Small Business Retirement Planning Recap

By Jason Watson, CPA
Posted Monday, December 30, 2024

There are also several options and combination of options, and we can work with you to settle into the best plans. Here are some jumping off points-

One Person Show or Husband/Wife Team

Solo 401k plan with Roth Option is the best bet. Very low cost, efficient contributions, and has a good mix of pre-tax and after-tax contributions to hedge against future income tax rate risk.

Second best option is SEP IRA which allows conversion to Roth IRA each year. But this is usually after the fact, or when you are in crisis management mode and want to save taxes.

Multi Owner Partnership or MMLLC

Owners-Only 401k plan.

Multiple Employees

Company-sponsored 401k plan with Roth and Safe Harbor provisions is the best bet. Similar benefits to Solo 401ks. However, Safe Harbor provisions forces the business to make contributions to avoid highly compensated employee (HCE) testing.

Piggyback the profit sharing plan and cash balance plan to the 401k plan to super-size your contributions while retaining over 90% of the plan assets for the owners.

SIMPLE 401ks are not as attractive. While the non-elective business contributions are slightly lower than 401ks, the contribution limits are low in comparison. At $60,000 in salary, a 401k allows for a total plan injection of $38,500 ($23,500 + 25% of $60,000) whereas the SIMPLE 401k is only $17,300 for the 2025 tax year.

Multiple Entities

Company-sponsored 401k plan implemented at the multi-member LLC level and adopted at the subsidiary S Corp entity level. This would be an Affiliated Service Group and be subjected to controlled group testing.

Piggyback the profit sharing plan and cash balance plan to the 401k plan to super-size your contributions while retaining over 90% of the plan assets for the owners.

SIMPLE 401ks are not as attractive. While the non-elective business contributions are slightly lower than 401ks, the contribution limits are low in comparison. At $60,000 in salary, a 401k allows for a total plan injection of $38,000 ($23,000 + 25% of $60,000) whereas the SIMPLE 401k is only $17,300 for the 2024 tax year.

Multiple Entities

Company-sponsored 401k plan implemented at the multi-member LLC level and adopted at the subsidiary S Corp entity level. This would be an Affiliated Service Group and be subjected to controlled group testing.