Choosing the Right Retirement Plan for Your Small Business

If you run a small business, offering a retirement plan can help attract and retain employees while also supporting your own financial future. Choosing the right plan depends on your business structure, your goals, and how much flexibility you want with contributions. Here are three common options to consider.

SIMPLE IRA
A SIMPLE IRA is available to businesses with fewer than 100 employees that do not offer another retirement plan. Both the employer and employees can contribute. Employers must either match employee contributions or make fixed contributions to all eligible employees. Employees can also contribute through salary deferral. This plan is valued for its simplicity and low administrative cost. Distributions are taxed as income and may be subject to penalties if taken before age 59 and a half. Required minimum distributions begin at age 73.

SEP IRA
A SEP IRA is funded entirely by the employer and is available to businesses of any size, including sole proprietors. Employers must contribute the same percentage to each eligible employee but can change the amount each year. This makes it a good choice for businesses with unpredictable income. Employees cannot contribute their own funds. Like other plans, withdrawals are taxed as income and may incur a penalty if taken before age 59 and a half. Required minimum distributions start at age 73.

401(k)
A 401(k) allows employees to contribute through payroll, with optional employer contributions. This type of plan offers more flexibility, including higher contribution limits and the potential for Roth options, loans, or profit sharing. It requires more administrative oversight than the other plans. Withdrawals are taxed as ordinary income and may be penalized if taken before age 59 and a half. Required minimum distributions apply beginning at age 73.

Which plan is right for you
SIMPLE IRAs are straightforward and cost-effective. SEP IRAs work well for owner-only businesses or companies with variable cash flow. 401(k) plans offer the most features but come with more complexity and cost. Choosing the right option starts with understanding your goals and consulting with your financial or tax advisor to make an informed decision.