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Small Businesses

Unlike a big company 401(k) plan that requires an employer to hire multiple service providers to administer a complex plan, a small business retirement plan is designed to require little from the business owner. Plan documents can be completed in minutes, and employees, if any, generally receive just one notice per year.

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Quick and easy to establish
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Few administrative requirements
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No government reporting/nondiscrimination testing
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No fiduciary liability for investments
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No ERISA bonding requirements

Benefits for business owners

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With a small business retirement plan, you could save a significant amount of money each year for your retirement and offer a competitive benefit to attract and retain employees. To offset the cost of contributing to your employees’ retirement accounts, you receive a:

  • Tax-deduction for plan contributions
  • Tax credit for plan start-up costs or employee education

If you don’t have employees, you can save even more each year in your own account and can still deduct your plan contributions. You also have the freedom to choose whether to contribute each year your business is profitable.

 

Benefits for employees

Employees typically have a greater chance of financial security in retirement if they have a retirement savings plan at work. Employees more likely to save through an employer-sponsored plan and workplace retirement plan contributions and investment earnings are not taxable until taken out of the plan.

Employees participating in an IRA-based employer plan will have greater flexibility and control over their savings and investments than they would with a big business 401(k) plan. Once contributions are deposited into an employee’s self-directed IRA, the employee may choose to invest in anything permitted by the custodian.

Types of Plans

Simple IRA Plan

Individual 401(k) Plan

SEP IRA Plan

Comparing Small Business Retirement Plans

Business owners who do not want to manage the cost or complexity associated with a traditional 401(k) plan have three options. Each plan has different characteristics and can be used to accomplish different goals. Select one that is the right fit for your business and start saving today.

  Simple IRA Plan SEP Plan Individual 401(k) Plan
Key Advantage Allows salary deferrals with little administrative work Easy to set up & maintain Permits high level of contributions for owners
Employer Eligibility Any employer with 100 or fewer employees that does not maintain another plan Any employer Any employer/business other than a state or local unit of government
Contributors Lesser of 25% of Employee can decide how much salary to defer; Employer must make a contribution each year or $58,000 for 2021 Employer only; Discretionary from year to year but must be uniform for all eligible employees Owner only; Discretionary from year to year
Maximum Annual Contribution (per participant) Employee can defer up to $13,500 in 2021, plus $3,000 catch-up contribution if age 50 or older Employer must either match employee deferrals 100% up to 3% of compensation or contribute an amount equal to 2% of each eligible employee’s compensation (including those not making deferrals) Lesser of 25% of compensation or $58,000 for 2021 Lesser of 25% of compensation or $58,000 for 2021
Employee Eligibility Requirements Any time up to due date of employer’s tax return, including extensions Must cover all employees who are at least 21 years of age, employed by the employer for 3 of the last 5 years & had compensation of $650 for 2021 N/A
Withdrawals Withdrawals permitted anytime; loans not allowed Generally taxable & subject to 25% early distribution tax if under age 59 ½ for first two years of participating, then 10% Withdrawals permitted anytime; loans not allowed Generally taxable & subject to 10% early distribution tax if under age 59½ Withdrawals permitted after a specified event occurs (e.g., retirement); plan may permit loans & hardship withdrawals Generally taxable & subject to 10% early distribution tax if under age 59½
Plan Establishment Deadline Any time between January 1 and October 1 of the calendar year Any time up to due date of employer’s tax return, including extensions Any time up to due date of employer’s tax return, including extensions

Get Started

1

Step One

Select the plan type that is the right fit for your business. You may want to consult a tax advisor to help compare your options.

2

Step Two

Complete the plan establishment document and send to Mainstar Trust.

3

Step Three

Notify your employees (if any) about the plan and collect a salary deferral election form from eligible employees, if applicable.

Ready to open a small business retirement plan?

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