A retirement plan can help a small business recruit and keep good people, and it gives owners a tax-advantaged way to save for their own retirement. It also brings costs, deadlines, and responsibilities that do not go away once the paperwork is signed. For many owners, the right answer depends less on which plan is popular and more on payroll, cash flow, and how much administration the business can realistically handle.
This page outlines the common plan types, what an advisor can help with, and the questions worth asking before you start. Contribution limits below are the IRS figures for 2026.
Common plan types
Traditional 401(k). Employees choose how much of their pay to defer, up to $24,500 for 2026, with a catch-up contribution of $8,000 for participants 50 and older, or up to $11,250 for participants aged 60 through 63 if the plan allows it. The employer may add matching or profit-sharing contributions. Total contributions from all sources for one participant are limited to $72,000 for 2026. Traditional 401(k) plans are generally subject to annual nondiscrimination testing, which can limit how much owners and other highly compensated employees save if rank-and-file participation is low.
Safe harbor 401(k). The employer commits to a required contribution — for example, a nonelective contribution of 3 percent of pay for each eligible employee, or a matching formula set out in the rules — and in exchange the plan is relieved of certain nondiscrimination tests. Owners gain predictability; the tradeoff is a contribution the business must make each year the design is in place.
SEP IRA. Only the employer contributes; employees do not make salary deferrals. For 2026, contributions for each employee are limited to the lesser of 25 percent of compensation or $72,000, and contributions generally must be made at the same percentage of pay for all eligible employees. SEPs are comparatively simple to set up and run, and contributions can vary from year to year.
SIMPLE IRA. Designed for employers with 100 or fewer employees. Employees can generally defer up to $17,000 for 2026, and the employer must either match employee deferrals up to 3 percent of pay or make a 2 percent nonelective contribution for eligible employees. Administration is lighter than a 401(k), but deferral limits are lower and the design is less flexible.
Owner-only 401(k). A business with no employees other than the owners (and, often, their spouses) may use a 401(k) with the same contribution limits and much simpler administration.
New plans and automatic enrollment
Under SECURE 2.0, most new 401(k) and 403(b) plans established after December 29, 2022 must automatically enroll eligible employees, beginning with plan years that start after December 31, 2024. The initial contribution rate must be between 3 and 10 percent of pay and increase by 1 percentage point each year until it reaches at least 10 percent (and no more than 15 percent). Employees can opt out or choose a different rate.
There are exceptions, including businesses that have existed for fewer than three years, businesses with 10 or fewer employees, SIMPLE 401(k) plans, church plans, and governmental plans. SECURE 2.0 also requires catch-up contributions from certain higher-earning participants to be made on a Roth basis; your recordkeeper and TPA can confirm how that applies to your payroll.
Tax credits for starting a plan
Eligible employers — generally those with 100 or fewer employees who received at least $5,000 in compensation in the prior year, and at least one plan participant who is not highly compensated — may qualify for a startup cost credit for the first three years. For employers with 50 or fewer employees, the credit can cover 100 percent of eligible startup costs (50 percent for employers with 51 to 100 employees), up to the greater of $500 or the lesser of $250 per eligible non-highly-compensated employee or $5,000.
Plans that add automatic enrollment may qualify for an additional $500 per year for three years. Some employers may also qualify for a credit of up to $1,000 per employee for employer contributions, which phases down after the second year and is subject to further limits. Credits are claimed on IRS Form 8881. Because eligibility depends on details of your business, confirm with your CPA before building a credit into your budget.
What an advisor can help with
Running a plan involves several providers. The recordkeeper typically tracks accounts and processes contributions. A third-party administrator, or TPA, typically maintains plan documents, runs compliance testing, and prepares filings. Your CPA handles the business’s tax return. An advisor can help the pieces fit together:
- Plan design: comparing plan types, employer contribution formulas, eligibility, and vesting with your TPA and CPA, based on your payroll and goals
- Investment menu: helping select and periodically review the investment options offered to participants, including their costs
- Employee education: explaining the plan to employees in plain language, at enrollment and over time
- Coordination: working with the recordkeeper and TPA so deadlines, deposits, and plan changes are handled consistently
- Owner planning: connecting the plan to the owner’s personal retirement, tax, and succession planning
Our role: 3(21) fiduciary investment adviser
Jason E. Hurta serves plan sponsors as a fiduciary investment adviser under section 3(21) of ERISA, through Fulcrum Wealth Management. In that role, we recommend the plan’s investment options, monitor them over time, and recommend changes when they are warranted. We accept fiduciary responsibility for those investment recommendations.
As the plan sponsor, you keep the final decision on which investments the plan offers, along with your other fiduciary duties, such as running the plan according to its documents and monitoring the providers you hire. A 3(21) arrangement shares responsibility for investment advice; it does not transfer it. The services we provide and our fiduciary role are spelled out in a written agreement before any engagement begins.
Fiduciary responsibilities, in general terms
When a business sponsors a 401(k) plan, the business and the people who make decisions about the plan generally take on fiduciary responsibilities under federal law. According to the U.S. Department of Labor, those duties include acting solely in the interest of participants and their beneficiaries, carrying out duties prudently, following the plan documents, diversifying plan investments, and paying only reasonable plan expenses.
Hiring service providers is itself a fiduciary decision, and providers should be monitored after they are hired. Fees are one factor to weigh when choosing them, though not the only one. Outside help can take on certain responsibilities, but it does not remove the sponsor’s duty to choose and monitor that help carefully. Your attorney and TPA can explain how these rules apply to your specific plan.
Benefits for owners, and the limitations
For owners, a well-designed plan can allow substantially more tax-advantaged saving than an individual IRA, can help with hiring and retention, and may qualify for startup tax credits. The limitations deserve equal weight: employer contributions are a real and recurring cost, a 401(k) brings administrative fees, testing, and annual filing obligations, and errors can be expensive to correct. A plan that is larger or more complex than the business needs can become a burden. Sometimes a SEP or SIMPLE IRA is the more sensible place to begin, with a 401(k) considered later as the business grows.
Contribution limits change most years. As of this writing, the IRS has not yet announced 2027 limits; it typically does so in the fall, and we will use the official figures once they are published.