Retirement Plans for Business Owners

Retirement Plans for Business Owners. Small business owners historically faced challenges with retirement plan administration. Options such as 401k plans and 403b plans often cost too much to set up for a small business. The Internal Revenue Service introduced a number of plan structures designed for small business use. They limit paperwork and maximize benefits to small business owners.

There are a number of retirement options for business owners.


A SIMPLE 401k allows for easy administration of a plan for businesses with fewer than 101 employees and no other retirement plan options. You must file a Form 5500 if you opt for this plan, but this is the only form you will be required to submit annually. The plan is designed with a very straightforward model so small businesses can easily administer the benefits; business owners may participate in the plan. The only restriction is an employer must offer either: a matching contribution up to 3 percent of each employee's pay or a non-elective contribution of 2 percent of each eligible employee's pay. The SIMPLE 401k acts much like a traditional 401k, and the business has a two-year grace period to change plans if it grows over 100 employees.

Single-Participant 401k

The single participant 401k option takes advantage of a tax law passed in 2001 to increase the contribution limits for business owners. With this option, an employer can opt to either make contributions as a business owner or as an employee of the organization. The latter option is best for an individual who takes a salary from the business even if the business is not bringing in a large profit. This increases the total contribution limit for a sole proprietor or business owner substantially.


A simplified employee pension plan can be established through an IRA to generate tax benefits and savings for a business owner and employees of a small business. With this method, an individual can make direct contributions through a paycheck. The main benefit of this plan is the fact each employee can set up an individual IRA that does not need to be administered through the business. The business owner can simply match funds, if willing, or deposit a portion of the paycheck directly into the account. The individual employee can administer the account from there.


A SIMPLE (Savings Incentive Match PLan for Employees) IRA is similar to a SIMPLE 401k. You must have fewer than 101 employees, offer no other retirement option and fill out a few forms each year. The plan differs from a 401k because each employee sets up her own IRA. The employer simply manages or matches contributions, as willing, throughout the year. The administrative costs are much lower than with traditional 401k plans.

Expert Insight

You do not have to set up a retirement account for yourself or your employees; however, both are advised. Financial advisors recommend retirement accounts for business owners because of the unique tax advantages they present. Management advisors recommend providing options to employees to increase job satisfaction and employee retention.


  • SIMPLE 401(k)
  • Tax Almanac: Single Participant 401(k)