Construction Retirement Planning for Owners | SEP-IRA vs Solo 401k Guide | Projul

Here’s a hard truth most construction company owners don’t want to hear: your business is not your retirement plan.

Sure, you’ve built something valuable. Maybe you’ve got trucks, equipment, a solid crew, and a reputation that brings in work without advertising. But if your entire exit strategy is “sell the company someday,” you’re standing on shaky ground.

I’ve talked to dozens of contractors who hit their late 50s and suddenly realized they had a million dollars in equipment and almost nothing in a retirement account. That’s a terrible position to be in, and it’s way more common than you’d think.

This guide breaks down the retirement planning options that actually work for construction company owners, when to start, how to pick between account types, and how to balance putting money back into the business with putting money away for the day you hang up the tool belt.

Why Construction Owners Are Behind on Retirement

The construction industry has a unique problem when it comes to retirement savings. Most owners started their companies because they were good at the work, not because they had a finance degree. And in the early years, every spare dollar goes right back into the business: a new truck, another hire, better tools, bigger jobs.

That reinvestment habit is what builds a successful company. But it also creates a blind spot. You get used to thinking of the business as your savings account. The problem is that a business is an illiquid, risky asset. You can’t sell half a construction company to pay for groceries in retirement.

Consider these numbers: according to the U.S. Small Business Administration, only about 20% of small business owners have a formal retirement plan. In construction specifically, that number may be even lower because of the feast-or-famine cash flow cycles that make it hard to commit to regular contributions.

If you haven’t already, take a serious look at your cash flow management practices. Getting a handle on where your money goes each month is the first step toward carving out retirement contributions.

The other factor? Construction owners tend to be optimists. You have to be, to bid on jobs and take on risk every day. But that optimism sometimes turns into “I’ll deal with retirement later.” Later has a way of showing up fast.

SEP-IRA: The Simple Option That Gets the Job Done

A Simplified Employee Pension IRA (SEP-IRA) is the most popular retirement account for self-employed contractors, and for good reason. It’s dead simple to set up, cheap to maintain, and lets you make large contributions when business is good.

How it works: You contribute up to 25% of your net self-employment income, with a cap of $70,000 for 2025 (this number adjusts for inflation). There are no employee contribution provisions; it’s all employer contributions. You open the account, decide how much to put in each year, and that’s about it.

Why contractors love it:

• Setup takes about 15 minutes with most brokerages
• No annual filing requirements with the IRS (unlike a 401k)
• You can vary your contributions year to year, which is perfect for the ups and downs of construction revenue
• Contributions are tax-deductible, which lowers your taxable income

The downsides:

• If you have W-2 employees, you must contribute the same percentage for them as you do for yourself. So if you contribute 25% of your income, you owe 25% of each eligible employee’s pay too. This gets expensive fast.
• No Roth option. Every dollar goes in pre-tax, which means you pay taxes when you withdraw in retirement.
• No loan provisions. Once the money is in, you can’t borrow against it without penalties.

For a solo contractor or someone with just a spouse on payroll, a SEP-IRA is often the right first move. If you’re running a crew of 10, the employee contribution requirement might push you toward a different option.

Understanding your profit margins will help you figure out what percentage you can realistically contribute each year without starving the business.

Solo 401k: More Flexibility, More Paperwork

A Solo 401k (also called an Individual 401k) is designed for self-employed people with no full-time employees other than a spouse. It offers more flexibility than a SEP-IRA, but comes with a bit more administrative work.

How it works: You can contribute as both the employee and the employer. For 2025, the employee contribution limit is $23,500 (plus a $7,500 catch-up if you’re 50 or older). On top of that, you can add employer contributions of up to 25% of net self-employment income, with the combined total capping at $70,000 ($77,500 with catch-up contributions).

