Three Types of Small Business Retirement Plans

small business

There’s a lot of perks to owning a small business. Making your dreams a reality is one of them. But, every small business owner knows that it comes with some unique challenges and responsibilities. Everything is on your shoulders, from accounting to marketing and HR, it’s 100% up to you. Just when you think you’ve got everything covered, something else crosses your mind.


You’re responsible for your own retirement planning and also might want to consider offering a plan to your wonderful employees. Many small business owners immediately start thinking about 401Ks because that’s what they’re familiar with. However, there are other types of retirement plans that fit better into the small business structure.


The Simplified Employee Pension Individual Retirement Arrangement, or SEP IRA, is a variation of the standard IRA that most people are familiar with. SEP IRAs are plans where contributions are made only by the employer and are considered a tax-deductible business expense. This type of plan is perfect for self-employed individuals and small businesses with any number of employees.


SEP IRAs are easy to set up and have no associated set up or maintenance fees. Employers can contribute up to 25 percent of an employee’s compensation with a maximum contribution limit of $55,000. If an employer contributes to their own account, they must contribute the same percentage to employee accounts during the same year. Withdrawals can be made at any time but are subject to standard penalties.

Simple IRA

A simple IRA is a retirement plan for small businesses with less than 100 employees. The simple IRA is easy to implement and cost effective. Initial opt in fees are $25 per participant or $350 for a plan fee.

With the Simple IRA contributions are made by both the employer and the employee. The employer is obligated to match 100% of the first 3% deferred or 2% non-elective contribution on behalf of the employee. After this, no additional contributions can be made by the business.

Employees can contribute up to 100% of their eligible contribution, with a maximum contribution limit of $12,500. There is also the option for up to $3,000 in catch up contribution if the participant is 50 years of age or older.

Self Employed 401K

Of all the retirement plans available for small businesses, the self-employed 401K offers the most generous contribution limits. However, it’s only designed for businesses without common law employees. Common law is a term with a vague definition, but in this case, is best defined by pertaining to business with no employees other than a spouse. In other words, no employees that do not have an invested interest in ownership.

Employers may contribute up to 25% of eligible income, not to exceed $55,000 annually, plus up to $18,500 in salary deferrals for employees aged 50 or older.

Participants can’t make withdrawals until a trigger event which can include termination of service or plan. Standard penalties apply if the person is under the age of 59 and a half.

Would you like to know more about retirement plans for your small business? We’d love to answer your questions and help you plan for your financial future. Contact Infinity Financial Services in Oakland for more information.

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