Small Business Retirement Plans

If you run a small business, you know the importance of cutting costs whenever possible. You’ve probably read about how small business retirement plans can come along with a lot of paperwork and start-up expenses.

However, offering a retirement option can help an employer attract and retain employees, thereby reducing training costs for new hires. As a bonus, you and your employees get significant tax advantages and other incentives. You might even qualify for a $500 tax credit just for setting up your small business retirement plan.

Retirement plan options for small business owners are flexible, and employer contributions are tax-deductible. Providing a small business retirement plan will help both you and your employees protect your income from taxes through automated payroll deductions and contributions.

For over 20 years, GuidedChoice has focused on helping small business owners find the right retirement solution to fit their needs. We can help you decide whether an individual retirement account, defined contribution plan, or defined benefit plan is right for your company.

With the right retirement plan, you and your employees can work toward achieving financial security in the long run. Consider the following types of retirement plans to find the best choice for your small business.

IRA Plans

An Individual Retirement Account (IRA) is an investment tool used by taxpaying individuals to earmark funds for retirement. They are comparatively simpler and cheaper to start than 401(k) plans, and allow you to invest your funds in a variety of ways.

Simplified Employee Pension (SEP) IRA

Many small business owners opt for this plan because it’s free to set up and simple to administer. A SEP IRA allows you to contribute any amount each year—up to $55,000 as of 2018—and the funds are not taxed until they are dispersed. Employees can’t contribute to the SEP IRA out of their salary, but they can make contributions to their own IRA accounts.

As an employer, you are required to match the same percentage amount to your employees’ accounts as you do your own; all contributions by employers are considered business expenses and are tax-deductible. Since you don’t have to file anything with the government, this plan allows you to set aside more money with little expense or paperwork.

The contributions don’t need to have a fixed amount or percentage, and you’re not required to contribute each year, so you can maintain financial stability during tough times. You’re also allowed to terminate the SEP IRA plan at any time should you decide it’s not the best route for your company.

Savings Incentive Match Plan for Employees (SIMPLE) IRA

A SIMPLE IRA plan is used by small businesses with no more than 100 employees; these employees must make upwards of $5,000 in income to be considered for the SIMPLE IRA plan. Setting up this retirement solution is simple: just complete a Form 5304-SIMPLE or Form 5305-SIMPLE and send it to the IRS.

Form 5304-SIMPLE allows your employees the freedom to choose where they invest their contributions, whereas Form 5305-SIMPLE lets you choose which financial institution they can contribute to. It might not cost you anything at all to set up, but if it does, you can write it off on your tax return as a business expense.

The contribution limits for SIMPLE IRAs are much higher than a traditional IRA, and employees over the age of 50 can take advantage of catch-up contributions. As with SEP IRAs, you will be required to match your contribution percentage to your employees’ accounts, but these are also tax-deductible.

A key difference between a SEP IRA and a SIMPLE IRA is that employees may choose to participate, but employers must contribute annually. Although a SEP IRA protects employers from mandated yearly contributions, it could still wind up costing the employer more. They will be the sole contributor to the account; and whatever they put into their own account must be matched for each and every employee.


A MyRA is a Roth IRA that invests in government bonds. The minimum deposit for a MyRa is $25 per employee, and an employer or an employee can contribute as little as only $5 every pay period. The MyRA presents no costs to employers, as you aren’t required to administer employee accounts or contribute to them or match their contributions.

MyRA accounts are Roth IRAs, meaning that contributions are made with money that’s already been taxed.

401(k) Plans

Named after section 401(k) in the Internal Revenue Code, a 401(k) is an employer-sponsored defined contribution plan. These typically cost a few thousand dollars to set up, but they do offer their own set of benefits and have a higher maximum contribution level than an IRA.

SIMPLE 401(k)

A SIMPLE 401(k) features a setup similar to the SIMPLE IRA. The contribution rules are also similar, and employees are fully vested immediately. The biggest difference is that a SIMPLE 401(k) allows you to take out loans through the plan, which some business owners might find attractive. This plan can only be used by companies with fewer than 100 employees, and is best for those who make a moderate income no more than $50,000 a year and won’t max out on their contribution limit.

Solo 401(k)

This retirement plan is great for self-employed individuals who own a business. Although they’re designed for one participant, spouses are eligible to contribute to the account as well. If your spouse is your employee, the contributions you make as an employer are tax-deductible. Contributions are flexible, and they don’t mandate a fixed amount. However, a Solo 401(k) is more complicated than IRA retirement plan options, and you will need to spend more money to start and maintain it.

Defined Benefit Plans

Defined benefit plans, also known as pensions, are becoming outdated and less common among big businesses because they are too expensive to offer many employees, but they still remain an excellent retirement plan option for small business owners. Due to cost, defined benefit plans are ideal for those who are looking to save big for retirement—and who have consistent income available to save.

Because a Defined Benefit plan is very different than other types of retirement plans, you’re able to combine it with another Solo 401(k) or SEP IRA and possibly save more than $150,000 per year. Contributions can also be written off as a business expense, which will reduce your business and personal incomes, thereby sheltering your tax rate and tax bill. Payouts are limited because you set up your distribution at the time of starting the account, which is why it’s a ‘Defined’ Benefit plan. You can only withdraw this set amount per year, unless you roll the funds over into a different retirement account.

Pensions might sound old school, but they’re still viable retirement plans for small business owners.

Cash balance plan with 401(k)

Some small business owners prefer this plan because it allows them to take advantage of greater tax deductions and accelerated savings rates than with a 401(k) alone. The plan is similar to a traditional defined benefit plan, but with additional help from a 401(k). The investments are still managed professionally, and participants are promised a certain benefit at the time of retirement, but the account balance resembles a 401(k) or profit-sharing plan instead of an income stream. This plan costs much more than setting up a traditional 401(k), but the guaranteed payout, minimal risk, and significant tax savings could make it the right retirement plan choice for your company.

Choosing the Right Plan for Your Business

As you consider retirement plans for small businesses, it’s important to think about your goals and the goals of your business to make a decision. Consider these factors:

  • How many people you employ/want to cover
  • How much you’re willing to spend
  • Which tax benefits you prefer
  • How big you want your company to be
  • How simple you want maintenance to be
  • Whether you need to hire someone to maintain the account
  • Whether you want employees to contribute to a plan

When you started your small business, saving for retirement may not have been a priority. Now that you’ve begun researching all available options, you might be overwhelmed by the selection. We can alleviate confusion by helping you manage your retirement plan of choice, and streamline retirement solutions for your company and employees.

If you’re thinking about a 401(k) plan, make GuidedChoice your trusted fiduciary and give each of your employees access to our financial advisory platform. If an IRA sounds like a better choice for your small business, we offer professionally managed accounts monitored by an active investment committee.

From Fortune 500 firms to growing start-ups, GuidedChoice is the trusted partner for companies who believe in providing greater employee satisfaction. Consult one of our experts to get started today.

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