401k Plans / Business Planning

Small Business Retirement Plan Options – Which is Best for You?

Published by Bob Gustafson

Small Business Retirement Plan Options - Which is Best for You?

If you’re a small business owner, it’s a necessity today to offer a retirement plan for your employees. If you want to attract good talent, it’s critical to provide a retirement plan. An interesting fact about employees is that even if they don’t contribute to the retirement plan, employees still prefer employers who offer the benefit. But there are several retirement plan options available for a small business that can cater to your needs.

So, what’s the best type of retirement plan for your small business? You’ve heard the answer before and you’ll hear it again. It depends on your unique, personal situation! When choosing which retirement plan will work best for your small business, you first have to assess your situation. There’s no one size fits all. Therefore, instead of providing a generic answer, we’ll offer a few options to help you make the best decision.

Simple IRA

If you find yourself with a small number of employees, then a simple IRA may be a better option for you. Why? Because in comparison to the traditional 401K plan, the administrative costs to set up and administer the simple IRA are much less. Your payroll company will likely charge you a small fee to assist with the processing, but it’s relatively minimal compared to setting up a traditional 401K. The downside to this alternative is that the amount your employees can put in their plan each year is less than a traditional 401k plan.


We’d be remiss if we didn’t acknowledge the SEP IRA. However, this type of retirement plan isn’t used very often anymore. A Simplified Employee Pension (SEP) plan is a form of profit sharing plan and it provides business owners with a simplified method to contribute toward their employees’ retirement as well as their own retirement savings. Contributions are made by the employer (not the employee) to an Individual Retirement Account or Annuity (IRA) set up for each plan participant. This type of plan is usually a tool for either a one-person shop or a company with very few employees.

The benefits of this type of plan is that it is easy and inexpensive to set up and administer. The downside is that the employees cannot contribute and whatever percentage of salary the owner choses for him or herself, he or she has to use the same percentage for their employees.

Solo 401K

If you’re the only employee in your company, then a Solo 401K may be the right tool for you. For a one-person shop, you don’t need a third party to administer the plan for you. Thus, you won’t have any fees. The other positive aspect to this alternative is you’ll be able to contribute the same annual amount as the traditional 401K (see below). Thus, the Solo 401K is a better option than the simple IRA if it’s just for you. An added bonus is you can still use this plan if your spouse works with you.

Traditional 401K plan

Most of us have heard about the traditional 401K plan. And it may be a good alternative for a small business, but this option is usually too expensive for smaller sized  companies. You’ll typically spend 3 to 5 thousand dollars in annual administrative expenses, (not counting employee matching if you choses to do so).

The upside for the traditional 401K plan (compared to other options) is the amount of money you can put in annually. For example, in 2022, if you’re under 50 years old, you can put in $20,500 each year. And if you’re over 50, you can add another $6,500 getting you to a max contribution of $27,000 for the year.

For more information on these retirement plans, listen to our podcast.

Now that you know a little more about each of the small business retirement plan options available, choose one that works for you! And if you need some help in deciding which of these are the best option for your small business, contact us and we can help you out.