Why it can beat a SEP-IRA:

• At lower income levels, you can often contribute more total dollars because of the employee contribution side. A contractor earning $80,000 in net self-employment income can contribute $23,500 as an employee plus $20,000 as an employer, totaling $43,500. With a SEP-IRA, the same contractor would max out at $20,000 (25% of $80,000).
• Roth option available. You can make employee contributions as Roth (after-tax), which means tax-free withdrawals in retirement. If you think tax rates will be higher when you retire, this is a big deal.
• Loan provisions. You can borrow up to $50,000 or 50% of the account value (whichever is less) from your Solo 401k. This can be a lifeline during a slow season or when you need to cover a big expense without tapping into business credit.

The downsides:

• Once your plan assets exceed $250,000, you must file IRS Form 5500-EZ annually. It’s not complicated, but it’s one more thing on your plate.
• You can’t have full-time employees (other than your spouse). The moment you hire a W-2 employee who works 1,000+ hours per year, you need to convert to a traditional 401k plan, which is significantly more complex and expensive.
• Slightly more complex to set up than a SEP-IRA.

For many smaller contractors, especially those in the early growth phase, the Solo 401k is the better deal. If you’re running a one-person or two-person operation and want maximum contribution flexibility, this is probably your move.

If you’re at the stage where you’re thinking about hiring your first employee, that’s also when you should revisit your retirement plan structure.

Profit Sharing and Succession: Planning Your Exit

Retirement planning for a construction company owner isn’t just about which account to open. It’s about building a business that can either be sold or transitioned when you’re ready to step away.

Profit sharing as a retention and retirement tool:

If you’ve grown beyond a Solo 401k and have employees, a profit-sharing plan can serve double duty. It helps you save for retirement (your contributions are tax-deductible) while also retaining key employees by giving them a stake in the company’s success.

Curious what other contractors think? Check out Projul reviews from real users.

A typical setup: you establish a 401k with profit sharing, contribute a base amount for all eligible employees, and then add discretionary profit-sharing contributions in good years. This lets you adjust based on how the business performs, which is critical in construction where one bad year can wipe out the prior year’s gains.

Succession planning ties directly to retirement:

Your business might be your biggest asset, but only if someone is willing and able to buy it or take it over. Too many construction owners assume they’ll find a buyer when the time comes, only to discover that their company’s value is mostly tied up in their personal relationships and reputation.

Start thinking about succession 5 to 10 years before you want to retire:

• Internal succession: Groom a project manager or superintendent to take over. This could be a family member or a trusted long-term employee. Structure a buyout over several years so they can afford it and you get steady retirement income.
• External sale: Make your company attractive to buyers by documenting your processes, building systems that don’t depend on you, and maintaining clean financials. A buyer wants to see that the business runs without the owner being on every job site.
• Wind down: Some owners choose to simply stop taking new work and finish out existing contracts. This works if you’ve saved enough independently, but it means you get zero value for the company you built.

Having a solid business plan with clear financial projections makes your company far more attractive to potential buyers or successors.

No matter which path you choose, the key point is the same: don’t count on the sale of your business as your primary retirement funding source. Treat it as a bonus.

When to Start and How Much to Save

The best time to start saving for retirement was 20 years ago. The second best time is today. That’s not just a motivational poster; it’s math.

The power of starting early:

If a 30-year-old contractor puts $2,000 per month into a retirement account earning 7% annually, they’ll have roughly $2.4 million by age 65. If that same contractor waits until 45 to start, they’d need to save about $5,500 per month to hit the same number. That’s the brutal math of compound interest.

Realistic targets for construction owners:

• Bare minimum: 10% of your net income, every year, no excuses
• Comfortable: 15 to 20% of net income
• Aggressive (playing catch-up): 25%+ of net income, maxing out contribution limits

How to actually make it happen:

1. Automate it. Set up automatic transfers from your business account to your retirement account on the 1st and 15th of every month. If you wait until you “have extra,” you’ll never do it.
2. Pay yourself a consistent salary. Many construction owners take irregular draws, which makes retirement planning impossible. Set a base salary and stick to it. Bonus yourself when times are good, but the base salary funds your regular retirement contributions.
3. Use your slow season wisely. Instead of just burning through savings during winter or your off-season, use that time to review your retirement accounts, rebalance investments, and plan contributions for the coming year.
4. Get a CPA who knows construction. A general accountant is fine for basic taxes, but a CPA who understands construction accounting, job costing, and the specific tax situations contractors face will save you far more than they cost. They can help you time contributions, choose between account types, and structure your compensation to maximize tax benefits.

