Retirement Plans for Business Owners

When it comes to setting up a retirement savings plan for your small business, you will be faced with numerous different plan type options that you could implement. As the owner of the business, you must decide between these options to determine the best retirement plan for your specific business. Below is a summary of some of the pros and cons associated with each type of plan:

IRA-Based Plans:

Plan Type Pros Cons
Payroll Deduction IRA ·         Easy to set up & maintain

·         No set up costs

·         Eligibility requirements are easy to meet

·         Low annual contribution limits

·         No employer contributions allowed

SEP IRA ·         Easy to set up & maintain

·         Low cost

·         Employer contributions not required every year

·         No employee contributions allowed

·         Contributions limited to the lesser of 25% or $66,000 (2023 limit)

SIMPLE IRA ·         Easy to set up

·         Low cost

·         Employee contributions are pre-tax (which reduces income/taxes that year)

·         Employer contributions required each year

·         Employer contributions must be either 100% match of employee contributions (up to 3% of compensation) or a flat 2% of each employees compensation


Defined Contribution Plans:

Plan Type Pros Cons
Solo 401(k) ·         Roth contributions available

·         Contributions limit are the same as a traditional 401(k) – both on the employee and employer side

·         Only business owner and spouse can participate

·         Not allowed for businesses that have employees

Safe Harbor 401(k) ·         Roth contributions available

·         Annual nondiscrimination testing not required

·         Easier to maintain than traditional 401(k)s

·         Employers are required to make contributions each year

·         Employer contributions must be a specified match percentage of employee contributions or a flat 3% of each employees compensation

Traditional 401(k) ·         Roth contributions available

·         Permits high level of deferrals by employees

·         Employer contributions optional

·         Higher cost

·         Stricter testing and IRS requirements


As you can see, there are many options for retirement plans for your business. Depending on your business size, profitability, and cash flow, the right retirement plan options could differ.


For more details on each plan type, as well as more in-depth pros and cons, see the below 2 links.