small business ira plans

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Understand retirement planning options that help you keep more of what you earn, while also investing in your future.

Help take the guesswork out of which plan could be right for you with a 5-minute quiz

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Self-Employed 401(k)

A 401(k) plan for a self-employed individual with no employees other than a spouse.

Easy-to-maintain plan for a self-employed individual or small-business owner, with fewer than 5 employees 1 .

A low-complexity plan for businesses with fewer than 100 employees looking to offer a retirement benefit.

Fidelity Advantage 401(k)

An affordable plan for small businesses looking to offer a 401(k) for the first time.

Fidelity 401(k)

An industry-leading 2 , customizable 401(k) that supports existing plans $1M and up.

Investment-only account 3

A brokerage account for those who have their own separate retirement plan document.

Whether it’s just you or you and your employees, we have a retirement plan that’s right for you. Take a look at how they compare and find one that fits your needs.

Already have a 401(k) plan with another provider? Learn more about the support and value we can deliver with a Fidelity 401(k).

If you have a separate retirement plan established and you’d like to invest the assets in a Fidelity brokerage account, you may be interested in an investment-only retirement account. 3

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No account fees or minimums to open Fidelity retail IRA accounts. Expenses charged by investments (e.g., funds, managed accounts, and certain HSAs), and commissions, interest charges, and other expenses for transactions, may still apply. See Fidelity.com/commissions for further details.

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Who is the plan for?

SE 401(k) : Self-employed individual or business owner with no employees other than a spouse.

SEP IRA : Self-employed individual or small business owner, primarily those with only a few employees. 1

Fidelity Advantage 401(k) : Small and medium- sized businesses looking to offer a 401(k) for the first time.

SIMPLE IRA : Self-employed individuals or businesses with 100 or fewer employees.

How do contributions work?

SE 401(k) : Employers may contribute up to 25% of compensation, up to a maximum of $69,000 in 2024 ($76,500 if age 50 or older).⁵ Employees may contribute up to $23,000 for 2024 ($30,500 if age 50 or older).⁵

SEP IRA : Employers may contribute between 0% and 25% of compensation up to a maximum of $69,000 for 2024.⁵ Each eligible employee must receive the same percentage.

Fidelity Advantage 401(k) : Employers make matching contributions, up to 4% of the annual gross compensation of all employees.⁴ Employees may contribute up to $23,000 for 2024 (catch up contributions available).⁵

SIMPLE IRA : Employers contribute either a matching contribution of 1, 2, or 3% or a non-elective contribution of 2%. 7 Participants may contribute up to 100% of compensation with a maximum of $16,000 for 2024 ($19,500 if age 50 or older). 8

Who can contribute?

SE 401(k) : As someone who's self-employed, you can contribute as both employer and employee.

SEP IRA : Only the employer can contribute.

Fidelity Advantage 401(k) : Both employees and employers can contribute.

SIMPLE IRA : Both employees and employers can contribute.

What about fees and tax credits?

SE 401(k) : There are no account fees and no minimum to open an account, $0 commission for online US stocks and ETF trades.⁶

SEP IRA : There are no account fees and no minimum to open an account. $0 commission for online US stocks and ETF trades.⁶

Fidelity Advantage 401(k) : There are no additional management fees or, with limited exceptions, fund expenses beyond the $300 per quarter fee.

SIMPLE IRA : There are no account fees and no minimum to open an account, $0 commission for online US stocks and ETF trades.⁶

When can withdrawals be made?

SE 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59 ½ or older, and a few others. However, some withdrawals may incur a 10% penalty. 4

SEP IRA : You can withdraw at any time, but a 10% penalty may apply if you're not yet age 59½. 4

Fidelity Advantage 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59½ or older, and a few others.⁴ However, some withdrawals may incur a 10% penalty. In the event of certain types of financial emergencies, you may be able to take a hardship withdrawal.

SIMPLE IRA : You can withdraw at any time, but a 10% (or 25% if within the first two years of participation) penalty may apply if you're not yet age 59½. 4

Important Information Virtual Assistant is Fidelity’s automated natural language search engine to help you find information on the Fidelity.com site. As with any search engine, we ask that you not input personal or account information. Information that you input is not stored or reviewed for any purpose other than to provide search results. Responses provided by the virtual assistant are to help you navigate Fidelity.com and, as with any Internet search engine, you should review the results carefully. Fidelity does not guarantee accuracy of results or suitability of information provided. Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. Fidelity does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 796549.1.0

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Attract talented employees while saving for your own retirement

A savings incentive match plan for employees (simple) ira is a plan for businesses with 100 or fewer employees. you make contributions for your employees, who can also contribute through salary deferrals., simple ira features, bring value to your business without the extra fees.

Which retirement account is right for your business?

What's a key difference between a simple ira and a sep ira, get started with a simple ira in 3 easy steps, decide how you want to invest, open your account, explore all plans available for small business, ready to get started, frequently asked questions, who contributes to a simple ira, how much are employers required to contribute, what are the employee contribution limits footnote 3, who is eligible to participate in a simple ira, what investment choices are available, how much does it cost to set up and administer a simple ira, does the plan take a lot of time to administer, what if i prefer to invest with an advisor, what are the advantages for employees, when are contributions fully vested, can participants take a loan or withdraw funds from their simple ira before they reach age 59½, what if my business grows beyond 100 employees, is irs reporting required.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF) .

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Small Business Retirement Plans

Schwab offers a number of retirement plans for small businesses, whether your company employs one or many. Use this information and our tools here to learn more and begin narrowing your options.

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Individual 401(k) plan

Individual 401(k) plans - traditional & roth.

Who it's for:

Owner-only businesses with no employees

Key features:

All the benefits of a 401(k)
High contribution limits
Easy to administer

Individual 401(k) plan details

Owner-only businesses or those with just a few employees

Key features:

No IRS filing or reporting
Allows for contributions for you and any employees

SEP IRA plan details

Businesses with up to 100 employees

Primarily funded with employee salary-deferral contributions
Employer-matched contributions up to 3%
An easy and economical plan to administer

SIMPLE IRA plan details

retirement plans

Personal defined benefit plan.

Owner-only businesses or those with up to five employees

Highest contribution limits
Contributions are generally 100% tax-deductible
Helps target your desired level of income in retirement

Personal defined benefit plan details

Business 401(k) Plan

Businesses of any size

Permits a higher level of salary deferrals by employees than other plans
Optional annual employer contributions
Greater plan customization

Business 401(k) plan details

Company Retirement Account (CRA)

Businesses with an established retirement plan

An investment-only solution
Access to Schwab’s full range of investment options
$0 account open or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply 1 .

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What Is a SIMPLE IRA Plan? How It Works, Rules & FAQs

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A SIMPLE IRA plan (Savings Incentive Match Plan for Employees) can be a way for small-business employees and self-employed people to save for retirement. Although more similar to a traditional IRA than a 401(k) plan offered by larger employers, this workplace retirement savings account allows both employee and employer contributions.

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What is a SIMPLE IRA?

A SIMPLE IRA is a type of tax-deferred retirement plan for small businesses with fewer than 100 employees. While it is considered an employer-sponsored retirement plan — and employer contributions are mandatory — its investment, distribution and rollover rules make it more similar to a traditional IRA .

Employees might like that employer match, but they may be less happy about the lower contribution limits, compared with 401(k)s . They may also lament the lack of a Roth version.

Additionally, if you work for yourself, you’re also allowed to contribute to a SIMPLE IRA, although there may be better retirement plan options for self-employed people .

