Retirement Plans for Small Business Owners:

A Side-by-Side Comparison

One of the best ways to decide which retirement plan is best for your s-corp is to compare the options side-by-side. This can help you compare and contrast the benefits and drawbacks of each plan and weigh the factors that are most important to you. Here is a detailed comparison of the three plans to help you choose the best option for you and your company.

	SEP-Simplified Employee Pension	SIMPLE Savings Incentive Match Plan for Employees	Solo 401k
Eligibility	Businesses of all sizes Self-employed or small businesses	Employers must have less than 100 employees Self-employed people who made $5,000+ in any 2 previous years and expected to make $5,000 this year	For self-employed & couples running the business together ‘>Not eligible for non-spousal partnerships or business with additional employees Any business form can set up a Solo 401k as long as there are no additional employees
Contribute as employer	Up to the lesser of: 25% of their annual salary for each employee, OR $61,000 for each employee Employers must match employee contributions Annual contributions are flexible from year to year	Non-elective contribution of 2% of the employee’s salary (even if the employee does not contribute) OR A dollar-for-dollar match of the employee’s contributions up to 3% of their salary	Up to 25% of annual salary
Contribute as employee	No Only employers are allowed to contribute	Yes 100% of compensation up to $14,000 (in 2022) Plus, an additional $3,000 catch-up contribution for employees over 50	Yes up to $20,500 (for 2022) Plus, an additional $6,500 catch-up contribution for employees over 50
Employee + Employer max contribution	Employees may not contribute Employers may contribute up to $61,000 (in 2022)	Employees may contribute up to $14,000 Employers may contribute either as a 3% match OR as 2% of employee’s compensation up to $290,000 maximum (in 2021)	$61,000 (in 2022)
Investment options	SEP IRA	SIMPLE IRA	401k or Roth 401k
Option to take pre-retirement loans	No	No	Yes
Deductions and Tax Credits	Employers can deduct contributions Employees can exclude contributions from gross income	Employers can deduct contributions $500 annual tax credit for employers who set up the SIMPLE plan with auto-enrollment	Solo 401k contributions are tax-deductible
Vested	Eligible employees are always 100% vested	Employees are always 100% vested	All contributions are fully vested immediately
Eligible employees	21 or older, Worked for the employer for 3 of the last 5 years, AND Received at least $650 in compensation (for 2022)	All employees: Who received at least $5,000 in compensation during any 2 previous calendar years, AND Who are reasonably expected to earn $5,000+ in the current calendar year	To open a solo 401k, you must: Be self-employed, Have no full-time employees,
Etc.	modified net profit Usually, higher contribution limits than Traditional IRA or 401k No catch-up for eligible persons older than 50	It does not allow the business owner to save as much as with SEP or Solo 401k Inflexible contributions for employers It cannot be rolled into a traditional IRA without a two-year waiting period More info: IRS.gov	Traditional 401k contributions are made with pretax dollars distributions are taxed at individuals’ income tax rate Roth 401k contributions are funded with after-tax dollars; distributions are tax-free

Being an s-corp owner comes with immense responsibility and a wide range of job roles. From choosing the best retirement plan for your small business to juggling marketing, accounting, and tax preparation — and that’s on top of your daily business functions!

Give us a call if you’re ready to let us take care of the books – including setting up a tax-efficient retirement plan – so you can take care of business!