What Types of Retirement Plans are Available for Small Businesses?

Small businesses that offer retirement plans have better chances of getting and keeping highly qualified employees. In addition, retirement plan options enable small business owners as well as their employees to shelter their income from taxes while allowing them to save for retirement. The good news is there are several types of small business retirement plans that accommodate the needs of small enterprises. These options include:

Simplified Employee Pension Plan (SEP)

This plan is very popularly used by small family-owned businesses. Under this plan, the employer contributes an amount of up to twenty-five percent of the employee’s compensation annually. Only the employer can contribute to this particular plan. With this plan, there is no tax due on the investment earnings until they are withdrawn.

Savings Incentive Match Plan for Employees (SIMPLE)

This plan is only for enterprises that have less than one hundred workers. With this plan, both the employee and their employer will contribute money to the IRA account. This SIMPLE plan is perfect for small enterprises because there is minimal paperwork and there are no separate administration fees. In addition, the eligible employees may choose if they want to make deferrals before taxes are deducted from their paychecks or not.

Traditional 401k

This retirement plan enables employees to put aside a percentage of their income for retirement before taxes are deducted. Employees can also choose Designated Roth Contributions, which provide employees with the option to set aside a portion of their income after taxes have been deducted.

Companies that offer 401k to their employees need to file paperwork every year so their plans can comply with IRS regulations. Some of the benefits of this plan include contributions made with pre-tax income, the employee contributions are 100% vested and it is an employer-sponsored plan that offers employees investment choices.

Safe Harbor 401k

Under this plan, the administration is reduced because there is either an automatic or matching employer contribution that allows every employee to contribute the maximum amount of money to their accounts every year. The Safe Harbor 401k is less flexible than the traditional 401k, but it can be easier for small enterprises to manage and comply with IRS regulations.

The Safe Harbor plan enables the employees and business owners to put a higher amount of money aside than other forms of retirement plans. Moreover, the contributions are made using pre-taxed income but can include Designated Roth Contributions. Additionally, the employer and employee contributions are 100% vested.

Individual 401k

This plan is only for small enterprises that have an owner and their spouse. It is not for companies that have full-time employees. Furthermore, the company owner can contribute a higher amount of income to this plan than in other plan options. The owner can also contribute up to twenty-five percent of their income to the retirement program as profit sharing contribution.


Therefore, if you are looking for a great retirement plan for your employees, you can choose either of the following: Individual 401k, Safe Harbor 401k, Traditional 401k, Savings Incentive Match Plan for Employees (SIMPLE), and Simplified Employee Pension Plan (SEP).

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