SIMPLE IRA vs. traditional IRA

SIMPLE IRAs bear some similarities to traditional IRAs. Contributions are tax-deferred, meaning the amount you save up to your contribution limit reduces your taxable income for the year, and investment growth is tax-deferred until you start taking distributions after age 59 ½.

SIMPLE IRA vs. 401(k)

In some ways, SIMPLE IRAs are like 401(k) plans: Eligible employees indicate how much (if anything) of each paycheck they want to contribute to the account, and the money is automatically diverted into the worker’s individual investment account. The big difference is how much employees can contribute.

SIMPLE IRA contribution limits for 2023

The employee contribution limit for a SIMPLE IRA in 2023 is $15,500. People age 50 and older can make an additional $3,500 catch-up contribution.

Employer contributions are mandatory and can be made using one of two methods:

Provide matching contributions up to 3% of the employee’s pay, not limited by any annual compensation limit.

Make nonelective contributions equal to 2% of the employee’s compensation based on a maximum salary of $330,000 in 2023.

Employer contributions need to be made by the federal income tax deadline , usually around mid-April, or by the extension date if applicable.

SIMPLE IRA contribution limits for 2024

The employee contribution limit for a SIMPLE IRA in 2024 is $16,000. People age 50 and older can make an additional $3,500 catch-up contribution.

Make nonelective contributions equal to 2% of the employee’s compensation based on a maximum salary of $345,000 in 2024.

Starting in 2024, employers can make additional contributions to each employee, as long as the contribution does not exceed the lesser of up to 10% of compensation or $5,000 [0] Senate.gov . SECURE 2.0 Act of 2022 . Accessed Nov 6, 2023. View all sources .

Employer contributions need to be made by the income tax deadline, or by the extension deadline if applicable.

» Thinking about the future? Learn about succession planning for your business .

Benefits of a SIMPLE IRA

Benefits for employers.

For employers, SIMPLE IRAs have start-up and operating costs that are generally lower than setting up a 401(k) plan. Employers get a tax deduction for their contributions to employees’ accounts.

Benefits for employees

Employees don’t have to sign up for salary deferrals to get the employer contribution if their employer chooses the nonelective 2% contribution option. If the plan uses the elective salary reduction/matching method, the employee must contribute to earn the match.

Eligibility requirements are low. In general, you’re eligible to participate in a SIMPLE IRA if you’ve received at least $5,000 in compensation during any two preceding calendar years and expect to earn at least that much during the calendar year of participation. But the IRS also allows employers to offer these accounts to employees who don’t meet these standards.

Employer contributions vest immediately. With no vesting period, you have 100% ownership of all the money in your SIMPLE IRA.

The IRS lets individuals contribute to other retirement savings plans at the same time. That’s handy if, for example, you have more than one job that offers an employer-sponsored retirement plan or if you also want to contribute to a traditional or Roth IRA .

Investment choices tend to outnumber what’s offered in 401(k)s. Instead of being limited to whatever mutual funds a 401(k) plan administrator chooses, you can invest in stocks, bonds, mutual funds and any other investments offered by the IRA provider.

Drawbacks of SIMPLE IRA plans

The contribution limits for SIMPLE IRA plans are lower than other workplace retirement plans. In 2023, solo business owners can contribute up to $15,500 per year versus $22,500 in a 401(k). For those 50 and older, the difference is a $19,000 limit for the SIMPLE IRA versus $30,000 in a 401(k).

Also, there is no Roth version of the SIMPLE IRA. This is a big drawback given the benefits of Roth IRAs and Roth 401(k)s. (See “ What Is a Roth IRA? ” for more on why we like these accounts.)

Other downsides include:

Participant loans are not allowed.

You’ll pay a steep tax penalty for some early withdrawals. In general, SIMPLE IRA distribution rules mirror traditional IRA rules , except for nonqualified withdrawals within the first two years of your participation. For those, you’ll pay an extra 15% early withdrawal penalty on top of the standard 10% penalty. That means if you tap into the money before age 59 ½ and before you’ve had the plan for two years, you’ll likely owe the IRS 25% of the money you take out in penalties, plus whatever income taxes you owe on it.

Rollovers to another IRA or employer-sponsored retirement plan are subject to strict rules. The 25% penalty mentioned above also applies if you do a rollover into anything other than another SIMPLE IRA during the two-year period after you first participate in the plan.

» Looking to open an IRA? Here are our top picks for the best IRA accounts

Is a SIMPLE IRA right for me?

The answer depends on whether you're an employee or the employer.

For business owners: If you're a solo business owner or self-employed and your goal is to maximize your own retirement savings, there are other retirement savings plans that have higher contribution limits:

A solo 401(k) allows a business owner with no employees to contribute up to $66,000 in 2023, with an additional $7,500 catch-up contribution if you’re age 50 or older. The exception to the no-employees rule is if your spouse earns income from your business.

A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a lot like a SIMPLE IRA. But like a solo 401(k), the contribution limits are much higher: You’re allowed to contribute either 25% of compensation or up to $66,000 in 2023.

If you own a small business with employees, a SIMPLE IRA might be attractive if you want to offer your employees a retirement plan but would like to avoid the extra administrative costs that can come with a 401(k). Just keep in mind that some employees may still want a 401(k) because of its higher contribution limits.

In 2024, the Secure 2.0 Act will make it easier to replace SIMPLE IRA offerings with 401(k)s: Employers can make the switch mid-year, rather than at year-end, so long as the new 401(k) plan is in place by the time the SIMPLE IRA is terminated [0] senate.gov . SECURE 2.0 Act of 2022 . View all sources .

For employees: Anyone who has access to the plan at work and wants to maximize their savings may want to consider participating in the SIMPLE IRA plan to get the free money.

If your plan provides the automatic 2% employer contribution, you’ll get that money even if you elect not to divert any of your salary. If the employer contribution is offered by matching funds, you must sign up to contribute a portion of your salary to earn the match. (Remember: You can still save in other types of retirement savings accounts in addition to a SIMPLE IRA.)

» Read more about how to choose between a SIMPLE IRA and a 401(k)

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SIMPLE IRA Plans for Small Businesses

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Thinking about a retirement plan? If it seems like the right thing for your business, here's a SIMPLE one.

A SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA plan offers great advantages for businesses that meet two basic criteria.

Your business must have no more than 100 employees who earned $5,000 or more during the preceding calendar year.
Your business cannot currently have another retirement plan.

If you are among the thousands of business owners eligible for a SIMPLE IRA plan, read on.

A SIMPLE IRA plan provides you and your employees with an easy way to contribute toward retirement. It reduces taxes and also helps you attract and retain quality employees. Plus, compared to other types of retirement plans, SIMPLE IRA plans offer lower start-up and annual costs. In short, they are just simpler to operate.

Other Advantages of a SIMPLE IRA plan

SIMPLE IRA plans are easier than other plans to set up and run – your financial institution handles most of the details.
Employees can make tax-deferred contributions through convenient payroll deductions.
You can choose either to match the contributions of participating employees or to contribute a fixed percentage of each eligible employee's pay.
You may be eligible for a tax credit of up to $500 per year for the first 3 years for the cost of starting a SIMPLE IRA plan. (IRS Form 8881, Credit for Small Employer Pension Plan Startup Costs).
Administrative costs are low.
You are not required to file annual financial reports.

Establishing the Plan

Starting a simple ira plan is easy.

