions, such as a major equipment purchase
- The years between selling or stepping back from a business and starting Social Security or required distributions
A conversion usually raises this year’s tax bill, so it is not a way to cut your 2026 taxes. It is a bet that paying tax at today’s rate will cost less than paying it later. Converting part of a balance, sized to stay within your current tax bracket, is often more efficient than converting everything at once.
Watch the pro-rata rule
If you have made nondeductible (after-tax) contributions to a traditional IRA, you cannot choose to convert only those dollars. For this calculation, the IRS combines all of your traditional IRAs, including SEP and SIMPLE IRAs, and spreads your after-tax basis across them using year-end balances. If most of that combined balance is pre-tax, most of any conversion will be taxable. That includes a SEP IRA funded through your business.
This matters for owners considering a “backdoor” Roth contribution. A large pre-tax SEP IRA balance can make most of a backdoor conversion taxable. Form 8606 tracks your after-tax basis, so keep copies from every year you made a nondeductible contribution.
Run the numbers before you decide
Retirement contributions and Roth conversions both depend on what else is on your return. Before December, gather:
- Year-to-date profit and a realistic estimate for the rest of the year
- W-2 wages paid to you (for S corporation owners)
- Contributions already made to any retirement plan
- Balances and basis for every traditional, SEP, and SIMPLE IRA
- Estimated tax payments and withholding so far
A conversion adds income, so it may also call for a larger January 15 estimated payment or more withholding to avoid an underpayment penalty. Remember state income tax too. Colorado and Hawaii each have their own rules for retirement income, and Hawaii’s top rates are among the highest in the country, so include the state side in your projection.
Make the decisions while they are still yours
Year-end retirement planning works best as part of a full year-end tax projection, not as a one-off decision. Contact Key2 Accounting to review your 2026 numbers before December. We help business owners across Colorado and Hawaii choose the right plan, meet the right deadline, and decide whether a Roth conversion makes sense this year.