Authored by Matt Waters
Let’s face it: When it comes to retirement plans for small businesses, the IRS has cooked up a veritable alphabet soup — SEPs, SIMPLEs, 401(k)s — and sorting through them feels about as fun as decoding a government manual.
But here’s the truth: Choosing the right plan isn’t just about compliance. It’s about aligning your retirement strategy with your growth goals, talent strategy, and tax planning. So whether you’re running a lean LLC, scaling a high-growth startup, or managing a mature business with employees who’ve been with you longer than your golf clubs, here’s how to think about your options.
1. SEP IRA: The “Set It and Forget It” for Solo Operators
Best For: Self-employed individuals or business owners with zero or very few employees.
What It Is: A SEP (Simplified Employee Pension) is essentially a turbo-charged IRA that allows employers to make tax-deductible contributions to themselves and their employees.
Why It Works:
- Insanely simple to set up (like, less paperwork than renewing your driver’s license).
- Generous contribution limit — up to 25% of compensation or $69,000 in 2024.
- Employer-only contributions. No employee deferrals. You call the shots.
But Watch Out For:
- If you have employees, you must contribute the same percentage of their salary as you do for yourself. Equality is non-negotiable here.
- No Roth option. Sorry, tax-free growth fans.
Bottom Line: Great for solopreneurs or consultants who want to save big without administrative headaches. If you’ve got a growing team, though, it’s less attractive — unless you’re feeling unusually generous.
2. SIMPLE IRA: The “Middle Child” of Retirement Plans
Best For: Small businesses with fewer than 100 employees that want a basic plan with employee contributions.
What It Is: The Savings Incentive Match Plan for Employees (SIMPLE) is what you get when an IRA and a 401(k) have a baby — simple-ish, but not without quirks.
Why It Works:
- Easy to set up and maintain — just slightly more involved than a SEP.
- Employees can contribute up to $16,000 in 2024 (plus a $3,500 catch-up if 50+).
- Employers must either match up to 3% of salary or do a 2% flat contribution to all eligible employees.
But Watch Out For:
- Contribution limits are lower than a 401(k), which can be a dealbreaker for high earners.
- No profit sharing or advanced plan design.
- Withdrawals within two years of participation = 25% penalty. Yes, 25%. Brutal.
Bottom Line: A decent option for small shops that want to offer something, but not ideal if you’re trying to max out savings or attract higher-income talent.
3. 401(k): The Swiss Army Knife of Retirement Plans
Best For: Growing businesses that want flexibility, high savings limits, and the ability to attract/retain talent.
What It Is: The 401(k) is the gold standard for retirement plans — customizable, scalable, and IRS-approved for serious tax strategy.
Why It Works:
- Employees can contribute up to $23,000 in 2024, plus a $7,500 catch-up if 50+.
- Employer contributions on top of that, up to a total of $69,000 ($76,500 with catch-up).
- Roth option? Yep. Profit sharing? You bet. Safe harbor, vesting schedules, automatic enrollment? All on the menu.
But Watch Out For:
- More admin and compliance (hello, nondiscrimination testing and 5500 filings).
- Higher costs — but in many cases, worth every penny.
- You need an advisor who knows what they’re doing (ahem) to design it right.
Bottom Line: If you’re trying to build a best-in-class business, your retirement plan should reflect that. The 401(k) gives you the tools to reward key people, defer taxes, and create serious long-term value. Yes, it’s more complex — but so is running a successful business.
Quick Comparison Table:
| Feature | SEP IRA | SIMPLE IRA | 401(k) |
| Employee Contributions | No | Yes (up to $16K) | Yes (up to $23K) |
| Employer Contributions | Yes (up to 25%) | Required match | Optional, flexible |
| Max Contribution (2024) | $69,000 | ~$19,500 | $69,000–$76,500 |
| Roth Option | No | No | Yes |
| Admin Complexity | Very low | Low | Moderate to High |
| Best For | Solo business owners | Small teams | Growing companies |
Final Thoughts: The Plan Should Fit the Vision
If you’re a business owner, your retirement plan isn’t just a savings tool — it’s a business decision. It’s how you:
- Maximize tax efficiency
- Attract and retain talent
- Reward key players
- Build wealth outside the business
So don’t settle for “default” or “simple” just because it’s easy. Choose the plan that reflects where you are and where you’re headed.
If you’re not sure which one that is, it might be time for a real conversation, and not with your CPA who moonlights as a golf partner. Speak with someone who can help architect a long-term financial strategy that fits your business like a glove.
This information does not constitute legal or tax advice. Prime Capital Investment Advisors, (“PCIA”) and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness.
