If your client owns a small business, they’re already juggling a lot. Between managing clients, balancing budgets and keeping operations moving, retirement planning often falls to the bottom of the list. Yet, choosing the right retirement plan can be a game-changer, not just for the business owner but also for their employees. The good news? Small and mid-sized businesses have three flexible, cost-effective options worth considering: SEP plans, SIMPLE IRA plans, and Individual (k) plans. Each plan offers unique advantages, depending on your clients’ goals, their workforce and how much administration they’re willing to take on. Let’s compare these three plans side by side. Consider this a quick guide to selecting the best fit. SEP Plan: Flexibility First The simplified employee pension (SEP) plan is about as straightforward as a retirement plan can get. Employers make contributions, but employees don’t. It keeps things simple, but it also means that employees don’t have the opportunity to put in their own money. There are, however, several benefits to offering a SEP plan. • Contribution limits are generous. Up to 25% of compensation, capped at $70,000 for 2025. • Paperwork is minimal. No annual Form 5500 filings, and no tracking employee deferrals. • Fairness is required. If the employer contributes for themselves, they generally must contribute the same percentage of compensation for all eligible employees. (Alternative SEP plan documents may permit other allocation formulas, but they are rarely used.) For businesses with variable income, SEP plans can be a great retirement tool. Employers can contribute more when revenue is strong and scale back in lean years without penalty. Employer contributions are always discretionary from year to year. Another new benefit allows employers to offer a Roth feature. Any SEP contributions made to a Roth IRA are included in the recipient’s gross income, while still being treated as an expense of the business sponsoring the plan. SIMPLE IRAs: A Shared Savings Effort The Savings Incentive Match Plan for Employees (SIMPLE) IRA is a step up in employee engagement. Both employers and employees contribute to this type of retirement plan, which encourages staff to save for their retirement while demonstrating that the company is also invested. Setting up a SIMPLE IRA plan is relatively easy, although employers will need to track contributions and process employee deferrals through their payroll function. • Employees can defer up to $16,500 for 2025, plus an extra $3,500 catch-up contribution if they’re age 50 or older. A $5,250 catch-up contribution is also available for employees aged 60-63. Additionally, an increased salary deferral limit is available for both base salary deferrals and catch-up contributions for individuals aged 50 or older. For 2025, the increased limit is $17,600, plus a $3,850 catch-up contribution. This increase is automatic for SIMPLE IRA plans with 1-25 employees who received at least $5,000 of compensation in the preceding year. It is optional for larger plans with 26-100 such employees. • Employers must contribute, either by matching up to 3% of an employee’s compensation or by making a flat 2% nonelective contribution. If larger plans offer an increased deferral limit, the required 3% matching contribution is increased to 4%, and the 2% nonelective contribution is raised to 3%. Since 2024, an optional employer nonelective contribution can be made in addition to the mandatory matching or nonelective contribution. For 2025, this maximum discretionary nonelective contribution is the lesser of 10% of an employee’s compensation or $5,100. The SIMPLE IRA plan is limited to businesses with 100 or fewer employees who earned $5,000 or more in the preceding year, CHOOSING THE RIGHT RETIREMENT PLAN FOR YOUR SMALL BUSINESS SEP, SIMPLE, or Individual (k)? BY JODIE NORQUIST, CIP, CHSP, ASCENSUS 20
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