Retirement Plans for Small Business Owners


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.

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SEP-Simplified Employee Pension SIMPLE Savings Incentive Match Plan for Employees Solo 401k

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)


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


Only employers are allowed to contribute


100% of compensation up to $14,000 (in 2022) 

Plus, an additional $3,000 catch-up contribution for employees over 50


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,

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:

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!

Categories: tax