The Best Retirement Plan Options for Small Business Owners

Posted by Greater Midwest Financial Group on Sep 29, 2022 11:40:00 AM


two businesspeople high-fiving each otherIn a highly competitive job market, potential employees look for businesses that offer the benefits they want. However, for small business owners, it can be a challenge to find economical options that are attractive to both the employer and employee.

If you’re a small business owner looking to offer retirement plans to your employees, here’s what you need to know about your options.

Retirement Plan Options for Small Business Owners

1. Traditional 401(k)

This is the most common retirement plan option – popular with both employers and employees. There are a wide number of plan providers to choose from, including some that specialize in small businesses.

What to know about this plan:

  • Employee participation is optional and employer matching/contributions also optional.
  • Typically, employees make pretax contributions through salary deferrals (traditional). However, a Roth 401(k) plan allows employees to make after-tax contributions.
  • There is usually a cost per employee, setup fees, and monthly fees for the employer.
  • There are contribution limits for these plans, both on the employee side and the employer side. The limits can change from year to year.
  • You must undergo nondiscrimination testing and meet 401(k) compliance standards.

Choose this option if: you are an established small business that anticipates future growth.

A 401(k) can be a bit costly to set up, but it is very appealing for employees. The flexibility offered in terms of contribution and matching make it easy to customize to your businesses needs. However, this plan is not ideal for new businesses or businesses where revenue fluctuates highly from year to year.


A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a popular retirement plan option for small businesses. It gives employees the option to contribute more toward their retirement vs creating an individual IRA account, but it’s typically lower cost to employers than a 401(k).

What to know about this plan:

  • Employers must contribute to this plan, but the requirements are very low (typically 2-3% matching).
  • The setup fees for this type of plan are a lot lower (or can be avoided altogether). Providers may charge a monthly fee for maintenance.
  • There are contribution limits for these plans, both on the employee side and the employer side. The limits can change from year to year. For employers, these are also much, much lower than typical 401(k) contribution limits. However, they are higher for employees.
  • Employees contribute to the account through elective deferrals.

Choose this option if: you are an established small business but can’t afford the higher cost and contribution amounts of a 401(k).

A SIMPLE IRA allows employees to contribute more money toward their accounts with less expense to the employer than a traditional 401(k). This option is still appealing to employees. For businesses who want to offer a retirement plan but aren’t quite ready for the cost of a 401(k) OR whose employees want to contribute more money toward their retirement, this is an attractive option.


A Simplified Employee Pension, or SEP IRA, is the most inexpensive retirement plan option for employers. It does not allow employees to contribute, but it still offers some retirement funding.

What to know about this plan:

  • Typically no setup fees and a low monthly fee for maintenance from providers.
  • Only employers can contribute to accounts.
  • Employers don’t have to contribute each year and can change the contribution amount each year.
  • All contributions are vested (meaning, the employee owns 100% of that money once it’s in the account).
  • There are contribution limits, but they are relatively high.

Choose this option if: you need something low-cost and/or if your revenue fluctuates from year to year.

A SEP IRA is a fantastic way to still offer retirement benefits, but without the higher employer cost of other options. The flexibility of contributions works well for businesses that are new and/or have fluctuating revenue from year to year. During low revenue years, employers can halt contributions and then provide more contributions during high-revnue years.

These are the best retirement plan options for small business owners, but the question of which plan is best for your business is one that’s harder to answer. Typically, you’ll need to work with an expert that specializes in benefits planning for small businesses to identify the ideal plan type and help you choose the right provider.

⇾ Read Now:How to Find Small Business Benefit Planning Services in MN

Retirement and Benefits Planning Services with Greater Midwest Financial Group

Planning for Business Owners/Executives

For business owners, benefits planning requires additional considerations and paperwork.

Work with an advisor and get answers to your biggest executive benefit questions:

  • What are the different types of stock options available to me and what are their tax consequences?
  • Should I use my deferred compensation plan? How much of my compensation should I defer?
  • How do insurance and fringe benefits impact my need for other insurance outside my company?
  • How can I best navigate tax and planning issues?

Benefits Planning for Individuals

We also offer advice for your employees. They can receive support with choosing these benefits and more:

  • Health insurance
  • Life insurance
  • 401K/403b
  • Stock options
  • Deferred compensation
  • Long Term Disability Insurance
  • Employee Stock Purchase Plan (ESPP)
  • Health Savings Account (HSA)
  • Flexible Savings Account (FSA)

Contact a Business Financial Planner


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Greater Midwest Financial Group is a financial advisor firm serving St. Paul, Minneapolis and the wider Twin Cities area. We specialize in wealth management, retirement planning, asset management and other personal finance needs.

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Topics: business owners, retirement, benefits planning