Own a small business? Find a retirement plan that fits your business

Q: I have a small business this provides an excellent service, and I am hopeful that 2025 will be a very profitable year for the company. Tell me about retirement plans that will allow me to rollover pre-tax dollars, save current income taxes, and allow me and my employees to save for retirement. I want a plan that will suit both my business and my personal life.

A: Employees prioritize a company retirement plan with a free financial match because it is an important benefit and loyalty can improve, adding value to your business.

The most common retirement plans are defined contribution plans, in which the amount of the contribution is defined but not the benefit. Consider 401(k) and 403(b) plans. Employee contributions are limited to $23,500 for the 2025 tax year, unless the participant is over age 50, then the limit is $31,000. Employees who participate in these plans can defer their preferred amount of their salary, as long as it does not exceed the maximum.

Often, the employer provides a match percentage tied to a vesting schedule. The benefit to the employer is that matching contributions are not subject to FICA or FUTA. If an employee leaves before vesting, the unvested amount is distributed to remaining account holders or used to reduce employer contributions.

A defined benefit plan uses a formula based on salary, age and length of employment to calculate monthly income after retirement. High-income business owners who have fewer employees may find this plan helpful in accumulating substantial benefits in a short time, because this plan allows for higher contributions – and deductions – than other plans. A chartered actuary is required to determine funding levels, and the vesting schedule can last up to seven years.

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Another choice for a small business retirement plan is the Simplified Employee Pension IRA (SEP-IRA). These plans are designed for self-employed individuals, partnerships and sole traders, as well as independent contractors. All SEP-IRA contributions are made exclusively by the employer. These plans are reserved for employers who do not have other active qualified retirement plans. In 2025, contributions are limited to lesser 25% or $70,000 in compensation. The accounts are titled in the name of each employee. All contributions are discretionary and vest immediately.

An Employee Savings Incentive Plan IRA (aptly nicknamed SIMPLE-IRA) is an IRA set up by a small employer (fewer than 100 employees). An employee can contribute up to $15,500, with a catch-up of $3,500 for 2025. The employer sponsoring the SIMPLE-IRA is required to match either 100% up to a maximum of 3% of the remuneration, i.e. a contribution of 2%. for each eligible employee. All contributions vest immediately, but employees who make withdrawals within the first two years are subject to additional penalties beyond the usual 10% early withdrawal penalty.

Small business owners have fiduciary responsibilities with respect to these retirement plans. There are many rules and restrictions, so you may want to consult your accountant and financial planner if you’re considering starting one. Deductible contributions are strictly enforced and often must be paid by the tax filing date (plus extensions).

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Own a small business? Find a retirement plan that fits your business

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