Choosing the right retirement plan for your SMB

Photo by Andrea Piacquadio
For small and medium-sized businesses, offering a retirement plan to employees is essential for the long-term success of the company. However, surprisingly enough, only one-third of small companies offer retirement plans to their employees, although it has been proven that it helps to attract and retain top talent. However, choosing the right retirement plan can be difficult.
The first step to choosing the best retirement plan for your SMB is researching all available options. By analyzing your employees’ needs and seeing what plan makes the most sense for them, you can choose a retirement plan that is in line with the needs and values of your SMB business.
There are many different types of retirement plans available, and each has its advantages and disadvantages.
In this article, we’ll discuss the different types of retirement plans available for small and medium-sized businesses, as well as how to choose the one that best fits your company’s and your employees’ needs.
Defined contribution plans
This is perhaps the most popular type of retirement plan. A 401(k) is a defined contribution plan that is an important consideration for small and medium-sized businesses. It’s a savings plan that allows employees to contribute a portion of their salary toward retirement, while employers can match or contribute to those funds.
Before setting up a 401(k) plan for your SMB, you should do your homework, learn the ins and outs of this retirement plan, narrow down the best 401k providers, and find one that can cater specifically to your needs and one that offers affordable 401(k) plans.
By working with a reliable 401(k) provider, SMBs can help provide long-term financial stability and security for both employers and employees.
To make an informed decision, you must also research the different 401(k) plans.
Traditional 401(k)
A traditional 401(k) plan allows employees to contribute a portion of their pre-tax income toward the account, which can then be used for retirement savings. The employer may also match the employee’s contributions up to a certain percentage of their salary.
With a traditional 401(k) plan, employees can save for retirement while receiving tax benefits and potential employer matching funds. It’s one of the most popular retirement plans available today and is an important tool for helping people save for their future.
Roth 401(k)
The Roth 401(k) shares similarities with the traditional 401(k). If you choose a Roth, you’ll be dealing with post-tax rather than pre-tax deductions. Before you can transfer an employee’s compensation into a 401(k) plan, taxes will need to be deducted from their gross salary.
Safe Harbor 401(k)
You can save time and money with the Safe Harbor 401(k) plan. To set it up, you will need to either match employee contributions or make mandatory contributions regardless of employees’ job titles, salaries, or service years.
A Safe Harbor 401(k) not only helps business owners comply with government regulations but also ensures employees receive minimal contributions towards their retirement. Therefore, both companies and employees can benefit from this situation, creating a win-win scenario.
SIMPLE 401(k)
The SIMPLE 401(k) is a straightforward and simplified version of the traditional 401(k) and a great option for small businesses. Contributions to a SIMPLE 401(k) plan, however, are not forfeitable. SIMPLE 401k plan participants are not allowed to receive any contributions or accruals under other retirement plans sponsored by their employers.
Contributions to SIMPLE 401(k) plans for employees are mandatory. Contributions made by both the employee and employer must be made before taxes are deducted.
Individual retirement account (IRA)-based plans

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Individual Retirement Account (IRA)-based plans can also be a great option for SMBs. They provide tax benefits, allow employers to contribute to employees’ retirement funds, and help employees build a nest egg for their future. This retirement plan involves three options: a Payroll Deduction, a Simplified Employee Pension (SEP), and a SIMPLE IRA.
Defined benefit plans
Defined benefit plans are an attractive option for small and medium-sized businesses (SMBs) to provide their employees with a secure retirement. These plans offer a guaranteed income stream to participants, which can help reduce the financial risks associated with retirement planning.
They also allow employers to make contributions on behalf of their employees, increasing employee loyalty and engagement. Pension benefits at retirement and cash-balanced plans are two types of defined benefit pension plans.
Final thoughts
Offering retirement plans to employees is a great way for SMBs to attract and retain top talent. On top of that, the IRS also provides tax benefits to companies that offer retirement plans. Choosing the right retirement plan for your SMB depends on what you, as a business owner, want to achieve from a benefits perspective. After determining this, you should weigh the costs to decide which retirement plan best fits your budget. Take your time to compare the costs of the different plans in relation to their benefits to determine which plan is best for your SMB.