Small businesses and their owners have many retirement plan options. Choosing the right plan or combination of plans can be helpful as part of running your business, and can also be helpful for your own retirement planning. This guideline provides some basic information to help you understand the options available. However, since the rules can be complex, you should consult with a retirement plan professional as part of your decision-making process.

Why have a plan?

For the business owner, a qualified retirement plan can be an advantageous way to accumulate wealth. Contributions to the plan can be tax-deductible, earnings within the plan are tax-deferred, and there can be flexible ways to take distributions from the plan.

For the business, providing a retirement plan can be a part of the total compensation package for your employees. The right plan can help attract, retain, and motivate your employees.

How much does it have to cost?

Your cost for a retirement plan will take two forms: (i) company contributions to the plan on behalf of your employees and yourself; and (ii) the cost of establishing and administering the plan. The chart below describes some of the funding features of a few different types of plans. Choosing a plan that allows for employee deferrals without requiring significant company contributions may be the best option: permitting the accumulation of larger amounts of money; and keeping company costs low.

The administrative costs of plans vary. Some plans are as simple as employees having IRA accounts to receive contributions, while others require annual IRS filings and audits. Be sure to tell your provider what services you need and inquire as to the plan’s administrative costs.

How much responsibility do you, as the manager, want?

Once money is contributed to a plan, it must be managed and someone must make the investment decisions. This means either the trustee of the plan must make investment decisions or choose investment managers, or the plan allows each participant to manage their own funds. More and more plans are going this self-directed route.

Brief summary of some retirement plan types

A SEP is a simplified employee pension plan; a SIMPLE is a savings incentive matched plan; and a 401(k) is a traditional qualified retirement plan. There are various types of each plan. A few are set forth in the table below:

Features	SEP	SIMPLE 401(k)	401(k)
Eligibility	Employees, Self-employed individuals, business owners	Businesses with 100 or fewer employees not offering any other retirement plan	Any public or private company. Usually for companies with more than 25 employees
Advantage	Easy to set up and maintain	Salary reduction with lower administration; no non-discrimination rules	More features like vesting and loan provisions
Contribution source(s)	Employer contributions to a SEP-IRA set up for each employee	Employee wage deferral and employer contributions	Mostly employee wage deferral and optional company contributions
Annual contribution limits	Up to 25% of compensation, with maximum of $69,000 for 2024.	Employee: Up to 100% of wages or $16,000; $19,500 if age 50 or over for 2024. Employer: Matching contributions of up to 3% of salary or 2% elective contribution	Employee: $23,000; up to $30,500 if age 50 or over for 2024. Combined Employer and employee maximum of $69,000, $76,500 if age 50 or over for 2024.
Vesting	Immediate	Employer and employee amounts are immediately vested	Employee amounts are vested immediately. Employer amounts can be subject to vesting schedules
Administrative Issues	No employer filings required	Form 5500	Form 5500 and non-discrimination rules required

Summary

The right retirement plan can serve many purposes. Be sure to investigate all the possibilities to make sure your plan accomplishes what you want. The services of a qualified retirement plan specialist can be very beneficial in reviewing your options.