Offering a retirement plan isn’t just a perk. It’s a strategic move that can help attract top talent, reduce turnover, and provide tax advantages for both employers and employees. But with so many options available, how do you choose the right retirement plan for your small business?
Let’s break down the most popular retirement plans and explore how to select the best fit for your company.
Why Offer a Retirement Plan?
- Attract and retain employees: Competitive benefits help you stand out.
- Tax advantages: Contributions may be tax-deductible for employers.
- Financial wellness: Helps employees prepare for the future, boosting morale and productivity.
Popular Retirement Plan Options for Small Businesses
1. SEP IRA (Simplified Employee Pension)
- Best for: Self-employed individuals or businesses with few employees.
- Who contributes: Employer only.
- Contribution limit (2025): Up to 25% of compensation, capped at $70,000.
- Pros:
-Can be easy to set up and maintain.
-Flexible contributions—ideal for fluctuating income.
-Must contribute the same percentage for all eligible employees.
2. SIMPLE IRA (Savings Incentive Match Plan for Employees)
- Best for: Businesses with 100 or fewer employees.
- Who contributes: Employer and employee.
- Contribution limit (2025): $16,500 + $3,500 catch-up for age 50+.
- Employer match: Either 2% of salary for all or 3% matching.
- Pros:
-Low administrative burden.
-Immediate vesting.
-Lower contribution limits than other plans.
3. Solo 401(k)
- Best for: Self-employed individuals with no employees (except spouse).
- Who contributes: Employer and employee (same person).
- Contribution limit (2025): Up to $70,000 ($77,500 with catch-up).
- Pros:
-High contribution limits.
-Roth option available.
-More paperwork and compliance requirements.
4. Traditional 401(k)
- Best for: Growing businesses with multiple employees.
- Who contributes: Employer and employee.
- Contribution limit (2025): $23,500 + $7,500 catch-up.
- Pros:
-High contribution limits.
-Roth and loan options.
-Requires annual IRS filings and nondiscrimination testing.
How to Choose the Right Plan
Here are key factors to consider:
Business Size
- Solo? Consider a Solo 401(k) or SEP IRA.
- Fewer than 100 employees? SIMPLE IRA may be ideal.
- Larger or growing? Traditional or Safe Harbor 401(k) can offer flexibility.
Budget and Administration
- SEP and SIMPLE IRAs are low-cost and easy to manage.
- 401(k) plans offer more features but require more oversight.
Employee Needs
- Do employees want to contribute? SIMPLE and 401(k) plans allow this.
- Want to offer matching? Safe Harbor 401(k) ensures compliance and generosity.
Growth Plans
- If you plan to scale, choose a plan that can grow with you, like a 401(k).
Final Thoughts
Choosing the right retirement plan is a balance between your business goals, employee needs, and administrative capacity. Whether you're a solo entrepreneur or managing a growing team, there's a plan that fits your vision.
Need help evaluating your options or implementing a plan? Reach out to discuss your needs.
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