Small Business Retirement Plans

Sole-proprietors and small business owners have many of the same options to save for retirement on a tax-deferred basis as employees participating in company plans.

A retirement plan has lots of benefits for you, your business and your employees. Retirement plans allow you to invest now for financial security when you and your employees retire. As a bonus, you and your employees get significant tax advantages and other incentives.

Business Benefits

  • Employer contributions are tax-deductible.
  • Assets in the plan grow tax-free.
  • Flexible plan options are available.
  • Tax credits and other incentives for starting a plan may reduce costs.
  • A retirement plan can attract and retain better employees, reducing new employee training costs.

Savings Incentive Match Plan for Employees (SIMPLE IRA Plan)

The amount the employee contributes to a SIMPLE IRA cannot exceed $12,000 in 2013 and 2014.

If permitted by the SIMPLE IRA plan, participants who are age 50 or over at the end of the calendar year can also make a catch-up contribution of $2,500 for 2013 and 2014. 

Simplified Employee Pension (SEP)

Contributions an employer can make to an employee’s SEP-IRA cannot exceed the lesser of:

  1. 25% of the employee’s compensation, or
  2. $51,000 (for 2013, $52,000 for 2014).

Note: Elective deferrals and catch-up contributions are not permitted in SEP plans.

One-Participant 401(k) Plans

A one-participant 401(k) plan is sometimes called a:

  • Solo-k or Solo 401(k)
  • Uni-k
  • One-participant k

The one-participant 401(k) plan isn’t a new type of 401(k) plan. It’s a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.

Contribution limits in a one-participant 401(k) plan

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

  •  Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
    •   $17,500 in 2013 and 2014, or $23,000 if age 50 or over; and
  •  Employer non-elective contributions up to
    • 25% of compensation as defined by the plan, or
    • for self-employed individuals, see discussion below

Total contributions to a participant’s account, not counting catch-up contributions, cannot exceed $51,000 for 2013 and $52,000 for 2014.