Lesson B202.7 · Business Finance 202: Build a Business Worth Buying
Retirement plans for you and your crew
6-minute read · Figures for tax year 2026
Photo: Oliver Morgan Media / Pexels, Pexels License
The short answer
A small business can offer a SEP IRA, a SIMPLE IRA, a 401(k) or a pooled employer plan, and an owner with no employees can use a solo 401(k). Federal tax credits can cover startup costs and part of what you put in for employees during the first years, so compare plans on their cost after credits. Choose with your CPA and get at least two quotes.
The plans small businesses use
| Plan | Fits | Who puts money in | Worth knowing |
|---|---|---|---|
| SEP IRA | Any size; often owner-only or small crews | Business only: the same percent of pay for each eligible employee, up to 25% of pay within a yearly dollar cap | Little paperwork; employees own the money right away |
| SIMPLE IRA | Generally 100 or fewer employees, with no other plan | Employees, up to $17,000 in 2026 ($18,100 at employers with 25 or fewer); the business matches up to 3% of pay or gives 2% to all eligible | Low cost; no loans from the plan |
| Solo 401(k) | An owner, or owner and spouse, with no other employees | The owner, as both employee and employer | Once you have eligible employees, the plan must include them |
| 401(k) | Any size that wants more room and features | Employees up to $24,500 in 2026; the business may add a match | Yearly fairness testing unless it's a safe harbor plan |
| Pooled employer plan | Small employers that want a 401(k)-style plan with less paperwork | Like a 401(k) | A pooled plan provider runs it and files its yearly report; you choose and monitor the provider |
Swipe the table sideways to see every column.
Two things owners often miss. With a SEP, if you put 10% of your own pay in, every eligible employee gets 10% too. And a SEP's eligibility rules (age 21, work in 3 of the last 5 years, a small minimum of pay) can include seasonal crew members who come back year after year. Workers 50 and older can save more in a SIMPLE IRA or 401(k).
Tax credits that lower the cost
Employers with 100 or fewer employees can claim three federal credits for a new plan if at least one participant isn't highly paid and the same employees weren't in another plan of yours in the past three years:
- Startup costs: 100% of eligible costs to set up and run the plan and educate employees (50% at 51–100 employees), for 3 years, capped each year at the greater of $500 or the lesser of $250 per eligible non-highly-paid employee and $5,000.
- Automatic enrollment: $500 a year for 3 years.
- Employer contributions: up to $1,000 per employee, at 100% in years 1 and 2, 75% in year 3, 50% in year 4 and 25% in year 5. It shrinks above 50 employees and skips employees paid over an IRS wage limit.
You can't also deduct startup costs you claim the credit for. Claim them on IRS Form 8881.
Example (made-up numbers). A 12-person company starts a 401(k) with automatic enrollment. Ten are eligible, none highly paid or over the wage limit. Fees run $2,000 a year, and the match is $1,200 per employee, $12,000 in all. The startup cap is $2,500 (10 × $250), so all $2,000 of fees qualify.
| Year | Fees + match | Credits | Net cost |
|---|---|---|---|
| 1 | $14,000 | $2,000 + $500 + $10,000 | $1,500 |
| 2 | $14,000 | $2,000 + $500 + $10,000 | $1,500 |
| 3 | $14,000 | $2,000 + $500 + $7,500 | $4,000 |
| 4 | $14,000 | $5,000 | $9,000 |
| 5 | $14,000 | $2,500 | $11,500 |
| 6 | $14,000 | $0 | $14,000 |
Swipe the table sideways to see every column.
Credits make the early years cheap, then step down. Budget for the full cost by year six.
Automatic enrollment, state programs and your own retirement
Defaults work. In one well-known study, automatic enrollment raised 401(k) participation from 37% to 86%. A plan your crew is enrolled in by default does more for them than one they have to sign up for on a busy Monday.
Seventeen states have automatic IRA programs for employers without a plan, and 15 have launched. Kansas has none, and Missouri has a voluntary plan that hasn't launched. If you have employees in a state with a program and don't offer a plan, check whether your state requires you to sign up.
Your own retirement shouldn't ride on the business alone. Put money in your own account every year, starting with the plan you set up for the crew (Personal Finance 201 covers the owner's side).
The National Pavement Maintenance Contractors Association (NPMCA) never acts as a plan fiduciary. The business that sponsors a plan has duties to choose and monitor its providers with care, so get every fee in writing: setup, yearly administration, per-person charges and the investment costs employees pay.
Your Move
Do this week
- Count your employees and how many would be eligible under each plan's rules.
- Ask two providers for written quotes on the same plan design, with every fee listed.
- Pick a match or contribution level you can keep paying in a slow year.
- Run both quotes through the Plan cost after credits tool for years 1 through 6.
- Take the results to your CPA before you sign anything.
Log it: Two retirement plan quotes compared.
Common questions
What's the cheapest retirement plan for a small business?
It depends on how much the business puts in. SEP and SIMPLE IRAs have the least paperwork and generally no yearly Form 5500 filing; a 401(k) costs more to run but lets employees save more. Compare quotes on cost after credits.
Do seasonal workers have to be included?
Each plan sets its own eligibility rules. A SEP, for example, covers employees 21 and older who worked for you in 3 of the last 5 years and earned a small minimum, which can include seasonal crew.
Can I set up a plan only for myself?
If you have no employees, yes: a solo 401(k) or a SEP. Once you have eligible employees, the plan's rules require including them.
Watch out for
- A match you can't keep paying in a slow year. Some plans require employer money every year.
- Fees tucked inside investment options. Ask for every cost in writing.
- Anyone who says the credits make a plan free. They step down after the first years and end after year five.
- Seasonal crew left out by mistake. Read the eligibility rules with your provider.
Free help
- IRS: SEP plans, SIMPLE IRA plans, one-participant 401(k) plans, 401(k) plan overview
- IRS: Retirement plans startup costs tax credit
- America's SBDC: free one-on-one business consulting. Find your SBDC
Free practice
Lesson check
5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.
This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.
Sources
- IRS: Simplified employee pension plan (SEP)
- IRS: SIMPLE IRA plan
- IRS: One-participant 401(k) plans
- IRS: 401(k) plan overview
- IRS: 401(k) limit increases to $24,500 for 2026
- IRS: Retirement plans startup costs tax credit
- U.S. Department of Labor: Pooled Employer Plan Bulletin, 2026
- Madrian and Shea (2001): The power of suggestion: inertia in 401(k) participation
- Georgetown Center for Retirement Initiatives: State auto-IRA programs
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