Choosing a Retirement Plan that Fits Your Business

If you have yet to develop a retirement plan for your business, or if you're not sure the plan you've chosen is the right one, here are some things to consider.

How much can my business afford to contribute?

The cost of contributions may be managed by the plan type.

A simplified employee pension plan (SEP) is funded by employer contributions only. SEP contributions are made to separate IRAs for eligible employees.1

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs blend employee and employer contributions. For example, some employers match employee contributions up to 100% of the first 3% of compensation. Others may contribute 2% of each eligible employee’s compensation. It’s up to the employer to decide the formula based on what works best for the business.2

A 401(k) is primarily funded by the employee; the employer can choose to make additional contributions, including matching contributions.3

What plan accommodates high employee turnover?

The cost of covering short-tenured employees may be managed by eligibility requirements and vesting.

With the SEP-IRA, only employees who are at least 21 years old, earn at least $800 in compensation, and have performed service for you in at least three of the immediately preceding five years can participate in a 401(k) plan.4

The SIMPLE IRA must cover employees who have earned at least $5,000 in any prior two years and are reasonably expected to earn $5,000 in the current year.5

The 401(k) and defined benefit plan must cover all employees who are at least 21 years of age. These retirement plans are open for employees who have either worked 1,000 hours in the space of one full year or to those who have worked at least 500 hours per year for two consecutive years.6,7

Vesting is immediate on all contributions to the SEP-IRA, SIMPLE IRA and 401(k) employee deferrals, while a vesting schedule may apply to 401(k) employer contributions and defined benefits.

Do I want to maximize contributions for myself (and my spouse)?

The SEP-IRA and 401(k) offer higher contribution maximums than the SIMPLE IRA. For those business owners who are starting late, a defined benefit plan may offer even higher levels of allowable contributions.

My priority is to keep administration easy and inexpensive.

The SEP-IRA and SIMPLE IRA are straightforward to establish and maintain. The 401(k) can be more onerous, but complicated testing may be eliminated by using a Safe Harbor 401(k). Generally, the defined benefit plan is the most complicated and expensive to establish and maintain of all plan choices.

FAQs About Small Business Retirement Plans

• What type of retirement plan is best for a small business?

  The best retirement plan depends on your business goals, budget, and workforce. Options like SEP-IRAs, SIMPLE IRAs, and 401(k)s each offer different benefits. SEP-IRAs are ideal for simplicity, SIMPLE IRAs balance employer and employee contributions, and 401(k)s offer flexibility and higher contribution potential.

• How much can my business afford to contribute to a retirement plan?

  Contribution costs vary by plan type. SEP-IRAs are funded solely by employers, while SIMPLE IRAs and 401(k)s allow for shared contributions between employers and employees. Businesses can choose a structure that aligns with their financial capacity.

• Which retirement plan is easiest to manage?

  SEP-IRAs and SIMPLE IRAs are typically the easiest and most cost-effective to administer. 401(k) plans require more oversight, though Safe Harbor 401(k)s can reduce compliance testing. Defined benefit plans are generally the most complex and expensive.

• What retirement plan works best for businesses with high employee turnover?

  Plans with eligibility requirements and vesting schedules can help manage turnover. SEP-IRAs and SIMPLE IRAs have specific income and service requirements, while 401(k)s may include vesting schedules for employer contributions to encourage retention.

• Can I maximize retirement contributions as a business owner?

  Yes. SEP-IRAs and 401(k)s allow for higher contribution limits than SIMPLE IRAs. Defined benefit plans may offer the highest contribution potential, making them attractive for business owners looking to accelerate retirement savings.

• Do employees contribute to all business retirement plans?

  Not all plans require employee contributions. SEP-IRAs are funded only by employers, while SIMPLE IRAs and 401(k)s allow employees to contribute, often with employer matching or additional contributions.

• What factors should I consider when choosing a retirement plan?

  Key factors include contribution limits, administrative complexity, employee participation, turnover, and long-term business goals. Working with a financial advisor can help ensure the plan aligns with both business and personal retirement objectives.

1. Like a Traditional IRA, withdrawals from a SEP-IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
2. Like a Traditional IRA, withdrawals from a SIMPLE IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
3. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.
4. IRS.gov, 2026
5. IRS.gov, 2024
6. IRS.gov, 2026
7. Congress.gov, 2026

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2026 FMG Suite.

© 2026 Commonwealth Financial Network®