Step 1: Contact a retirement plan professional or a representative of a financial institution that offers retirement plans. Many financial institutions will have a pre-approved SIMPLE IRA plan form that you can review.

Step 2: Choose a financial institution to maintain employees' SIMPLE IRAs. This is one of the most important decisions you will make because that entity becomes a trustee to the plan. (Alternatively, you can let employees choose the financial institution that will receive their contributions.)

Regardless of who makes the choice, only the following institutions can be designated as trustees or custodians for SIMPLE IRA plans:

Insurance companies that issue annuity contracts, and
Other IRS-approved financial institutions.

Trustees work with employers and agree to receive and invest contributions and give the employer a summary description of the plan features each year.

Step 3: Choose a plan document from your financial institution. If your financial institution offers a model SIMPLE IRA plan document, you will have a choice of two forms to use:

IRS Form 5304-SIMPLE , Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – Not for Use with a Designated Financial Institution , if employees are allowed to select the financial institutions that will receive their SIMPLE IRA plan contributions; or
IRS Form 5305-SIMPLE , Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) - for Use with a Designated Financial Institution , if you require that all contributions under the SIMPLE IRA plan be initially deposited with a designated financial institution.

Your selected plan document will set out which of your employees are covered. You can choose to cover all employees without restriction. Alternatively, you can limit the employees covered to those who received at least $5,000 in compensation during any 2 years prior to the current calendar year and who are reasonably expected to receive at least $5,000 during the current calendar year.

Step 4: Complete and sign the selected IRS form (or other plan document, if not using the IRS model form). This document becomes the plan's basic legal document, describing your employees' rights and benefits. Do not send it to the IRS. Instead, use it as a reference, as it sets out the plan terms (for example, eligible employees, compensation, and employer contributions). You will need to ensure that your plan is current with the law.

Operating the Plan

It's easy to operate a SIMPLE IRA plan.

Participants in a SIMPLE IRA Plan

Participants are employees who choose to contribute or to whose accounts you deposit contributions. You must provide information about those employees to your financial institution. Inform your financial institution of any changes in the status of eligible employees (for example, new employees).

Enrolling Employees in a SIMPLE IRA Plan

SIMPLE IRA plans operate on a calendar-year basis. An employer may initially set up a SIMPLE IRA plan as late as October 1.

You must set up a SIMPLE IRA for each employee with contributions under the plan.

Employees must receive notice of their right to participate, to make salary reduction contributions, and to receive employer contributions. In addition, you (or the trustee) must give employees information about the plan, including a copy of the summary description. The required notice also informs eligible employees of the plan's election period, which is when they can decide to contribute to the plan. For employers that use one of the model forms, page 3 of both Form 5304-SIMPLE and Form 5305-SIMPLE have a model notice.

If the plan offers automatic enrollment, you can choose to automatically enroll employees in the SIMPLE IRA plan as long as the employees are allowed to opt out or change the amount of salary reduction contributions.

Employee Contributions

Employees can make salary reduction contributions to a SIMPLE IRA plan in any amount up to the legal limits. The maximum amount that an employee can contribute is adjusted annually for cost-of-living increases. The limit is $14,000 in 2022 and $15,500 in 2023. Employees 50 or older can make additional employee contributions (known as catch-up contributions) up to $3,000 in 2022 and $3,500 in 2023. These amounts also are adjusted annually for cost-of-living increases.

Each year, employees can change their contribution levels during the plan's election period. This election period must be at least 60 days long, and employees must receive prior notice about the upcoming opportunity. SIMPLE IRA plans that have already been established must have an annual election period that extends from November 2 to December 31. A plan can have more election periods each year in addition to this 60-day election period.

Employer Contributions

You have two choices in determining your contributions to the SIMPLE IRA plan. You can choose to make:

A 2 percent nonelective employer contribution, where eligible employees receive an employer contribution equal to 2 percent of their compensation (limited to $305,000 for 2022 and $330,000 for 2023 and subject to cost-of-living adjustments for later years), regardless of whether they make their own contributions.
A dollar-for-dollar match, generally up to 3 percent of compensation, where only the participating employees who make contributions will receive an employer matching contribution.

Each year, you can choose which one you will use for the next year's contributions. This choice is part of the information you are required to communicate to employees before the 60-day election period.

Rollovers to a SIMPLE IRA Plan

You and your employees also can roll over amounts from a qualified employer-sponsored retirement plan or an IRA into a SIMPLE retirement account. During the first 2 years of participation in a SIMPLE IRA plan, you may roll over amounts from another SIMPLE retirement account. After 2 years of participation, you also may roll over amounts from a qualified retirement plan or an IRA.

Depositing and Investing Plan Contributions

You (or the trustee) must deposit employee contributions in the financial institution serving as trustee for the plan as soon as reasonably possible, but no later than 30 days after the end of the month in which the amounts would otherwise have been payable to the employee.

For plans with fewer than 100 participants, employers can deposit salary reduction contributions with the plan no later than the 7th business day after withholding it to be considered in compliance with the law. You must make your employer contributions by the due date for filing your business's Federal income tax return for the year (including extensions, if applicable).

After forwarding the SIMPLE IRA plan contributions to the trustee, the trustee will invest the funds. In many cases, the funds are invested at the direction of the participants. SIMPLE IRAs can be invested in stocks, bonds, mutual funds, and similar types of investments.

Employee and employer contributions are always 100 percent vested, meaning an employee has a right to the money they put aside plus employer contributions and earnings from investments.

Employees can move their SIMPLE IRA assets from one SIMPLE IRA plan to another in accordance with the procedures of the financial institution.

How does a SIMPLE IRA plan work?

Example 1: Elizabeth works for the Rockland Quarry Company, a small business with 50 employees. Rockland has decided to establish a SIMPLE IRA plan for its employees and will match each employee's contributions dollar-for-dollar up to 3 percent of the employee's salary. Under this option, if a Rockland employee does not contribute to their SIMPLE IRA, then that employee does not receive any employer contributions from Rockland.

Elizabeth has a yearly salary of $50,000. If she contributes 5 percent of her salary to her SIMPLE IRA, Elizabeth's yearly contribution will be $2,500. The Rockland matching contribution will be $1,500 (3 percent of her salary). So, the total contribution to Elizabeth's SIMPLE IRA that year will be $4,000 (her $2,500 contribution plus the $1,500 contribution from Rockland). The financial institution holding Elizabeth's SIMPLE IRA has several investment choices, and Elizabeth is free to choose which ones suit her best.

Example 2: Austin works for the Skidmore Tire Company, a small business with 75 employees. Skidmore has decided to establish a SIMPLE IRA plan for its employees and will make a 2 percent nonelective contribution for each of them. Under this option, even if an eligible Skidmore employee does not contribute to their SIMPLE IRA, that employee would still receive an employer nonelective contribution to their SIMPLE IRA equal to 2 percent of their salary.

Austin has a yearly salary of $40,000 and has decided that this year he simply cannot contribute to his SIMPLE IRA. Even though Austin will not contribute this year, Skidmore makes a nonelective contribution of $800 (2 percent of $40,000). The financial institution holding Austin's SIMPLE IRA has several investment choices, and Austin has the same investment options as the other plan participants.

Employee Communications

There are two key disclosure documents that inform participants about how the plan operates, notify them of changes in the plan's structure and operation, and give them a chance to make decisions and take timely action on their accounts.

The summary description is a plain-language explanation of the plan that informs participants of their rights and responsibilities under the plan. It also informs participants about the plan's features. The financial institution usually provides this document to participants at the plan's inception, when employees first join the plan, and annually thereafter.

