3 Types of Retirement Plans for Growing Businesses

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.

Traditional 401(k) Plans

What is a Traditional 401(k)?

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.

Benefits of a 401(k) Plan

• Employee Attraction and Retention

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.

• Higher Contribution Limits

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).

• Tax Benefits

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.

Considerations

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.

SEP-IRAs

What is a SEP-IRA?

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.

Benefits of SEP-IRAs

• Easy Setup

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.

• Flexible Contributions

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.

• Tax Benefits

Contributions are tax-deductible, reducing the company’s taxable income. Additionally, employee contributions won’t be taxed until funds are withdrawn during retirement.

Considerations

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.

SIMPLE IRAs

What is a SIMPLE IRA?

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.

Benefits of SIMPLE IRAs

• Low Setup Costs

SIMPLE IRAs are designed for small businesses, so they’re affordable and easy to administer without additional compliance testing or specialized advisors.

• Employer-Matching Options

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.

• Access for Employees

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+).

Considerations

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.

Choosing the Right Plan

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:

• Traditional 401(k): Best for growing businesses with long-term ambitions and the resources to handle administrative requirements.
• SEP-IRA: Ideal for smaller companies or solopreneurs with steady profits who want flexible contributions.
• SIMPLE IRA: Perfect for startups and businesses with fewer than 100 employees that want an easy, low-cost retirement solution.

A Wealth of Options for Your Business

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.