Retirement Plan Choices for Small Businesses

As a small-business owner, figuring out retirement choices can be a little intimidating. How do you pick the most appropriate retirement plan for your business as well as your employees?

There are a number of choices when creating retirement plan strategies for you and your employees. Here, we will review three of the most popular for small businesses: SIMPLE-IRAs, SEP-IRAs, and 401(k)s. Read on below to learn more about each type of retirement plan.

This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before implementing or modifying a retirement plan.

SIMPLE-IRAs. SIMPLE stands for Savings Incentive Match Plan for Employees. This is a traditional IRA that is set up for employees and allows both employees and employers to contribute. If you’re an employer of a small business who needs to get started with a retirement plan, a SIMPLE-IRA may be for you. SIMPLE-IRA’s provide some degree of flexibility in that employers can choose to either offer a matching contribution to their employees' retirement account or make nonelective contributions. In addition, employees can choose to make salary reduction contributions to their own retirement account. Some small business owners opt for a SIMPLE-IRA because they find the maintenance costs are lower compared with other plans.1

Distributions from SIMPLE-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.

For a business to use a SIMPLE-IRA, it typically must have fewer than 100 employees and cannot have any other retirement plans in place.1

SEP-IRAs. SEP plans (also known as SEP-IRAs) are Simplified Employee Pension plans. Any business of any size can set up one of these types of retirement plans, including a self-employed business owner. Like the SIMPLE-IRA, this type of retirement plan may be an attractive choice for a business owner because a SEP-IRA does not have the start-up and operating costs of a conventional retirement plan. This is a type of retirement plan that is solely sponsored by the employer, and you must contribute the same percentage to each eligible employee. Employees are not able to add their own contributions. Unlike other types of retirement plans, contributions from the employer can be flexible from year to year, which can help businesses that have fluctuations in their cash flow.2

Much like SIMPLE-IRAs, SEP-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.

401(k)s. 401(k) plans are funded by employee contributions, and in some cases, with employer contributions as well. 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 are taxed as ordinary income, and, if taken before age 59½, may be subject to a 10% federal income tax penalty.1

FAQs About Retirement Plans for Small Businesses

• What retirement plan options are available for small business owners in Glastonbury, CT?

  Small business owners in Glastonbury, Connecticut typically consider three popular retirement plan options: SIMPLE-IRAs, SEP-IRAs, and 401(k) plans. Each option offers different contribution structures, administrative requirements, and flexibility for employers and employees. At Atlantic Wealth Advisors, we help local business owners evaluate which retirement strategy aligns with their company size, goals, and cash flow.

• What is a SIMPLE-IRA and who qualifies?

  Item descriptionA SIMPLE-IRA (Savings Incentive Match Plan for Employees) is designed for businesses with fewer than 100 employees that do not offer another retirement plan. Both employees and employers can contribute. Employers may choose between matching contributions or nonelective contributions. SIMPLE-IRAs are often appealing due to their relatively low administrative costs and straightforward setup.

• How does a SEP-IRA work for small businesses?

  A SEP-IRA (Simplified Employee Pension) is a retirement plan funded entirely by employer contributions. Businesses of any size—including sole proprietors—can establish a SEP-IRA. Employers must contribute the same percentage of compensation to all eligible employees, and employees cannot make their own contributions. SEP-IRAs offer flexibility because employers can adjust contributions annually based on business profitability.

• What are the key differences between a SIMPLE-IRA and a SEP-IRA?

  The primary differences involve contribution structure and flexibility. SIMPLE-IRAs allow both employer and employee contributions and are limited to businesses with fewer than 100 employees. SEP-IRAs are funded only by the employer and are available to businesses of any size. Additionally, SEP-IRAs allow flexible annual contribution amounts, which may benefit businesses with fluctuating income.

• How does a 401(k) plan compare to SIMPLE-IRAs and SEP-IRAs?

  A 401(k) plan is primarily funded by employee salary deferrals and may also include employer contributions. 401(k)s can allow for higher contribution limits and more plan design flexibility compared to SIMPLE-IRAs and SEP-IRAs. However, they often involve greater administrative responsibilities. A financial advisor can help determine whether the added flexibility justifies the complexity for your business.

• When are retirement plan distributions taxed?

  Distributions from SIMPLE-IRAs, SEP-IRAs, and traditional 401(k) plans are generally taxed as ordinary income. Withdrawals taken before age 59½ may be subject to a 10% federal income tax penalty. In most cases, required minimum distributions (RMDs) must begin at age 73.

• How can Atlantic Wealth Advisors help Glastonbury business owners choose a retirement plan?

  Atlantic Wealth Advisors works with small business owners in Glastonbury, Connecticut to evaluate retirement plan options based on workforce size, profitability, administrative preferences, and long-term financial goals. We collaborate with your tax and legal professionals to help design a retirement strategy tailored to your business and employees.

1. IRS.gov, 2026
2. Investopedia.com, November 27, 2025

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.

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