A summary description must include:

The names and addresses of the employer and trustee,
The requirements for eligibility to participate,
The benefits provided,
The time and method of making salary elections, and
The procedure for, and effects of, withdrawals and rollovers (including the penalties for early withdrawals).

You can satisfy the summary description requirement by giving employees the most recent copy of IRS Form 5304-SIMPLE or 5305-SIMPLE provided by the financial institution (if one of these model forms is used to establish the SIMPLE IRA plan), along with the financial institution's procedures for withdrawals and transfers.

Each year, in addition to the information above, employees must receive an annual election notice describing their right to make salary reduction contributions and your decision to make either matching or nonelective contributions for the following year. For employers that use one of the model forms, page 3 of both Form 5304-SIMPLE and Form 5305-SIMPLE contain a Model Notification to Eligible Employees that can be used to provide this information to employees.

Every year, during the 60-day election period at the end of the year, you must give your employees the opportunity to enter into a salary reduction agreement or to modify an existing agreement.

Reporting to the Government

SIMPLE IRA plans do NOT have to file annual financial reports with the government.

The financial institution reports distributions from the plan to both the IRS and the distribution recipients on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

The financial institution handling the SIMPLE IRAs provides the IRS and participants with an annual statement containing contribution and fair market value information on Form 5498, Individual Retirement Arrangement Contribution Information .

SIMPLE IRA contributions are not included in the “Wages, tips, other compensation” box of Form W-2, Wage and Tax Statement . However, salary reduction contributions must be included in the boxes for Social Security and Medicare wages.

When Employees Want to Stop Contributions

Employees may elect to stop their salary reduction contributions to a SIMPLE IRA plan at any time. If they do so, the SIMPLE IRA plan may prevent them from resuming salary reduction contributions until the beginning of the next calendar year. Employers making nonelective employer contributions must continue to make them for these employees.

Distributions

Participants cannot take loans from their SIMPLE IRAs, but participants can withdraw SIMPLE IRA contributions and earnings at any time. When participants take a distribution, they can typically:

Take a lump sum distribution of their account, or
Roll over their account to an IRA or another employer's retirement plan.

Distributions from a SIMPLE IRA are generally subject to income tax for the year in which they are received. If a participant takes a withdrawal from a SIMPLE IRA before age 59½, a 10 percent additional tax generally applies. If the withdrawal occurs within 2 years of beginning participation, the additional tax increases to 25 percent.

Employees can roll over SIMPLE IRA contributions and earnings tax free from one SIMPLE IRA to another. Employees can also make tax-free rollovers from a SIMPLE IRA to another type of IRA or to another employer's qualified plan after 2 years of beginning participation in the SIMPLE IRA plan.

A specific minimum amount of SIMPLE IRA contributions and earnings is required to be distributed by April 1 of the year after the participant reaches age 72. After this initial year, the participant must receive a required minimum distribution for each year by December 31 of that year. For more information on the required minimum distribution amount, see IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) .

Monitoring the Trustee

As the plan sponsor, you should monitor the financial institution/trustee to ensure it is doing everything it is required to do. You should also ensure that the trustee's fees are reasonable for the services it is providing. If the trustee is not doing its job properly, or if its fees are not reasonable, you should consider replacing the trustee.

Terminating the Plan

Although SIMPLE IRA plans are established with the intention of continuing indefinitely, the time may come when a SIMPLE IRA plan no longer suits the purposes of your business. When that happens, consult with your financial institution to determine if another type of retirement plan might be a better alternative.

To terminate a SIMPLE IRA plan, notify the financial institution that you will not make a contribution for the next calendar year and that you want to terminate the contract or agreement.

You must also notify your employees that the SIMPLE IRA plan will be discontinued.

You do not need to give any notice to the IRS that the SIMPLE IRA plan has been terminated.

Mistakes … and How to Correct Them

Even with the best intentions, those operating the plan can still make mistakes. The U.S. Department of Labor and the IRS have correction programs to help employers with SIMPLE IRA plans correct plan errors, protect participants' interests, and keep the plan's tax benefits. These programs are structured to encourage you to correct the errors early.

Periodically reviewing the plan makes it easier to spot and correct mistakes in plan operation. See the Resources section for further information.

Your SIMPLE IRA Plan – A Quick Review

Choose a financial institution to set up your SIMPLE IRA plan.
Enroll your employees and start salary reduction contributions.
Deposit contributions timely.
Tell your employees about their rights under the plan.
Monitor your financial institution/trustee.

To find this publication and more information on retirement plans, visit:

The U.S. Department of Labor's Employee Benefits Security Administration

Information for small businesses
Retirement savings information for employers and employees

Internal Revenue Service

Guidance for maintaining your SIMPLE IRA plan
Retirement Plans Startup Costs Tax Credit
SIMPLE Plan Checklist

In addition, the following jointly developed publications are available on the DOL and IRS websites or can be ordered electronically or by calling toll free 866-444-3272.

Choosing a Retirement Solution for Your Small Business , Publication 3998, provides an overview of retirement plans available to small businesses.
401(k) Plans for Small Businesses , Publication 4222, provides detailed information about the establishment and operation of a 401(k) plan.
Automatic Enrollment 401(k) Plans for Small Businesses , Publication 4674, explains a type of retirement plan that allows small businesses to increase plan participation.
Adding Automatic Enrollment to Your 401(k) Plan , Publication 4721, explains how to add automatic enrollment to your existing 401(k) plan.
Payroll Deduction IRAs for Small Businesses , Publication 4587, describes an arrangement that is an easy way for businesses to give employees an opportunity to save for retirement.
Profit Sharing Plans for Small Businesses , Publication 4806, describes a flexible way for businesses to help employees save for retirement.
SEP Retirement Plans for Small Businesses , Publication 4333, describes a low-cost retirement savings option for small businesses.

For business owners with a plan:

Retirement Plan Correction Programs , Publication 4224, provides a brief description of the IRS and DOL voluntary correction programs.

Related materials available from DOL

For small businesses.

Meeting Your Fiduciary Responsibilities
Understanding Retirement Plan Fees and Expenses
Tips for Selecting and Monitoring Service Providers for Your Employee Benefit Plan

DOL's Small Business Retirement Savings Advisor helps small business owners choose the most appropriate retirement plan for their businesses and provides resources on maintaining plans.

For employees

What You Should Know About Your Retirement Plan (also in Spanish, Arabic, Simplified Chinese, Traditional Chinese, French, Korean, Polish, Portuguese, Russian, Tagalog, and Vietnamese)
Savings Fitness: A Guide to Your Money and Your Financial Future (also in Spanish)
Taking the Mystery Out of Retirement Planning (also in Spanish)
Top 10 Ways to Prepare for Retirement (also in Spanish, Arabic, Simplified Chinese, Traditional Chinese, French, Korean, Polish, Portuguese, Russian, Tagalog, and Vietnamese)
Women and Retirement Savings (also in Spanish)

To view these publications, go to DOL's Saving Matters website . To order publications or request assistance from a benefits advisor, contact EBSA electronically or call toll free 866-444-3272.

Related materials available from the IRS

Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) , Publication 560
Contributions to Individual Retirement Arrangements (IRAs) , Publication 590-A
Distributions from Individual Retirement Arrangements (IRAs) , Publication 590-B
Have you had your check-up this year? for Retirement Plans , Publication 3066
SIMPLE IRA Plan Checklist , Publication 4284
Lots of Benefits , Publication 4118 (also in Spanish, Vietnamese, Korean, Chinese, and Russian)

To view these related publications, go to the IRS's website . The publications do not reflect any changes in the law after the date of the publication.

