Retirement Plans for New Business Owners: Can You Keep Your 401(k) When You Buy a Business?

Can You Keep Your 401(k) When You Buy a Business? The fast answer every buyer needs

Hook: You just closed on a business — congratulations — but now you’re staring at a tangle of retirement accounts, payroll setup, and tax questions. Can you keep your old 401(k)? Should you roll it into a Solo 401(k) or a SEP IRA? Will S‑corp payroll rules shrink what you can contribute? These are the exact pain points new business owners tell us keep them up at night.

This article cuts through the noise. Below you’ll get practical, step‑by‑step guidance for what to do with an existing 401(k) when you buy or form a business, how different entity types change payroll and contribution math, what to expect on costs and compliance, and which retirement strategy commonly makes sense in 2026. We also cover recent trends (late 2025–early 2026) that affect rollovers and plan administration so you can move with confidence.

Executive summary — the key takeaways

• Yes, you can keep or move a 401(k) — you generally can leave it with the prior employer, roll it to an IRA, or roll it into a new plan (Solo 401(k) or employer 401(k)) if the new plan accepts rollovers.
• Entity type matters — how much an owner can contribute depends on whether the business is a sole proprietorship, partnership, S‑corp, or C‑corp, and whether you will have employees who change plan testing and administrative requirements.
• If you’re a one‑owner shop, Solo 401(k) and SEP IRAs are the two front‑runner options — Solo 401(k) usually allows higher employee deferrals and Roth options; SEP is simpler to administer but employer‑funded only.
• Watch deadlines, payroll setup, and nondiscrimination rules — contributions, plan adoption timing, and payroll classification (W‑2 vs. self‑employment income) determine what you can contribute and when.

Retirement-account options when you buy a business

When you acquire or form a business, you typically face four parallel options for an existing 401(k):

1. Leave the plan where it is. Many 401(k) plans will allow former employees to keep their balances in the old plan. This is low friction but keeps you bound to the plan’s investment menu and fee structure.
2. Roll it to an IRA (Traditional or Roth). A rollover IRA offers a broad investment menu and consolidation convenience. Consider taxes with Roth conversions and be careful with the 60‑day rule if you do an indirect rollover.
3. Roll it into your new employer plan — Solo 401(k) or company 401(k). If you set up a Solo 401(k) (owner only, or owner + spouse) or a company 401(k) that accepts rollovers, you can move funds directly. A direct trustee‑to‑trustee rollover avoids tax withholding and the 60‑day clock.
4. Use SEP‑IRA or SIMPLE options. SEP IRAs are employer contributions only and accept rollovers (because they’re IRA‑based). SIMPLE plans are rarely used right after purchase because they carry a two‑year participation rule for employer contributions.

How to decide: the quick checklist

• How many employees will the business have? If any full‑time employees exist, Solo 401(k) becomes unavailable.
• Do you need Roth capability or loan access? Solo 401(k) can offer both; SEP cannot.
• How comfortable are you with plan administration? SEP is simple; 401(k) requires payroll integration and possibly Form 5500 filing.
• Compare fees & investment options across leaving the old plan, IRA, and new plan.

Entity type — how payroll classification changes retirement contributions

Entity selection affects how retirement contributions are calculated and taxed. Below are the practical payroll implications for common entity structures.

Sole proprietorship / single‑member LLC (taxed as sole prop)

• Owner income is reported as net self‑employment earnings on Schedule C. Retirement contribution limits for owner contributions are based on adjusted net earnings after the self‑employment tax deduction.
• Solo 401(k) allows the owner to make employee deferrals (from what would be W‑2 but in this case are elective deferrals based on self‑employment) and employer profit‑sharing contributions, generally resulting in a relatively high maximum.
• SEP IRAs are easy: employer contributes a percentage of net earnings. There’s no employee deferral option in SEP plans.

Partnership / multi‑member LLC (taxed as partnership)

• Partner “self‑employment” income is used to calculate retirement contribution capacity. A Solo 401(k) is only an option if all partners who are employees are the only participants — in practice, a Solo 401(k) rarely fits once there are non‑owner employees.
• SEPs are commonly used by partnerships because allocation is employer‑centric and easier to apply across partners, but check fairness and buy‑in expectations.

