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If you work for a for-profit company, you may have access to a 401(k) plan, which typically allows you to save up to $19,500 per year (for tax year 2020). Many nonprofit organizations offer 403(b) plans to their employees. As with a 401(k), your contributions to a 403(b) plan are deductible on both your federal and state taxes in the year that you make them. Nonprofit employees can generally contribute up to 20 percent or $19,500 of their salaries, whichever is less. In addition to the upfront and ongoing tax benefits of these retirement savings plans, some employers match your contributions.

Older employees (defined as being at least age 50) can contribute even more into these company-based plans — up to $26,000 in 2020. Of course, the challenge for many people is to reduce their spending enough to be able to sock away these kinds of contributions.

If you’re self-employed, you can establish your own retirement savings plans for yourself and any employees that you have. In fact, with all types of self-employment retirement plans, business owners need to cover their employees as well. A simplified employee pension individual retirement account (SEP-IRA) allows you to sock away about 20 percent of your self-employment income (business revenue minus expenses), up to an annual maximum of $57,000 (for tax year 2020). Each year, you decide the amount you want to contribute — no minimums exist.

If you’re an employee in a small business, you can’t establish your own SEP-IRA — that’s up to your employer. Many plans also allow business owners to exclude employees from receiving contributions until they complete a year or two of service.

Owners of small businesses shouldn’t deter themselves from doing a retirement plan because employees may receive contributions, too. If business owners take the time to educate employees about the value and importance of these plans in saving for the future and reducing taxes, they’ll see it as a rightful part of their total compensation package.

One-person small business owners can also consider the individual or solo 401(k). You can put away the same amount of money as in a SEP-IRA as an employer contribution and then also contribute as an employee up to the employee limits for a 401(k) plan as detailed earlier in this section. If you have employees, these plans can get complicated quickly because you will generally need to cover them in the plan and meet other “discrimination testing” requirements. Speak with a tax advisor if you need more information.