Small Business Retirement Plans

Small Business Retirement Plans

When I worked for my old firm, I was a W-2 employee and the retirement plan options were simple. Things changed when I started my own company. I officially became a small business owner and had many more choices on retirement plans. What options do hands-on owner-operators have and which one is the best for you? If you have a small company and want a retirement program, you want to consider these plan choices.


These plans are very easy to create, and they have very low administrative costs and no annual IRS reporting requirements. You set up traditional IRAs for each eligible employee; they can contribute to the IRA on a tax-deferred basis (via payroll deductions) and you can either match the contributions of plan participants or contribute a fixed percentage of all eligible employees’ pay. The employees own the money in their IRAs.


A Simplified Employee Pension plan lets you make contributions toward your retirement and your employees’ retirements. A SEP allows business owners annual tax-deductible contributions equal to 25% of your compensation (if you have a corporation) or 20% of self-employment income (for a sole proprietor).

Single 401(k)

Yes, you can have a 401(k) when you are self-employed. A business owner may establish one and include their spouse in the plan, provided the spouse is an employee of the business. Single 401ks may be funded by the employee (deferred compensation) and the business (a percentage of profit). As an employee of your business, you can contribute an amount up to the standard yearly 401(k) contribution limit (catch-up contributions permissible if you are 50 or older). Additionally, single 401(k) plans allow you to make tax-deductible profit-sharing contributions equal to 25% of your compensation (corporate entity) or 20% of self-employment income (sole proprietor). It is even possible to have a single Roth 401(k). These plans do require a third-party administrator.

Profit-sharing plans

Here’s one way to compete with larger companies for prime employees. Contributions are usually deductible at both the federal and state level, with contribution limits equivalent to a SEP. Contributions aren’t mandatory. If your business has a bad year, you don’t have to make them. The assets placed within the plan grow tax-deferred. Again, annual tax-deductible contributions may be made according to the 25%/20% rule depending on your business entity.

New comparability plans

Basically, this is a form of profit-sharing plan that rewards senior or key employees more than others. The classic situation for this plan is when you have a small business whose multiple owners take home similar earnings, but are of different ages. The plan must be tested to meet Internal Revenue Code nondiscrimination requirements, of course. It allows different levels of compensation to different groups within a small business.

Are you thinking about putting a plan into place or switching to a retirement program more easily administered than the one you have now?  Don’t know which one to choose?  Call Shelly Dodge at 972/539-0002 today to schedule a complimentary consultation to review your financial goals and discuss the various options for your small business retirement plan.