S‑Corporation

• Owner‑operators must be W‑2 employees. Retirement contribution calculations for employer profit‑sharing are based on W‑2 wages, not distributions — this makes salary choice crucial because a higher W‑2 wage increases retirement contribution capacity.
• 401(k) plans (including Solo if only owner+spouse) allow payroll deferrals from W‑2, but a Solo 401(k) loses eligibility when employees are later added.
• Because S‑corp distributions don’t count as compensation for retirement calculations, many owners optimize by setting a reasonable W‑2 salary to maximize retirement contributions while managing payroll taxes.

C‑Corporation

• Owner is an employee; contributions calculated off wages. Corporations can set up 401(k) plans, offer employer matches, and deduct contributions as business expenses.
• For predictable contributions and formal benefits packages, C‑corps can be attractive — but weigh double taxation nuances of dividends vs. wages.

Compliance and annual filing requirements — what to watch for

Setting up or rolling retirement funds brings compliance responsibilities. Here are the rules that typically trigger filings or testing:

• Form 5500 family: If your plan is a 401(k) or similar and plan assets exceed the Department of Labor/IRS filing threshold at year‑end, you will need to file a Form 5500 or Form 5500‑EZ/SF. Solo 401(k) plans often escape annual filing until the plan grows past that threshold—confirm current thresholds before year‑end.
• Nondiscrimination testing (ADP/ACP): Employer 401(k) plans with non‑owner employees must pass tests that prevent disproportionate benefits for highly compensated employees. SEP IRAs do not require these tests.
• Payroll processing and deposits: Employee elective deferrals must be deposited on a timely schedule. Mishandling deferrals can create corrective actions and penalties.
• Plan documents: Every plan (401(k), SEP, SIMPLE) must have written plan documents and summary plan descriptions where required. Consider modern approaches to document management and filing—see our recommended playbooks for collaborative filing and platform consolidation.

Pro tip: If you adopt an employer plan mid‑year or after buying a business, talk with your CPA and plan provider immediately about adoption deadlines, contribution windows, and whether you can make employer profit‑sharing contributions for the prior tax year — rules vary by plan type and entity.

Costs and fees — what to budget

Plan costs vary widely. Expect a mix of:

• Setup fees — Solo 401(k) and SEP setup is usually modest; full 401(k) plan setups can be higher.
• Recordkeeping & administrative fees — these are the recurring costs that matter most. They rise if you have employees and need payroll integration, nondiscrimination testing, or third‑party administration (TPA).
• Advisory & audit support — if you pass the filing threshold that requires an audit (rare for small plans), audit costs can be material.
• Investment fees — differences in mutual fund expense ratios, ETFs, and platform trading fees can significantly affect long‑term outcomes.

Practical, step‑by‑step: How to handle a 401(k) when you buy a business

Step 1 — Pause, inventory, and compare

1. List all retirement accounts (401(k), 403(b), traditional IRA, Roth IRA) and note balances, fees, investment options, and loan/withdrawal rules.
2. Ask the former employer about in‑plan rollover rules and any restrictions.
3. Ask potential new plan providers whether rollovers are accepted and how long trustee‑to‑trustee rollovers typically take.

Step 2 — Decide which plan structure fits the new business

• If you will be the only participant, a Solo 401(k) often provides the best combination of employee deferrals, employer profit‑sharing, Roth and loan options.
• If you plan on hiring or inheriting employees immediately, a SEP IRA or small‑employer 401(k) might be more appropriate.

Step 3 — Set up payroll correctly from day one

• Classify the owner appropriately (W‑2 vs. self‑employed) based on entity — this affects contribution calculations and tax withholding.
• Coordinate payroll provider integration — many modern payroll platforms offer turnkey retirement plan integrations (2025–2026 trend).

Step 4 — Perform the rollover the right way

• Use a direct trustee‑to‑trustee rollover whenever possible to avoid withholding and the 60‑day indirect rollover risk.
• Document the rollover and keep statements that show the transfer source and destination; modern collaborative filing and document playbooks can help here (see filing playbook).
• If converting to Roth, model the tax impact with your CPA before initiating.

Step 5 — Ongoing compliance

• Monitor plan assets, understand when Form 5500 may be required, and ensure payroll deposits of employee deferrals meet timely deposit rules.
• Run nondiscrimination testing if you have non‑owner employees or convert from a Solo plan to a multi‑employee plan.

Short case studies — real scenarios and recommended moves

Case A: Solo buyer — single owner, buys a small e‑commerce shop

Sara closes on a brand she runs alone. She has a 401(k) from her previous employer with high fees. Recommendation: set up a Solo 401(k) with a low‑cost provider, do a direct rollover, and keep both elective‑deferral and employer profit‑sharing flexibility. Integrate with payroll software for periodic deferrals and consider Roth conversions if taxes are favorable.

