Comparing popular small business retirement plans

Planning for retirement is a crucial step for any small business, and understanding the different retirement plan options available can help you make the best decision for your business and employees. Here, we compare some of the most popular retirement plans for small businesses, briefly highlighting their benefits and considerations.

All figures are as of 2025.

Simplified Employee Pension (SEP) IRA

A SEP IRA is an attractive option due to its simplicity and ease of administration. These plans allow employers to contribute up to 25% of each eligible employee's compensation, with a cap of $70,000. One of the key benefits is that contributions are tax-deductible for the business, and any earnings grow tax-deferred until withdrawal.

However, there are a few considerations: only the employer makes contributions, and all contributions must be the same percentage of salary for each eligible employee, including the owner.

Most common use case that we see: Businesses with owner-employees only that agree on contribution amounts (typically 1-3 owners or partners).

SIMPLE IRA

The SIMPLE IRA is another straightforward option, ideal for businesses with fewer than 100 employees. Employee contribution limits vary by employer size as follows:

With 25 or less employees, the employee contribution limit is $17,600. Catchup for those over age 50 of $3,850.
Catchup for ages 60-63 of $5,775.

These contribution amounts are reduced to $16,500, $3,500, and $5,250 for employers with 26 or more employees.

Employers are required to match employee contributions dollar-for-dollar up to 3% of their salary or make a non-elective contribution of 2% of each eligible employee's salary.

There is also an optional employer contribution: This is a non-elective contribution made to each eligible employee, in addition to any mandatory employer contributions, in a uniform percentage of up to 10% of compensation, but not exceeding $5,100 for 2025.

This plan offers tax advantages, such as tax-deferred growth and pre-tax contribution deductions. However, there are penalties for early withdrawals, and the mandatory employer contributions can add up.

Most common use case we see: Businesses with 2-15 employees not looking for maximum contribution amounts.

401(k) Plans

401(k) plans are popular for their flexibility and higher contribution limits. They can be administered as a “solo” plan for single employee businesses or most commonly in companies with many employees. Employees can contribute up to $23,500 per year, with a catch-up contribution of $7,500 for those 50 and older or $11,250 for those ages 60-63 . Employers typically offer matching contributions, which are tax-deductible. The true max though is $70,000 + catchups with some creative after tax contribution and profit sharing strategies.

There are two main types of 401(k) plans suitable for small businesses: Traditional 401(k) and Safe Harbor 401(k). The Traditional 401(k) requires annual nondiscrimination tests, while the Safe Harbor 401(k) plan design avoids these tests by meeting certain contribution and vesting requirements.

While 401(k) plans provide significant benefits, they are more complex to administer and typically come with higher setup and maintenance costs.

Most common use case we see: For Solo plans, this is for someone who wants the maximum retirement contribution capability. Also for businesses with 3+ employees with higher average salaries or an owner looking for higher contributions.

Which Plan is Right for You?

Choosing the right retirement plan depends on various factors, including the size of your business, the level of contributions you want to make, and the administrative responsibilities you are willing to assume. SEP IRAs, SIMPLE IRAs, and 401(k) plans each offer unique advantages that can align with your business goals and help secure your employees' future.