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What Is a Simplified Employee Pension (SEP)?

The secure act and small businesses, contribution limits, ineligible employees, how seps work, deducting sep contributions, deducting plan expenses, reporting requirements, disadvantages of a sep ira, the bottom line.

Retirement Planning

Business Owners: How to Set up a SEP IRA

If you want to establish a retirement plan for your business, you may want to consider establishing a Simplified Employee Pension (SEP). For starters, SEPs have a more liberal setup deadline than a qualified plan —those must be established by the end of your company's plan year (December 31 for plans maintained on a calendar year). By contrast, a SEP may be established by the business's tax-filing deadline, including extensions.

SEPs also offer several other attractive features that we'll review here, along with other factors to consider before choosing a SEP for your business.

Key Takeaways

SEP IRAs are attractive for the self-employed, freelancers, and small businesses because they are easy to set up and administer.
Employers can contribute up to 25% of each eligible employee's gross annual salary and up to 20% of their net adjusted annual self-employment income if they are self-employed, provided the contributions don't exceed $58,000 per person for the year 2021 ($57,000 for 2020).
Certain categories of employees may be ineligible to participate in a SEP, including anyone who is under 21 or who makes less than $650 in wages from your business for the year 2021 ($600 for 2020).
An employer may deduct plan contributions as a business expense.
A SEP may not be desirable because it provides immediate vesting, it doesn't allow loans to be taken out against it, and employees may be eligible after as little as a week.

A SEP is a retirement plan based on an individual retirement account (IRA) into which business owners can make pre-tax contributions for both themselves and their eligible employees. It is ideally suited for self-employed workers, freelancers, and small-business owners because it's easy to establish and administer.

Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. Unlike qualified plans, the SEP does not require nondiscrimination testing or filing of 5500 returns. Establishing a SEP IRA can be as easy as completing IRS Form 5305-SEP and providing a copy to employees.

Employees are responsible for establishing their IRA to receive employer contributions (employees do not make SEP contributions, but if the SEP IRA allows it, they may be able to make regular IRA contributions to their account, up to the maximum annual limit). SEP IRA accounts follow the same rules of investment, distribution, and rollover as traditional IRAs. However, an employer who sets up a SEP has no responsibility for assisting with investing plan contributions. Individual participants may select their IRA provider and direct their investments.

As with many other employer plans, an employer has until the tax-filing deadline of the business, including extensions, to fund the SEP.

In December of 2019, former President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act , which is designed to improve retirement security for many Americans.

Under the Act, small business employers will receive a tax credit for automatically enrolling workers into their retirement plans. Under the SECURE Act, small employers will get a tax credit to offset the costs of starting a 401(k) plan or SIMPLE IRA plan with auto-enrollment in addition to the start-up credit they already receive.

The bill also widens access to multiple employer plans for small businesses because employers no longer have to share “a common characteristic,” such as being in the same industry. Also, employer-sponsored retirement plans will be available to part-time workers who are eligible after one full year with 1,000 hours worked or three consecutive years with a minimum of 500 hours worked.

SEP IRAs have appealingly high contribution limits. Employers can contribute up to 25% of each eligible employee's gross annual salary and up to 20% of their net adjusted annual self-employment income if self-employed, provided the contributions do not exceed $58,000 for 2021 ($57,000 for 2020). Employer contributions must be based on the first $290,000 of compensation in 2021 ($285,000 for 2020) and are adjusted annually.

An employer can decide each year whether to contribute to the SEP, which can be an advantage for a new business that has not established a trend in its annual earnings. Because of this flexibility, an employer could decide to forgo the SEP contribution in years when profits are lower than anticipated. However, when SEP contributions are made, they must be based on the same percentage of compensation for all covered employees.

What's more, all plan participants who worked for the business during the year for which contributions are made must receive SEP contributions even if they leave their job or die before the contributions are made.

Certain categories of employees may be excluded from participating in the SEP for the year, including those who:

Are covered under a collective bargaining agreement (unionized employees)
Are under age 21
Earned less than $650 (indexed for inflation) for the year
Worked less than three of the five preceding years
Are nonresident aliens with no U.S. income

Here's an example: Under ABC Inc.'s SEP IRA, an individual must work three of the five preceding years to be eligible to receive a SEP contribution for the year. Jane R. worked for ABC Inc. on a part-time basis in 2016, 2017, 2018, and 2019.

Assuming Jane meets the other eligibility requirements, she is eligible to receive a contribution for 2020 because she worked for at least three of the five years preceding 2020. For SEP IRAs, a year of service can be any period, which means that an employee who worked for one week in a year is counted as having completed a year of service.

An employer may choose to use less restrictive eligibility requirements to allow more employees to participate in a SEP plan.

The type of business determines the type of form the employer uses to claim the deduction for SEP contributions.

A sole proprietor claims the SEP contribution for themselves on IRS Form 1040 . However, SEP contributions on behalf of the sole proprietor's common-law employees (the IRS term for an employee, not an independent contractor) are claimed on Schedule C.
Partners in a partnership claim deductions for their individual SEP contributions on IRS Form 1040. For contributions made on behalf of common-law employees, the partnership claims the deduction on IRS Form 1065 .
For an S corporation , all SEP contributions are claimed on IRS Form 1120-S .
For a C corporation , all SEP contributions are claimed on IRS Form 1120.

It is a good idea to consult with your tax professional to ensure the proper forms are filed to report and claim the deduction for SEP contributions.

A business owner may be eligible to receive a tax credit for expenses incurred when establishing a SEP and also may be able to deduct plan expenses, including contributions made to the plan.

For the employer, tax reporting is limited to reporting SEP contributions on the business's tax return. For individual participants, the IRA custodian or trustee reports SEP IRA contributions on IRS Form 5498 and distributions on IRS Form 1099-R .

Employers and employees should bear in mind that the custodians report contributions in the year they are received. If, for instance, ABC Inc. makes its SEP contributions for 2018 in May of 2019, Form 5498 may not correspond with the amount the employer reports for 2018. Employers should thus maintain their records to keep track of SEP contributions.

From an employer's viewpoint, there are definite disadvantages of SEP IRAs.

Immediate Vesting

To reduce employee turnover and the cost associated with training new employees, some employers want their workers to be employed for several years before they are vested in the employer contributions. For SEP IRAs, however, contributions are immediately 100% vested, which means that future vesting is not a tool to lower employee turnover. As soon as they are deposited, the contributions belong to the employee.

No Loans Permitted

Unlike qualified plans—under which participants, including the business owner, may borrow up to the lesser of 50% or $50,000 of their vested balance—the SEP, like all IRA-based plans, does not have this feature.

Employee Eligibility Requirements

For a SEP IRA, a year of service is any period, however short. This can result in increased expenses associated with funding the plan, which may be a disadvantage, particularly for businesses that hire part-time or seasonal employees.

Like many small business owners, you may enjoy the simplicity and inexpensive administration of the SEP IRA. While it may be convenient to establish the SEP, you should consult your tax professional to ensure that the plan you choose is suitable for your business profile. If you prefer a qualified plan to a SEP IRA, but you missed the deadline to establish a qualified plan, you may fund the SEP and then roll over the balance to a qualified plan you establish later.

Internal Revenue Service.gov. " Establishing a SEP ."

