Offering a retirement plan isn’t just a perk anymore—it’s a smart move for growing businesses that want to attract and keep great people. However, when it comes to actually choosing the right option, things can become murky quickly. 401(k)? SIMPLE IRA? SEP? Each comes with pros, cons, and compliance considerations that affect your business in different ways.
In this blog, we’ll provide a clear breakdown to help you make the right choice for your team and your goals.
Why Retirement Benefits Matter
Retirement plans are one of the most valued employee benefits—and one of the most overlooked by small business owners. Offering one shows your team you care about their future while giving your company a competitive edge. It can also offer tax advantages and help you stay compliant as your business grows.
But not all plans are created equal. What’s right for a 2-person shop may not be right for a 30-person team on a growth trajectory.
401(k): Flexible and Scalable
A 401(k) plan is the most flexible and customizable option out there. It allows employees to contribute pre-tax (or Roth) dollars, and employers can match contributions, offer profit sharing, and control vesting schedules. This plan is best suited for growing businesses that want flexibility and are willing to undertake a little more administrative work for the long-term benefits. It’s also highly appealing to employees because of its high contribution limits and familiar structure.
However, it comes with higher setup and maintenance costs, as well as required compliance testing and reporting. Most companies partner with a third-party administrator (TPA) to manage it.
SIMPLE IRA: Straightforward and Low Maintenance
SIMPLE IRAs (Savings Incentive Match Plan for Employees) are explicitly designed for small businesses with 100 employees or fewer. They’re easy to set up, require minimal administration, and still offer meaningful retirement savings for employees. It requires employer contributions either by matching up to 3% of employee compensation or by contributing 2% across the board.
While traditional IRAs lack some of the customization and higher limits of a 401(k), it’s an ideal starting point for companies that want a plan with minimal overhead.
SEP IRA: Ideal for Solo and Small Teams
A SEP IRA (Simplified Employee Pension) is an excellent option for solo business owners or companies with tiny teams. These plans are straightforward to manage and offer high contribution limits for employers. Employees don’t contribute—only the employer does—and contributions must be the same percentage for all eligible team members.
That means if you want to contribute 15% of your income to your own SEP, you also have to contribute 15% of each eligible employee’s salary. This makes it less practical as your team grows.
Choosing What’s Best for You
Each plan has strengths and trade-offs. The right fit depends on your team size, growth plans, and the level of flexibility or simplicity you desire. A 401(k) offers room to grow but requires more management. SIMPLE IRAs are easy and efficient, while SEP IRAs work best for very small businesses or solo entrepreneurs.
If you’re unsure what makes the most sense for your company right now—or if your current plan still fits—we’re here to help you sort through it. Reach out to get started.