Planning for retirement is one of the most impactful decisions a business owner can make—not just for themselves but also for their team. Offering retirement plans doesn’t just secure your own future; it also helps attract and retain top talent while strengthening your company’s reputation as an employer that invests in its people. But with so many options, how do you know which plan is right for your growing business?
This guide breaks down three key types of startup retirement plans—Traditional 401(k) plans, SEP-IRAs, and SIMPLE IRAs. Whether you’re starting from scratch or exploring ways to expand, this post will help you make an informed decision.
A Traditional 401(k) is one of the most commonly recognized retirement plans. It allows employees to save and invest a portion of their paycheck before taxes, and employers often have the option to match contributions.
Offering a 401(k) makes sense for businesses of all sizes, but it’s particularly popular among employers who are scaling and want to make a strong investment in their workforce.
When your business offers a 401(k), it signals that you’re invested in your team's long-term future. This can be a make-or-break perk for attracting top talent—especially as retirement savings become a bigger focus across generations.
For 2024, the annual contribution limit for employees is $23,000 (or $30,500 if they are over 50 years old). Plus, employers can contribute up to 25% of an employee’s compensation, with a total limit of $66,000 (or $73,500 for employees over 50).
Employer contributions to 401(k) plans are tax-deductible, and employees benefit from pre-tax savings, meaning they’ll lower their taxable income while saving for the future.
While 401(k) plans are powerful, they come with higher administrative responsibilities and costs. Compliance testing and annual filings (like Form 5500) are required, making them a better fit for companies with administrative resources or advisors to help manage the process.
A Simplified Employee Pension Individual Retirement Account (SEP-IRA) is often a go-to for small business owners and self-employed individuals looking for a straightforward, tax-advantaged retirement plan.
SEP-IRAs are incredibly easy to establish. With fewer paperwork requirements than 401(k) plans and no annual filing obligations, they remove a lot of the administrative burden associated with retirement plans.
Employers decide how much to contribute each year (up to 25% of each employee’s compensation or $66,000 annually in 2024). This flexibility is especially useful for startups and businesses with fluctuating profits.
Contributions are tax-deductible, reducing the company's taxable income. Additionally, employee contributions won’t be taxed until funds are withdrawn during retirement.
SEP-IRAs may not be the best fit if you have a larger team. Employers are required to contribute the same percentage of salary for all eligible employees, which can become costly as your business scales.
A Savings Incentive Match Plan for Employees (SIMPLE IRA) strikes a balance between flexibility and responsibility, making it ideal for small businesses with 100 or fewer employees.
SIMPLE IRAs are designed for small businesses, so they’re affordable and easy to administer without additional compliance testing or specialized advisors.
Employers can either match employee contributions dollar-for-dollar up to 3% of their salary or opt for a flat 2% contribution regardless of whether the employee contributes.
SIMPLE IRAs make it easy for employees to kickstart their retirement savings. For 2024, employees can contribute up to $15,500 ($19,000 for those aged 50+).
While SIMPLE IRAs are low-cost, they have lower contribution limits compared to 401(k) plans. If your business grows beyond 100 employees, transitioning to a 401(k) plan may be necessary.
The best retirement plan for your business will depend on several factors, including the size of your team, your budget, and the level of administrative complexity you’re prepared to handle. Here’s a quick breakdown of when each plan might be the right fit for you:
Implementing a retirement plan isn’t just about numbers—it’s about creating a culture of support and sustainability in your workplace. Businesses that offer retirement solutions tend to see improved employee satisfaction, better retention, and even increased productivity.
At SD Mayer & Associates, we understand the unique challenges small businesses face when making financial decisions. Whether you’re just getting started with startup retirement plans or exploring ways to evolve your current setup, we’re here to guide you at every step.
Have questions about which retirement plan is right for your business? Connect with our financial experts today and give your team the future they deserve.