Internal Revenue Service.gov. " Relief for Reporting Required Minimum Distributions for IRAs for 2020 ."

Congress.gov. " H.R. 1994—Setting Every Community Up for Retirement Enhancement Act of 2019 ."

Internal Revenue Service. " 2021 Limitations Adjusted as Provided in Section 415(d), etc ."

Internal Revenue Service.gov. " SEP Plan FAQs—Contributions ."

Internal Revenue Service.gov. " Who Can Participate in a SEP or SARSEP Plan ?"

Internal Revenue Service. " Form 1040 ."

Internal Revenue Service.gov. " Schedules for Form 1040 and Form 1040-SR ."

Internal Revenue Service.gov. " About Form 1065, U.S. Return of Partnership Income ."

Internal Revenue Service.gov. " About Form 1120-S, U.S. Income Tax Return for an S Corporation ."

Internal Revenue Service.gov. " About Form 1120, U.S. Corporation Income Tax Return ."

Internal Revenue Service.gov. " About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc ."

Internal Revenue Service.gov. " About Form 5498, IRA Contribution Information (Info Copy Only )."

Internal Revenue Service.gov. " Operating a SEP ."

Internal Revenue Service.gov. " Hardships, Early Withdrawals and Loans ."

Internal Revenue Service.gov. " Rollover Chart ."

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Choosing a SIMPLE IRA Plan

Guide to Retirement Planning for the Self-Employed

Self-employed workers lack employer-sponsored retirement plans but have other options for tax-advantaged retirement accounts.

Self-Employed Retirement Planning

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Self-employed workers commonly use individual retirement accounts as a vehicle for tax-advantaged investing.

Key Takeaways

Without access to employer-sponsored 401(k) plans, self-employed workers must pursue other strategies for retirement saving.
Small business owners often reinvest in their businesses instead of funding a retirement account, although it's possible to do both.
Preparation for boom-and-bust cycles is a key component of retirement savings strategies for self-employed workers.
Options such as a Solo 401(k), SEP IRA or SIMPLE IRA may offer higher contribution limits and more flexibility than traditional or Roth IRAs.

Retirement advice typically focuses on maximizing employer-sponsored 401(k) plans and taking advantage of a match if one is offered. That’s great advice, but it only applies to workers in traditional jobs.

When you're self-employed, there’s no human resources department to provide you with information about a 401(k) plan for retirement savings, said Lei Deng, a certified financial planner at Core Planning in St. Louis, in an email.

"Like a lot of things that were given to you, such as health insurance and life insurance coverage, the retirement plan is another area where self-employed people have to choose for themselves," she said.

Retirement Plan Options for the Self-Employed

Although employer-sponsored retirement plans and insurance options aren’t available to self-employed workers, the self-employed enjoy some advantages over their peers in traditional jobs.

Self-employed people have the flexibility to save on their own or choose from several options, said James Enriquez, a financial advisor with Ameriprise Financial Services in McAllen, Texas, in an email.

"An employee cannot choose what type of employer-sponsored plan is available at their work," Enriquez said.

"Also, many self-employed clients see their business as their retirement plan, so they tend to reinvest in their business," he added.

Some have the cash flow to simultaneously contribute to a retirement account and reinvest in their business, while others do not. Enriquez added that some self-employed business owners opt for nonqualified accounts without any tax advantages for retirement. This allows them to make early withdrawals while avoiding tax penalties .

"Everyone is different, but we try to encourage self-employed clients to diversify and accumulate some liquidity by funding a retirement account," Enriquez said.

Self-employed savers should be prepared for boom-and-bust cycles, said Asher Rogovy, chief investment officer at New York-based investment advisory firm Magnifina.

"When you work for yourself, income can be unpredictable with both droughts and windfalls," he said. "It's important to remember to invest extra in the good years to make up for the scarce ones."

Examples of retirement accounts for self-employed savers:

Read on for more about each account type.

Traditional or Roth IRA

"The choice between a traditional IRA and a Roth IRA is more a question of how investors expect tax rates to change when they retire," Rogovy said.

A traditional IRA allows tax-deferred contributions, with taxes paid upon withdrawal. A Roth IRA features after-tax contributions and allows tax-free withdrawals during retirement.

In 2024, the contribution limit for both Roth and traditional IRAs is $7,000, with an additional $1,000 allowed for savers age 50 and older.

A traditional or Roth IRA or both can be used alongside various types of self-employment retirement accounts. This strategy effectively increases the total limit for retirement contributions, Rogovy said.

Solo 401(k)

A solo 401(k), also known as an individual 401(k) or self-employed 401(k), is designed for self-employed workers or business owners with no employees other than a spouse. This plan offers higher contribution limits and investment flexibility than other retirement plans.

For 2024, investors may contribute as much as $69,000 to a solo 401(k). Workers age 50 and older may take advantage of an additional $7,500 catch-up contribution .

"A solo 401(k) can be a great tool that incorporates profit-sharing and significant contribution limits," said Robert Clements, partner at FRS Advisors in Wayne, Pennsylvania, in an email.

"The cost and administration can be a hurdle for some as you need an administrator to file annual documents and there is a cost associated with that," he said. "In addition, if you have any employees, you may be required to contribute for them as well."

Simplified Employee Pension IRA

A Simplified Employee Pension IRA, or SEP IRA, is a retirement plan tailored for self-employed individuals and small businesses. The employer makes contributions on behalf of employees, with potential tax advantages for both parties.

"Ordinary IRA accounts have low limits, but self-employment retirement accounts have much higher limits and tax benefits," Rogovy said.

According to the IRS, employer contributions to an employee’s SEP IRA cannot exceed the lesser of either 25% of the employee's compensation, or $69,000 for 2024. That’s up from $66,000 in 2023.

Savings Incentive Match Plan for Employees IRA

Another option for self-employed workers and small business owners is a Savings Incentive Match Plan for Employees, also known as a SIMPLE IRA.

This plan differs from the SEP IRA in that it allows contributions from employers and employees, while a SEP IRA allows only employer contributions.

"A Simple IRA is a nice option that is low cost to set up and maintain, has higher contribution limits than a traditional IRA and can include employees if they opt in, which may require an employer contribution on their behalf," Clements said.

In 2024, the contribution limit for a SIMPLE IRA is $16,000. That figure increased from $15,500 in 2023. Employees aged 50 or older may contribute an additional $3,500, bringing the total contribution to $19,500.

Prioritizing Retirement Savings for the Self-Employed

Because self-employment can be a roller-coaster ride, it’s crucial to prioritize savings, even during lean years.

"It's hard to prioritize saving for retirement when you're a small business owner," Deng said.

"When you're self-employed, you have to wear every hat in your business. A lot of times, saving for retirement is put on the back burner," she said.

In addition, figuring out the tax benefits of asset location is also important.

Deng had self-employed clients with most of their savings in a taxable brokerage account . "They might've missed out on tax savings as well as additional liability protection," Deng noted.

"Generally, what helps my self-employed clients to get started to save for retirement is tax savings. If it gets them to save for their future, I'm not complaining," she said.

Saving for Retirement After 50

Kate Stalter April 11, 2024

Senior man putting coins, money into a piggy bank. Saving Money after retirement, preparing for retirement. Financial education and financial literacy for seniors.

Tags: retirement , Investing for Retirement , 401(k)s , IRAs

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Retirement plan design

Small Business Retirement Plan Solution

Consult with the experts.

