How to Start a Retirement Plan for Your Small Business

How to Start a Retirement Plan for Your Small Business-Financial Symmetry, Inc.

For the typical small business owner that has between 2 and 100 employees you basically have two primary options: 401(k) or SIMPLE IRA. Both have pros/cons, but I’ll cover the highlights here:


  • Can be higher cost and require more administrative duties for the employer – Cost varies among custodians selected, but could be between $2,500 – $5,000 annually just to give you a ballpark estimate. This typically increases with number of employees.
  • Employee contribution max of $18,500 or $24,500 if over age 50.
  • Employer match – Don’t have to offer a match, but will then likely be limited in the amount you as the employer can contribute due to Highly Compensated Employee (HCE) rules. In order to avoid this, you can make a matching 4% contribution or a 3% non-elective (employee doesn’t have to contribute to receive) contribution annually.
  • Eligibility – The 401(k) provides more flexibility here, but generally the employee must be age 21 and been employed > 1 year (you can choose for them to be eligible immediately upon employment).
  • 401(k) loans are available.
  • Vesting Schedule – This refers to the employer match portion of the employees account balance. In some cases, they may forfeit this portion of their 401(k) balance if they leave employment. This may help with employee retention.


  • Lower cost, easier to manage – As compared to the 401(k) options, fees vary amongst custodians, but $0 – few hundred dollars annually would be a rough best estimate.
  • Employee contribution max of $12,500 or $15,500 if over age 50.
  • Employer match – 3% match annually or 2% annual non-elective contribution.
  • Eligibility – Any employee who has earnings > $5k during any of the 2 prior calendar years are anticipates to earn >$5k in current calendar year.
  • Cannot take a loan as you can against your 401(k).
  • Immediately vested.


Overall the 401(k) plan provides more flexibility to customize the plan for the employer, but comes with a higher administrative cost. While the SIMPLE IRA is much lower cost, but is pretty set in stone as far as the plan setup.

Once you determine which plan to use, then you will need to choose a custodian to setup the account with.

Ultimately you have to decide what is best for you and your employees. As the employer, you know best which plan makes the most sense given your employee demographics and needs. As the employer you must act in a fiduciary manner to your employees which includes plan design as well as actual fund options available in the plan.

For more information on this subject check out episode 41 of the Financial Symmetry Podcast.

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