Most business owners want to offer their employees a comprehensive retirement savings plan with all the bells and whistles. You know your team works hard, and you want to reward them with long-term financial security. However, for small businesses with lean budgets and a small staff, funding an expensive, complex benefits package is often out of the question.
You might assume that if you cannot afford a standard 401(k), you have nothing to offer. This simply is not true. Small businesses have access to alternative retirement plans that are far less expensive and much easier to administer. At SD Mayer, we are passionate about helping businesses like yours thrive by finding creative financial solutions that fit your actual budget.
Two of the most popular tax-advantaged options for lean operations are the SEP IRA and the SIMPLE IRA. Both plans offer a fantastic way to support your workforce without breaking the bank. Let us walk you through how each plan works, so you can determine which option makes the most sense for your business and your employees.
A Simplified Employee Pension (SEP) IRA is an individual retirement account you establish on behalf of each participant. Self-employed individuals can also establish SEP IRAs. These plans are known for being incredibly flexible and highly cost-effective for the employer.
Participants completely own their accounts from day one. Because they are immediately 100% vested, their account balances go with them if they decide to leave your company. Most people simply roll their accounts over into a new employer’s qualified plan or a traditional IRA account.
The biggest advantage of a SEP IRA is that it does not require annual employer contributions. You can choose to contribute only when cash flow allows. If your business has a slow quarter or a difficult year, you are not locked into a mandatory payment.
In addition, there are typically no setup fees for SEP IRAs. However, participants generally must pay trading commissions and fund expense ratios, which is a fee typically set as a percentage of the fund’s average net assets.
The contribution limits are remarkably high. In 2026, the SEP IRA annual contribution limit is 25% of a participant’s compensation, up to $72,000. That amount is significantly higher than the standard 401(k) account contribution limit of $24,500 in 2026.
From a tax perspective, employer contributions are tax-deductible. Meanwhile, participants will not pay taxes on their SEP IRA funds until they withdraw the money in retirement.
There are a few downsides to keep in mind. Although participants own their accounts, only employers can make SEP IRA contributions. Employees cannot defer part of their own salary into the account. Furthermore, if you contribute sparsely or sporadically, participants may see little value in the plan.
Also, unlike many other qualified plans, SEP IRAs do not permit participants age 50 or over to make additional “catch-up” contributions.
Another excellent possibility is the Savings Incentive Match Plan for Employees (SIMPLE) IRA. Just like a SEP IRA, your business creates a SIMPLE IRA for each participant, and they are immediately 100% vested in the account.
However, unlike SEP IRAs, SIMPLE IRAs allow participants to contribute their own money to their accounts if they choose to do so. This makes it a very participant-friendly option for employees who want to actively save their own earnings.
SIMPLE IRAs are relatively easy for employers to set up and administer. They offer a streamlined approach to retirement savings, completely bypassing some of the heavy regulatory requirements associated with larger plans.
Here are a few major benefits:
Participants can contribute more to a SIMPLE IRA than to a self-owned traditional or Roth IRA. But SIMPLE IRA contribution limits are lower than limits for 401(k)s. Because contributions are made with pretax dollars, participants cannot deduct them. Making pretax contributions does lower their taxable income, though. Employees also cannot take out plan loans against a SIMPLE IRA.
Perhaps the most important factor for business owners is that employer contributions to SIMPLE IRAs are mandatory. You must fund the employer portion regardless of your cash-flow situation. Fortunately, you can generally deduct these contributions as a business expense.
Finally, SIMPLE Roth IRAs are available, too. You should ask your financial and employee benefits advisors whether a Roth version might be a better option for your specific business needs.
Yes. Self-employed individuals can establish a SEP IRA. This allows you to build your own retirement savings while taking advantage of the high contribution limits and tax deductions associated with the plan.
No. For both the SEP IRA and the SIMPLE IRA, participants are immediately 100% vested. They own the funds right away, giving them peace of mind and full control over their retirement assets.
Yes. If you prefer the structure of a 401(k) but worry about the cost, new lower-cost 401(k) options hit the market regularly. The right choice depends entirely on your budget, tax situation, and specific benefit needs.
If you previously thought you could not afford to offer workers a retirement plan, it is time to think again. You do not need a massive corporate budget to help your employees save for the future. Between SEP IRAs, SIMPLE IRAs, and emerging lower-cost 401(k) options, you have choices that make financial sense.
At SD Mayer, our goal is to make financial clarity accessible to everyone. We can review your budget, tax situation, and benefit needs to suggest exactly how best to proceed. We will help you cut through the technical jargon and build a strategy that works for your bottom line. Contact us today, and let's get started on finding the perfect fit for your workforce.