Each small business has its own unique financial characteristics

Your small business (or small business client) cannot afford to waste time or money on a retirement plan that does not meet your needs. The ideal retirement program:

Maximizes the tax efficiency of contribution dollars
Tailors to the unique profile of both owners and staff
Directs more benefits to owners than may be possible with a SEP-IRA or 401(k)
Evolves as your business and personal situation changes

Customized approach provides path to retirement

Just as an architect designs a building to fit the needs of a client, we design a retirement plan program to fit yours. Milliman can provide tailor-made pension and cash balance plans that are customized to your ownership structure, finances, and time horizon to retirement.

A comprehensive package, the Small Business Retirement Plan Solution includes design, actuarial services, plan document, government filings, and administration. Sophisticated tools and streamlined processes enable us to provide a complete end-to-end solution at competitive prices.

Benefits for small business owners

Maximize retirement benefits

Take advantage of higher retirement benefits and targeted designs than are possible with a defined benefit/cash balance approach.

Generate tax savings

Leverage age and compensation profiles of owners and staff for sizeable deductible contributions.

Comprehensive support

Get guidance through every step of the life of the plan, from initial design to ongoing services to distribution of plan benefits.

Trust the experts

Deal directly with actuaries, not salespeople.

Protect your assets

Design qualified pension plans that are beyond the reach of creditors. If you choose an annuity payout, benefits are guaranteed for your lifetime.

Invest freely

Choose any investment product you wish.

Benefits for professional advisors

Work with a partner

Strategize with Milliman to help your clients generate significant retirement savings.

Diversify approaches

Meet individual business needs without cookie-cutter design plans.

Streamline processes

Plan efficiently in real time with your clients.

Maintain independence

Milliman has no stake in the investments – we leave investing to the professionals.

Related insight

Cash balance plans: frequently asked questions.

Cash balance plans blend the features of a traditional defined benefit retirement structure with the look and feel of a 401(k)/profit-sharing plan.

Small business owners have welcome opportunity to reevaluate their retirement programs

Annual contribution limits for retirement plans rise significantly in 2022, giving small business owners greater tax deferrals with DB and 401(k) pension plans.

Nondiscrimination testing: Minimum allocation gateway

A defined contribution (DC) plan can test on a benefits basis if it meets a certain criteria.

Is a cash balance plan right for my business?

Employers and owners continually look at different strategies to defer tax on income, provide benefits to key employees, and boost their retirement savings.

Will your retirement savings be capped?

As part of the proposed federal fiscal year 2014 budget, President Obama included a cap on the amount of retirement savings an individual could accumulate in tax-deferred retirement plans.

Would tax increases prompt small business owners to reevaluate their retirement programs?

If tax rates increase and small business owners look at different alternatives to manage their tax liabilities, will we see changes to their retirement programs?

Services related to Small Business Retirement Plan Solution

Defined benefit plan consulting.

Meet your goals and business objectives in the face of constantly shifting markets and regulations.

Defined benefit plan administration

Maximize the value of pension benefits to participants using our decades of experience, flexible software tools, and disciplined process.

Defined contribution plan administration

Navigate the complicated maze of defined contribution administration to provide accurate recordkeeping, transparency, and compliance.

Products related to Small Business Retirement Plan Solution

Milliman Actuarial Retirement Calculator (MARC)

Administer defined benefit and cash balance pension plans with one of the industry's leading retirement planning and communication tools.

Milliman Frozen Plan Solutions

Bring your frozen corporate defined benefit plan from its current state to termination with Milliman’s consulting and modeling services.

Pension Performance Dashboard

See how movements in capital markets affect your pension plan's financial status, with real-time updates on projected funded status, and FAS expense.

Small Business Trends

Low-cost retirement plan options.

Small businesses need to offer a retirement savings plan for employees in order to stay competitive in today’s tight labor market. The federal government estimates that only a little more than half (53%) of businesses with less than 100 employees have a retirement plan for their workers. Yet finding a plan that won’t bust your budget is very doable. Here are some ways to make having a retirement plan affordable for you and beneficial to your staff.

SIMPLE IRAs

Small businesses with 100 or fewer employees who received at least $5,000 in compensation last year set up a SIMPLE IRA plan. This is done easily by signing an IRS form:

Form 5304-SIMPLE, which allows participants to select their own financial institutions to receive their contributions, or
Form 5305-SIMPLE, which requires participants’ contributions initially to be deposited in the financial institution chosen by the employer.

Under a SIMPLE IRA, employees can choose to make salary reduction contributions up to limits fixed annually rather than receiving these amounts as part of their regular pay. For 2022, the salary reduction contribution limit is $14,000, plus another $3,000 for an employee aged 50 or older by the end of the year.

In addition, the employer contributes matching or nonelective contributions:

Matching contribution . This is a required match of each employee’s salary reduction contribution(s) on a dollar-for-dollar basis up to 3% of the employee’s compensation. (Only compensation up to a set limit–$305,000 in 2022—is taken into account.) This contribution options requires an employer contribution only where employees have elected to make contributions.
Nonelective contribution . If you don’t make a matching contribution, you must make a nonelective contribution, which is 2% of compensation on behalf of each eligible employee who has at least $5,000 (or some lower amount the employer selects) of compensation from the company for the year. Nonelective contributions must be made in the absence of matching contributions whether or not the employee chooses to make any salary reduction contribution.

There is a 60-day notice period—no later than November 2 for a plan run on a calendar year—in which an employer informs employees of their eligibility to participate, the annual employee contribution limit, and the employer’s chosen contribution formula; employees then have until the start of the year to make their decision about their contributions. The notice to employees should also provide a summary description of the financial institution if the employer choses it as well as the fact that the employee can transfer his or her balance without cost or penalty to their own financial institution.

State-mandated retirement plans

If you don’t have a qualified retirement plan, you may be subject to a mandate in your state. This means you must withhold employees’ contributions from their paychecks and then deposit them into a state-run plan. There are no employer contributions. The cost to the employer is the administrative burden of withholding and depositing the employees’ contributions. No employer contributions are permitted. Find details about which states have or are considering such mandated plans from ADP . Links to the state plans, with details about withholding, are provided by ADP.

Payroll Deduction IRA

With this option, an employer doesn’t have a formal retirement plan. The employer merely arranges for all employees to make their own contributions to IRAs. The maximum they can contribute is the usual annual IRA limit (e.g., $6,000 in 2022, plus another $1,000 if age 50 or older by the end of the year). Again, the cost to an employer is the administrative cost for withholding the contributions and transferring them to employees’ accounts.

Pooled employer plans

Employer groups and associations can set up 401(k) pooled employer plans (PEPs) in which individual companies can opt to participate. This type of arrangement allows for larger employee salary reduction contributions than permitted to SIMPLE IRAs, while reducing the administrative costs for employers as well as shifting much of the fiduciary burden (and risk) to a professional administrator, called a Pooled Plan Provider. Any two or more businesses can come together to form a PEP, but it’s primarily designed for trade associations and other companies to create one. For example, Paychex has a PEP option.

Tax credits

If you’re setting up a retirement plan, you may be eligible for one or two federal income tax credits for your efforts. This obviously reduces the cost of having a plan.

Final thought

If you want to invest more in employees’ retirement savings by setting up your own plan, there are many options, including 401(k) plans, SEPs, and defined benefit (pension) plans. Learn more about these options from an IRS chart for this purpose as well as from the Department of Labor .

