Small Business Retirement Plans: Which Option is Right for You?

Choosing the right small business retirement plan is a pivotal decision for business owners aiming to attract talent, reduce tax liability, and secure their own financial future. With several options available, understanding the differences and benefits of each plan is essential to making an informed choice.

Offering a retirement plan can help your business:

• Attract and retain quality employees
• Maximize tax advantages for both the business and employees
• Build long-term financial security for owners and staff

Below is a comparison of the most common small business retirement plans:

SEP IRA

• Best For: Self-employed or businesses with few employees
• Who Contributes: Employer only
• Contribution Limits (2025): Up to 25% of compensation, max $70,000
• Key Features: No mandatory annual contributions, easy setup, no annual IRS filings

SIMPLE IRA

• Best For: Businesses with ≤100 employees
• Who Contributes: Employer & employees
• Contribution Limits (2025):
  • Employee: $16,000
  • Employer: Up to 3% match or 2% non-elective
• Key Features: Mandatory employer contributions, low cost, minimal paperwork

Solo 401(k)

• Best For: Owner-only businesses (including spouse)
• Who Contributes: Employer & employee
• Contribution Limits (2025): Up to $69,000 (combined)
• Key Features: Highest contribution potential, Roth option, ideal for self-employed individuals

Traditional 401(k)

• Best For: Businesses with employees
• Who Contributes: Employer & employees
• Contribution Limits (2025):
  • Employee: $23,000
  • Employer: Up to 25% of compensation
• Key Features: Flexible design, higher administrative costs, well-suited for growing teams

SEP IRAs are ideal for self-employed individuals or businesses with few employees. Only the employer contributes, and there are no mandatory annual contributions. This plan is easy to set up and maintain, with no annual IRS filing requirements.

SIMPLE IRAs are designed for businesses with up to 100 employees. Both employers and employees can contribute. Employers must either match employee contributions up to 3% of salary or make a 2% non-elective contribution for all eligible employees. SIMPLE IRAs are cost-effective and require minimal paperwork.

A Solo 401(k) is best for self-employed individuals or business owners with no employees other than a spouse. It allows for the highest contribution limits and offers both pre-tax and Roth options. This plan is ideal for maximizing retirement savings if you’re running a one-person business.

A 401(k) plan is suitable for businesses with one or more employees. It allows both employer and employee contributions, offers flexible plan design, and can help maximize tax deductions. However, it comes with higher administrative responsibilities and costs compared to SEP or SIMPLE IRAs.

• Business size: Number of employees determines eligibility for certain plans.
• Contribution flexibility: Some plans require mandatory contributions; others do not.
• Administrative complexity: 401(k) plans require more paperwork and compliance.
• Cost: SIMPLE and SEP IRAs are generally less expensive to set up and maintain.
• Growth plans: Consider whether your business will add employees in the future.

Selecting the right small business retirement plan depends on your business’s unique needs, goals, and resources. Consulting with a retirement plan specialist or financial advisor can help you navigate the options and ensure compliance with current regulations.

Target Retirement Solutions is here to help you evaluate, implement, and manage the best retirement plan for your small business. Contact us today to discuss your options and take the next step toward a secure financial future.