The Truth About Small Business Retirement Plans: More Affordable Than You Think

Small business owners are experts at managing day-to-day operations, but planning for retirement often takes a back seat. A recent survey by the Center for Retirement Research reveals a disconnect: while many small business owners want to offer retirement plans, misconceptions about costs hold them back.

According to the 2023 Small Business Retirement Survey, over half of small businesses believe providing a retirement plan would cost more than $10,000 per year, with nearly 30% thinking it would exceed $20,000 annually. In reality annual costs for a business with 10 employees, can be as low as $2,500, and around $5,000 for a business with 50 employees.

"Instead of assuming what my employees needed, I decided to ask them directly," says Kristelle Siarza Moon, CEO of Siarza. "Through our survey, retirement savings emerged as a top priority across all age groups. By partnering with a wealth management firm, we implemented a plan that automatically invests 3% into employees' retirement accounts. The automatic enrollment feature made it simple for everyone, and the response has been overwhelmingly positive.” 

With costs being more manageable than many believe, let's look at the various retirement plans available to small business owners. Understanding these options is the first step in choosing what works best for your business.

Retirement Options for Small Business Owners

Small business owners have several retirement plan options, each designed to fit different needs:

SIMPLE IRA (Savings Incentive Match Plan for Employees) Perfect for businesses with fewer than 100 employees

• Employee Benefits: Employees can contribute up to $16,500 annually (2024 limits)
• Employer Requirements: Must either match employee contributions up to 3% or contribute 2% for all eligible employees
• Key Advantage: Easy setup and low administrative costs
• Best For: Small businesses wanting to offer retirement benefits with minimal paperwork
• Cost Example: Annual fees often under $500, plus employer contributions

SEP IRA (Simplified Employee Pension) Ideal for self-employed individuals or very small businesses

• Contribution Limits: Up to 25% of compensation or $69,000 (2024), whichever is less
• Key Feature: Only employers contribute; employees cannot make contributions
• Flexibility: Contribution amounts can vary year to year based on business performance
• Best For: Sole proprietors or businesses with few employees
• Setup: Minimal paperwork and low administrative costs

Solo 401(k) (One-Participant 401(k)) Great for business owners with no employees except their spouse

• Dual Contribution: You can contribute both as employer and employee
• Higher Limits: Up to $69,000 total annual contribution (2024), plus catch-up contributions if over 50
• Loan Options: Unlike IRAs, you can borrow from your account
• Best For: High-earning self-employed individuals wanting to maximize savings
• Administration: Requires more paperwork than IRAs, including annual filing once account exceeds $250,000

Traditional 401(k) Most flexible option with highest contribution potential

• Employee Benefits: Workers can contribute up to $23,000 annually (2024)
• Employer Options: Can offer matching or profit-sharing contributions
• Administrative Requirements: More complex, but third-party administrators can handle most tasks
• Best For: Growing businesses wanting competitive benefits packages
• Costs: Setup fees typically $500-$2,500, plus annual administration fees

State Auto-IRA Programs 

• Key Feature: State-sponsored retirement savings programs at no cost to employers
• Employee Benefits: Automatic enrollment makes it easy for workers to save through payroll deductions
• Employer Requirements: Minimal - just process payroll deductions for participating employees
• Best For: Small businesses unable to offer traditional retirement plans
• Cost Example: No setup or administrative costs for employers
• My States Program: Dozens of states have enacted retirement savings programs to help individuals save for retirement.Click here for a comprehensive list. 

While choosing the right retirement plan is crucial, implementing it in a way that works for both you and your business requires careful planning. As a business owner, your path to retirement may look different from other employees.

Planning for a Flexible Retirement

The traditional idea of retirement - working one day, retired the next - rarely fits small business owners. Here's how to create a more flexible retirement plan that works for you and your employees:

Phased Retirement Options

• Gradual Transition: Reduce your work hours over 3-5 years instead of stopping abruptly
• Project-Based Work: Move from daily operations to specific projects or consulting
• Seasonal Schedule: Work during busy seasons while taking extended breaks
• Advisory Role: Step back from operations while maintaining strategic input

As you plan your own retirement, consider how to make retirement benefits accessible to your entire workforce. Inclusive retirement benefits can help attract and retain talented employees while building a stronger business community.

Expanding Retirement Access

Today's workforce is changing, and retirement plans need to adapt. Here's how to make retirement plans work for different types of workers:

• Part-Time Employees: Consider plans that allow participation for employees working 500+ hours annually
• Independent Contractors: Explore options to include 1099 workers in your retirement benefits
• Seasonal Workers: Look for plans with shorter eligibility periods
• Multiple Employer Plans (MEPs): Join forces with other small businesses to access better retirement options at lower costs

Making Your Plan More Inclusive

• Auto-enrollment features to encourage participation
• Shorter vesting schedules to benefit mobile workers
• Clear communication about benefits in multiple formats
• Regular retirement planning education sessions

Take the First Step

The best retirement plan is the one you start today. By taking action now, you're securing your own future and investing in your employees' well-being and your business's long-term success.