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COMMENTS

Small-business retirement plans
SE 401(k): Self-employed individual or business owner with no employees other than a spouse. SEP IRA: Self-employed individual or small business owner, primarily those with only a few employees. 1. Fidelity Advantage 401(k): Small and medium- sized businesses looking to offer a 401(k) for the first time. SIMPLE IRA: Self-employed individuals or businesses with 100 or fewer employees.
Small business retirement plans
Size up your retirement plan. Get to know the retirement plans that Vanguard offers for small businesses: the SEP-IRA, the SIMPLE IRA, the Individual 401 (k), and the Small Plan 401 (k). Try our interactive tool to see which plan may be best for you and your business. Get started.
What Is a Simple IRA Plan & How To Invest in One
Option 1. Dollar-for-dollar match of employee contributions up to 3% of each employee's compensation (which can be reduced to as low as 1% in any 2 of 5 years). Option 2. A contribution of 2% of each employee's compensation. The maximum compensation used to determine this contribution is $330,000 for 2023 and $345,000 for 2024.
Simple IRA
SIMPLE IRA. A Savings Investment Match Plan for Employees (SIMPLE IRA) is an easy and low-cost way to set up a retirement program for self-employed individuals and small businesses with 100 or fewer employees. Eligible employees can fund their own SIMPLE IRA accounts through regular salary deferrals and Employers make additional contributions.
Small Business Retirement Plans: Explore Your Options
Small Business 401 (k) Attract and retain talented employees with a low-cost 401 (k) plan designed for small businesses. Contribute more than 3 times the limit of a traditional IRA 2. Access potential tax advantages for you, your business and your employees 1. Choose from a menu of funds chosen by Morningstar. 3.
Explore SIMPLE IRA Retirement Plans for Small Business
SIMPLE IRA Features. Contribute significantly more than you could with a traditional IRA 2. Make fixed contributions that are generally tax deductible by the business 3. Help fund your employees and your own retirement with a cost-efficient plan. Options beyond State Mandated Programs to grow with your business.
Small Business Solutions
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A SIMPLE IRA is a type of tax-deferred retirement plan for small businesses with fewer than 100 employees. While it is considered an employer-sponsored retirement plan — and employer ...
Publication 560 (2023), Retirement Plans for Small Business
3998 Choosing a Retirement Solution for Your Small Business. 4284 SIMPLE IRA Plan Checklist. 4334 SIMPLE IRA Plans for Small Businesses. Forms (and Instructions) W-2 Wage and Tax Statement. 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—Not for Use With a Designated Financial Institution.
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A SIMPLE IRA plan allows employees and employers to contribute to traditional IRAs set up for employees. It is a start-up retirement savings plan for small employers not currently sponsoring a retirement plan. Learn how to choose, set up, operate and maintain a SIMPLE IRA plan, and its advantages and disadvantages.
SIMPLE IRA Plans for Small Businesses
A SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) IRA plan offers great advantages for businesses that meet two basic criteria. Your business must have no more than 100 employees who earned $5,000 or more during the preceding calendar year. Your business cannot currently have another retirement plan.
Small business plan selection tool
Get to know the retirement plans that Vanguard offers for small businesses: the SEP-IRA, the SIMPLE IRA, the Individual 401 (k), and the Small Plan 401 (k). Try our interactive tool to see which plan may be best for you and your business. Use our tool to find out if one of these retirement plans: SEP-IRA, SIMPLE-IRA, individaul 401 (k) or the ...
Small Business IRA Plans
Small Business IRA Plans Ascensus SEP and SIMPLE plans leverage the efficiency of a paperless plan set up process with the quality service you deserve. For more information, email [email protected] or contact an IRA representative at 855-537-9555.
Business Owners: How to Set Up a SEP IRA
Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. Unlike qualified plans, the SEP does not require nondiscrimination testing or filing of 5500 ...
Self-Employed Retirement Plans: How to Make the Right Choice
SIMPLE IRA . A SIMPLE IRA is an inexpensive plan for small businesses with less than 100 employees. However, employer matching contributions are required, even if employees don't contribute. Annual contribution limit: $16,000 employee contribution; 1% to 3% of salary for employer contribution ; Catch-up contributions: $3,500 (if over 50 years ...
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Business-Building Tools and Resources. Pershing offers extensive ready-to-go resources to help small business retirement specialists grow their revenue and engage their clients and prospects. Meet the needs of small business retirement plans with a SEP IRA, SIMPLE IRA, 401 (k), 403 (b), profit sharing plan and more.
Choosing a SIMPLE IRA Plan
A Savings Incentive Match Plan for Employees (SIMPLE) IRA allows participants to defer part of their salary into the plan. It also requires a contribution from the employer each year. It's easy to get started with a SIMPLE IRA PDF. Just complete and sign the two-page IRS Form 5304-SIMPLE PDF or Form 5305-SIMPLE PDF, and share the model ...
Guide to Retirement Planning for the Self-Employed
A solo 401 (k), also known as an individual 401 (k) or self-employed 401 (k), is designed for self-employed workers or business owners with no employees other than a spouse. This plan offers ...
Small Business Retirement Plan Solution
Your small business (or small business client) cannot afford to waste time or money on a retirement plan that does not meet your needs. The ideal retirement program: Maximizes the tax efficiency of contribution dollars; Tailors to the unique profile of both owners and staff; Directs more benefits to owners than may be possible with a SEP-IRA or ...
Low-Cost Retirement Plan Options
SIMPLE IRAs. Small businesses with 100 or fewer employees who received at least $5,000 in compensation last year set up a SIMPLE IRA plan. This is done easily by signing an IRS form: Form 5304-SIMPLE, which allows participants to select their own financial institutions to receive their contributions, or
This Could Be Your Best Strategy for Funding a 401(k)
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Mutual Funds and Mutual Fund Investing - Fidelity Investments

Help take the guesswork out of which plan could be right for you with a 5-minute quiz

Self-Employed 401(k)

Fidelity Advantage 401(k)

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Whether it’s just you or you and your employees, we have a retirement plan that’s right for you. Take a look at how they compare and find one that fits your needs.

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What Is a SIMPLE IRA Plan? How It Works, Rules & FAQs

What is a SIMPLE IRA?

SIMPLE IRA vs. traditional IRA

SIMPLE IRA vs. 401(k)

SIMPLE IRA contribution limits for 2023

SIMPLE IRA contribution limits for 2024

Benefits of a SIMPLE IRA

Benefits for employees

Drawbacks of SIMPLE IRA plans

Is a SIMPLE IRA right for me?

Open an IRA

SIMPLE IRA Plans for Small Businesses

Thinking about a retirement plan? If it seems like the right thing for your business, here's a SIMPLE one.

Other Advantages of a SIMPLE IRA plan

Establishing the Plan

Operating the Plan

Participants in a SIMPLE IRA Plan

Enrolling Employees in a SIMPLE IRA Plan

Employee Contributions

Employer Contributions

Rollovers to a SIMPLE IRA Plan

Depositing and Investing Plan Contributions

How does a SIMPLE IRA plan work?

Employee Communications

Reporting to the Government

When Employees Want to Stop Contributions

Distributions

Monitoring the Trustee

Terminating the Plan

Mistakes … and How to Correct Them

Your SIMPLE IRA Plan – A Quick Review

The U.S. Department of Labor's Employee Benefits Security Administration

Internal Revenue Service

For business owners with a plan:

Related materials available from DOL

For employees

Related materials available from the IRS

What Is a Simplified Employee Pension (SEP)?

Business Owners: How to Set up a SEP IRA

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No Loans Permitted

Employee Eligibility Requirements

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