Your overhead costs should include a line item for retirement contributions. If it’s in the budget, it gets funded. If it’s an afterthought, it doesn’t.

Balancing Business Investment vs. Personal Retirement

This is where most construction owners get stuck. You see a great deal on a new excavator, or you want to hire another crew to take on bigger projects, or you need a new shop building. Every one of those investments could grow the business. But every dollar you spend on the business is a dollar that’s not growing in your retirement account.

There’s no perfect formula, but here’s a framework that works:

The “Pay Yourself First” rule:

Before you allocate profits to business expansion, fund your retirement contribution for that period. Not all of it has to come from one paycheck, but the commitment needs to be there. Think of it like paying a subcontractor: they don’t wait until you have extra money. They get paid because it was in the budget.

Evaluate business investments by ROI timeline:

• A new truck that lets you take on $200,000 more in annual revenue? That might be worth delaying a retirement contribution for one quarter.
• A speculative expansion into a new market that might pay off in 3 years? Probably not worth raiding your retirement savings.
• New project management software that saves your team 10+ hours per week? That’s a no-brainer investment that pays for itself quickly and actually frees up money for retirement savings down the road.

The danger zone:

Watch out for the trap of perpetual reinvestment. Some owners never stop expanding because growth feels productive. But growth for growth’s sake, without building personal wealth alongside it, is just building a bigger machine that you can never step away from.

A good gut check: if you disappeared for three months, would your business survive? If the answer is no, you’ve built a job, not a company. And a job has no sale value. Investing in systems, processes, and people that let the business run without you is simultaneously the best business investment and the best retirement planning move you can make.

Track your cost data carefully so you can make informed decisions about where each dollar creates the most value, whether that’s in the business or in your retirement account.

Building a Retirement Plan That Actually Works

Let’s put this all together into a practical action plan you can start this week.

Step 1: Know your number.

Figure out how much you need to retire comfortably. A common rule of thumb is 25 times your annual expenses. If you want to spend $80,000 per year in retirement, you need $2 million saved. Adjust for Social Security (if you trust it’ll be there), any pension income, and rental properties or other passive income.

Step 2: Pick your account.

• Solo operator or just you and your spouse? Solo 401k for maximum flexibility, or SEP-IRA for maximum simplicity.
• Have employees? Look into a SIMPLE IRA (up to 100 employees, lower contribution limits but easier than a full 401k) or a traditional 401k with profit sharing.
• Making over $250,000 in net self-employment income? Both SEP-IRA and Solo 401k hit similar maximums. Pick based on whether you want the Roth option (Solo 401k wins) or simplicity (SEP-IRA wins).

Step 3: Automate contributions.

Set up monthly automatic contributions. Start with whatever you can afford, even if it’s $500 a month. Increase by $100 every quarter until you hit your target savings rate. You’ll barely notice the incremental increases.

Step 4: Build your succession plan.

Start documenting your processes, training potential successors, and making your business less dependent on you personally. This is a multi-year project, so start now even if retirement is 15 years away.

Step 5: Review annually.

Every January, sit down (ideally with your CPA) and review:

• How much you contributed last year
• Whether your account type still makes sense
• Your business valuation and how it fits into your overall retirement picture
• Any tax law changes that affect your strategy

Building a real business continuity plan protects both your company and your retirement in case something unexpected happens.

The bottom line:

You got into construction because you’re good at building things. Apply that same discipline to building your financial future. Pick an account, fund it consistently, plan your exit, and stop treating your business like a savings account. The contractors who retire well are the ones who planned for it, not the ones who hoped for it.

Your future self will thank you for every dollar you put away today. And your business will be stronger for it too, because an owner who isn’t financially desperate makes better decisions than one who can’t afford to walk away.

Curious how this looks in practice? Schedule a demo and we will show you.

Start this week. Open the account. Set up the transfer. Future you is counting on it.