A 401(k) plan is considered a top benefit to attract and keep talented employees. If you’re a small business owner, you have extensive options to help you and your employees save for retirement. These plans aren’t just for big companies. Here’s how you can offer a plan to your team and the best options. We can help you create a financial plan for your retirement needs and goals.

401(k) Plans for Small Businesses

There are many options small businesses can offer to help employees build their nest eggs. Either a 401(k) plan or an individual retirement account (IRA) could be the right choice for you and your business. Here are six common plans to consider:

Traditional 401(k). One option is to let employees contribute to a traditional 401(k) plan. With this type of plan, you can choose to match your employees’ contributions – although matching is not required. Matching contributions may be made up to an annual maximum. Traditional 401(k) plans can be costly to administer because they must pass non-discrimination testing each year.

Solo 401(k). A solo 401(k) is an option if you are self-employed or a sole proprietor with no employees other than a spouse. However, you may not be eligible for a solo 401(k) plan if you have other employees. The main benefit of this type of plan is that it allows you to contribute a large portion of your eligible compensation. Non-discrimination testing is also not necessary since they only cover an individual and possibly a spouse.

Safe Harbor 401(k). Safe harbor 401(k) plans avoid the nondiscrimination testing requirements to which other types of plans are subject. In return, employees in these plans must receive a certain level of employer contributions. In addition, mandatory employer contributions must fully vest immediately. You can match employee contributions dollar for dollar up to three percent of eligible compensation or 50 cents up to 5% of eligible compensation.

Roth 401(k). A Roth 401(k) is like a traditional 401(k) in many ways. The biggest difference is in taxes. Contributions to a traditional 401(k) are generally pre-tax, while distributions from the plan are taxed as income. With a Roth 401(k), contributions are generally made with after-tax dollars, but distributions from the plan are tax-free.

SEP IRA. A simplified employee pension (SEP) IRA is a type of retirement plan that can work well for self-employed individuals, small business owners, or freelancers. Employers can contribute up to 25% of total employee compensation or $61,000 for tax year 2022, whichever is less. For self-employed people, contributions are generally limited to 20% of compensation. Contributions to these plans are deductible and aren’t required every year.

SIMPLE IRA. A savings incentive match plan for employees (SIMPLE) IRA may be available to businesses with fewer than 100 employees. These plans can be a good choice because they are exempt from discrimination testing. However, employers must contribute, and contributions vest immediately. These plans also cap employee contributions lower than 401(k) plans.