Retirement Plans - Start Saving for the Future!
As a small business owner, you face a unique challenge. You need to save for retirement all on your own. Having worked in a large corporation, the idea of saving in a retirement plan is integrated into the job. You get hired and then you sign the retirement paperwork. Someone takes the money from your check, adds the match and hopefully the funds grow.
Now that you have started a small business, you need to set up these plans. No one else is going to fund your future! We have seen many small business owners that do NOT save a dime for retirement even though they are financially successful in their day to day business. If that sounds like you, you might be wondering how to start? Let’s start from the simplest way to get started and work through to the more complex plans.
First of all, is there a good reason to not save for retirement? Tax advantaged retirement savings comes with a catch. You put money in now and escape federal and state taxes on that money. The catch is that when you are ready to take the money out, you have to pay taxes on it then. You are paying tax on what you withdraw in your retirement. If you anticipate being in a lower tax bracket upon retiring, deferring that income until later can be a good way to manage your lifetime tax burden. In most cases, we don’t really know but the current tax savings are certainly attractive.
On top of tax savings and tax deferred growth, there are some other interesting reasons to save for retirement:
Diversifies your wealth by creating another asset outside of your business
May offers some asset protection from creditors. While the legal issues are beyond the scope of this article, there are certain protections over retirement accounts in the event of lawsuits, bankruptcy or other claims
- Providing a plan at your company can be a powerful people retention tool
Now that we know why we need to save, let’s discuss the plan options starting with the simplest one to implement.
Traditional IRA
Best for: Someone getting started and not ready to offer a company plan
The traditional IRA is not a company plan, but is an account opened by an individual to save for their retirement. It is the easiest plan to start. There are rules regarding deductibility if the account owner or their spouse participates in a different retirement plan. In 2025, if you are under age 50, you can contribute up to $7,000 across all your IRA’s. If 50 or older, you can contribute an additional $1,000 per year. While this is one of the simplest plans to start, it has the lowest contribution limit of all the plans discussed here. You can open this plan directly with a self service brokerage or your wealth manager can get one started.
SEP IRA
Best for: Solo business owners or business with only a few key employees
A SEP IRA is easy to set up and has high contribution limits—up to 25% of compensation or $70,000 for 2025, whichever is less. Contributions are made by the employer only, and they’re tax-deductible as a business expense. One catch: if you contribute for yourself, you must also contribute the same percentage for eligible employees.
Solo 401(k)
Best for: Owner-only businesses or businesses with a spouse as the only employee.
Solo 401(k)s pack a powerful punch. As both the employer and employee, you can contribute up to $23,500 in salary deferrals for 2025 (plus $7,500 if you're 50 or older), and then add up to 25% of your compensation in profit-sharing contributions, up to a total of $70,000 ($77,500 if age 50+).
SIMPLE IRA
Best for: Small businesses with up to 100 employees looking for an easy and affordable plan.
A SIMPLE IRA requires less paperwork than a 401(k) and allows employees to contribute up to $16,500 in 2025 ($20,000 if age 50+). Employers must make either a matching contribution up to 3% of employee compensation or a 2% nonelective contribution.
Traditional 401(k)
Best for: Small businesses ready to offer a more robust benefit package.
While more complex to set up and maintain, a traditional 401(k) allows for high employee and employer contributions, optional Roth features, and flexible plan design. It’s a powerful tool for employee retention and can be customized with vesting schedules, profit sharing, and automatic enrollment. Please note that a traditional 401(k) carries more administrative cost compared with the other plans. Be prepared to carry the following costs:
Setup Fees
Annual Administrative Fees (including filing Form 5500 with the IRS)
Investment Management Fees (these fees may be paid by the business, the employees, or both)
Bottom Line
While 401(k)s are more expensive to maintain, they offer a big return in tax savings, retirement readiness, and employee satisfaction. With the right provider and plan design, they can be a smart, scalable investment in your business's future.
Want help running the numbers or choosing a provider? Need help setting these up on payroll? Let us know—we help small businesses weigh the costs and benefits every day.