5 Steps to Pick the Best Small Business Retirement Plan
Retirement Planning
Date: 10 May 2021

5 Steps to Pick the Best Small Business Retirement Plan

Choosing a small business retirement plan for your employees not only affects them, but you as the business owner as well.

The economy is finally showing signs of life following the COVID closures and lockdowns and businesses are once again placing new orders, serving new customers, and hiring new employees. With recent projections from the Federal Reserve estimating GDP growth of 6% in 2021, hiring new employees will be one of the major themes of the year.

But competition for quality hires will be fierce. With plenty of new openings for prospective job seekers, business owners might have to sweeten the pot a bit in order to attract the best hires. One of the best ways to attract talented employees is to show them you care about their post-work lives by setting up a retirement plan.

Not all retirement plans have the same benefits and drawbacks and there’s no ‘one size fits all’ choice that makes sense for everyone. Here are a few things to think about before setting up a new retirement plan.

1)  Consider Your Business Goals

What are your future aspirations for the business? Are you seeking expansion or looking to fill a niche market? The long-term outlook of your company has a large impact on the type of retirement plan you should be looking at. If your goals are to create a business legacy you can hand down to your successors, you won’t choose the same plan as a startup looking to cash out in a few years.

How long will your employees depend on you to administer an efficient retirement funding vehicle? And what will your business look like in 10 years? Answers to these questions will help guide your decision.

2)  Consider Your Personal Goals

You should think of your own future when choosing a small business retirement plan. When do you hope to retire? How much can you contribute to your own retirement plan each year? What does your tax bracket look like now and what do you expect it will look like in your retirement? Answer these questions to determine what contribution limits you can work with, what tax treatment suits your needs, and more. You are, after all, the decision maker here and can (and should) pick the retirement plan that best suits your needs).

3)  Consider the Size and Demographics of Your Business

Certain retirement plans like SIMPLE IRAs can’t be administered if you have more than 100 employees, while others can’t be opened by freelancers or sole proprietors.

Additionally, you’ll need to consider the salaries of your employees. According to the IRS, qualified plans like 401(k) accounts must pass an annual nondiscrimination test. The government tests to not only make sure contribution limits are in line, but to see if Highly Compensated Employees (HCE) receive benefits outpacing their more modestly paid counterparts. An HCE is someone who either owns 5% of the company or makes more than $130,000 in salary annually.

A Safe Harbor 401(k) plan can get around these annual tests but does have a mandatory employer contribution requirement.

4)  Consider Whether to Offer Employer Contributions

Employer contributions are mandatory in some retirement plans, optional in others. But consider offering employer contributions for two reasons. First, an employer match in a retirement plan is a very attractive perk to offer prospective talent. If you want to reach the best employees, you need to show them they’ll be taken care of.

Second, employer contributions to qualified retirement plans are tax deductible, so you benefit when it comes time to do your business taxes. If you run a business with thin margins and want the ability to toggle contributions on or off each year, consider a plan without mandatory employer contributions like a 401(k).

5)  Consider the Resources Needed for Plan Set up and Administration

Despite the tax credits and perks, setting up a retirement plan can be lengthy and tedious. Oh, and expensive too. You’ll get to deduct your contributions as an employer, but you’ll still have to hire someone to administer the plan.

You’ll need to weigh costs and benefits when choosing a retirement plan. How much maintenance will be required each year? What are the setup costs and annual fees? And what kind of investment options are offered in each particular plan?

Additionally, as you consider the startup costs tax breaks and perks you’d receive as a business owner. Setting up a qualified plan like a 401(k) entitles you to write off 50% of the set-up costs (up to $500).


Defined benefits plans like pensions can no longer be afforded by many businesses, so an array of options like Roth IRAs, 401(k) plans, and profit-sharing plans have sprung up in the last half-century. Defined contribution plans like these allow flexibility for both business owners and employees without locking benefits over an extended period of time. Defined contribution plans have varying amounts of investment options and prices can change depending on where you shop for a plan.

Selecting a retirement plan for your business is a big decision and you shouldn’t make it alone. Consult with a financial advisor and make sure you’re choosing a plan that suits your business goals and your employees’ needs. The more costs you can cut down, the more everyone at the company benefits.

The financial professionals at 3 Financial have years of experience helping small business owners navigate the legal and financial landmines of retirement plan sponsorship, while also maximizing benefits.

Choosing a retirement plan for your small business is a pretty big task – and it’s one you shouldn’t undertake alone. Get the right financial help and guidance to pick a plan with the maximum benefit and minimum risk for you and your business by contacting us today.

Disclosure: 3 Financial Group and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.


Joanna Amberger

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