Case B: Buyer takes over a business with 8 employees

James acquires a hardware business with several employees. A Solo 401(k) is off the table. Options: adopt a company 401(k) that accepts rollovers (with formal nondiscrimination testing and recordkeeping) or set up a SEP IRA for simplicity. If retaining employees, weigh matching incentives (401(k) match) to attract and retain staff versus the simplicity and lower admin costs of a SEP.

Case C: S‑corp buyer optimizing contributions

Priya forms an S‑corp and pays herself a reasonable W‑2 salary. Since contributions for retirement are limited to W‑2 wages, she increases a modest salary and uses employer profit‑sharing contributions to maximize deductible retirement savings while balancing payroll taxes. Consulting a CPA is critical to define a defensible 'reasonable compensation' number.

2026 trends and near‑term predictions (what to expect now)

• Seamless rollovers via fintech: In late 2025 and now in 2026, several major payroll and retirement platforms expanded trustee‑to‑trustee APIs. That means faster rollovers, near‑real‑time transfers, and better reporting between custodians and payroll providers.
• More integrated payroll + plan bundles: SMB payroll providers are bundling retirement plans as a standard add‑on. This reduces administrative friction for new business owners setting up employer contributions.
• Increased DOL and IRS attention on small plans: Regulators are focusing more on plan governance and timely deposit of employee deferrals. Expect stronger enforcement and the need for robust recordkeeping; see the collaborative filing playbook for modern approaches (filing & tagging).
• Portable, aggregator accounts: Emerging portable benefit providers are experimenting with multi‑employer aggregates. For serial business buyers who move between small companies, these solutions will mature in 2026 and may simplify continuity of retirement savings.

Common pitfalls and how to avoid them

• Wrong payroll classification: Misclassifying owner income reduces allowable contributions or triggers payroll tax problems. Consult payroll and tax pros before you finalize entity and pay structure.
• Ignoring in‑plan restrictions: Some legacy 401(k) plans restrict rollovers of employer contributions or have blackout windows. Ask the plan administrator early.
• Missing filing thresholds: Don’t assume a Solo 401(k) never files a Form 5500 — large balances can trigger filings. Check thresholds before year‑end.
• Roth conversion surprises: Converting pre‑tax balances to Roth triggers current year income tax. Model the impact first.

Actionable checklist — what to do in the next 30 days

1. Inventory all retirement accounts and request plan documents from prior employers.
2. Decide on the new entity and payroll classification with your CPA.
3. Contact two retirement plan providers (one low‑cost Solo option and one small‑employer 401(k) provider) and request roll‑in procedures and fee schedules.
4. Set up payroll and integrate retirement deferrals before the first pay run once you file payroll as an employer.
5. Complete a direct trustee‑to‑trustee rollover if you choose to consolidate — avoid the 60‑day indirect rollover unless absolutely necessary.
6. Document everything and schedule an annual plan review with your advisor.

"For many new business owners, the best retirement outcome is achieved by planning the payroll and retirement setup at the moment of acquisition — not after the fact." — Senior Editor, entity.biz

When to call an expert

If any of these are true, loop in a qualified CPA or ERISA attorney before you move money:

• You’re buying a business with employees and considering a company 401(k).
• You want to leverage large profit‑sharing contributions or establish a safe‑harbor plan.
• You plan complex conversions (e.g., large Roth conversions or in‑service rollovers) with material tax impact.

Final checklist — make your decision with confidence

1. Confirm rollover rules and preferred method (direct vs. indirect).
2. Pick the retirement vehicle that aligns with headcount and long‑term goals (Solo 401(k) for owner‑only, SEP for simple employer contributions, full 401(k) for employee recruitment/retention).
3. Set payroll correctly and integrate with your chosen provider.
4. Keep documentation and calendar recurring compliance checkpoints.

Next steps — a simple plan to act now

If you’re buying a business this quarter, start by collecting the prior 401(k) plan document and contacting two recommended plan providers. Line up your CPA to finalize the entity and payroll classification, then perform a direct rollover while you still have active support from the prior plan administrator. Small actions early prevent costly compliance headaches later.

Call to action: Ready for a tailored recommendation? Get our free 5‑point retirement setup checklist for business buyers, and schedule a 20‑minute call with a retirement specialist to review your options based on the entity you formed. Secure your retirement continuity — and get back to running the business you bought.