June 23, 2016

Small Business Retirement Plans

If you’re a small business owner, you may be thinking about your future and what’s available for retirement plans. There are three options that stand out: 401(k) plans, savings incentive match plan for employees (simple IRA), and simplified employee pension plans (SEP IRA). You will have to weigh many factors when determining which plan is the right fit: how many employees you have, if you want to contribute to their retirement funds, how much flexibility you want, etc.

Retirement plans can get a little confusing, so let’s take a look at the basics:


A traditional 401(k) offers the most flexibility and permits a high level of salary deferrals by employees. When you hear “retirement plan,” you most likely think “401(k).” Business owners and employees can make consistent, tax-deferred contributions throughout their entire career. Traditional 401(k)s offer the highest contribution limits and offer more choices in managing the program. Business owners have a choice to match or not, enable penalty-free access to funds, or provide a vesting schedule. Contributions are taken directly from employee’s salaries, pre-taxed. For those that fear higher tax rates, a Roth 401(k) might be a better option. Roth 401(k)s enable participants to have their contributions taxed right away.

Simple IRA

While the name is a bit misleading, Simple IRAs are a solid middle ground for retirement plans. Both the employer and the employee contribute to a Simple IRA, and the employer must match and matching is vested immediately. The key advantage with Simple IRAs is having a salary reduction plan with little paperwork involved. Some downfalls are the contribution limit is less than a 401(k), and it doesn’t have Roth or loan options. But, it avoids IRS tests and reporting requirements.


SEP IRA contributions are 100% through the employer. Employees are not allowed to contribute. SEP IRAs are easy to set up and maintain for the employer. They offer a contribution limit that’s similar to a 401(k), but it doesn’t come fully loaded like the 401(k). You don’t get a Roth option, no profit sharing option, and no loan option. But, like a Simple IRA, it doesn’t have IRS tests and reporting requirements.

These waters can be difficult to navigate.  It’s important to have a trusted advisor to help you determine the best options. Set up an appointment to discuss your options today.

Select A Language