Can Your Small Business Afford Retirement Benefits? Let's Talk About It

Can Your Small Business Afford Retirement Benefits? Let’s Talk About It

I hear this all the time from business owners I work with: “I’d love to offer my team a 401(k), but I just don’t have the budget or the bandwidth to administer it.” And you know what? That’s a completely valid concern. As a small business, you’re already wearing so many hats—the technician, the operator, the CEO—and adding a complex benefits program can feel like one more thing that’s going to eat up your time and your cash flow.

But here’s an insight I want to share with you: not having a 401(k) doesn’t mean you can’t offer your employees something meaningful. SEP IRAs and SIMPLE IRAs are two options that are far less expensive and much easier to administer, and I think it’s worth taking a few minutes to understand the difference, because the right choice really depends on your business model and your cash flow situation.

SEP IRAs: Flexibility When Cash Flow Is Unpredictable

If you’re a business owner who deals with the peaks and valleys many of us experience—maybe you don’t have a steady, predictable pipeline—a SEP IRA might resonate with you. Think of it this way: you’re not locked into annual contributions. You get to decide, year by year, whether cash flow allows you to contribute. That’s real flexibility, and there are typically no setup fees, either.

Each participant owns their account outright, 100% vested from day one. If someone leaves your company, they take that balance with them, usually rolling it into a new plan or an IRA.

For 2026, you can contribute up to 25% of a participant’s compensation, capped at $72,000—significantly higher than the $24,500 standard 401(k) limit. And employer contributions are tax-deductible, which is always a nice thing to bring to your accountant’s attention when we’re talking tax planning together.

Now, I want to be honest with you about the downside, because I always believe in giving you the full picture, not just the shiny parts. Only employers can contribute to a SEP IRA—your employees can’t add their own money. And if your contributions are sparse or unpredictable, your team may not see a lot of value in it. There’s also no catch-up contribution allowed for participants 50 and older, which is a real limitation compared to other plans.

SIMPLE IRAs: Easier Administration, More Participant Buy-In

If what you’re really craving is something simple to set up and maintain—true to its name—a SIMPLE IRA might be your better fit. Like a SEP, your business establishes an account for each employee, and they’re immediately fully vested. But unlike a SEP, your employees can contribute to their own accounts too, which tends to create more buy-in and a sense of ownership in their own financial future.

Here’s what I like about SIMPLE IRAs for a small business:

• They’re relatively easy to set up and administer—no Form 5500 filing required.
• No nondiscrimination testing to worry about.
• No setup fees for participants, and their funds grow tax-deferred.
• Employees can contribute up to $17,000 in 2026.
• Those 50 and older can make catch-up contributions up to $4,000 (or up to $5,250 if they’re between 60 and 63).

The tradeoff—and there’s always a tradeoff, right?—is that SIMPLE IRA limits are lower than a 401(k)’s, contributions are pretax so there’s no deduction for your employees, and loans aren’t permitted. But here’s the important piece for you as the business owner: employer contributions to a SIMPLE IRA are mandatory, regardless of how your cash flow looks that year. That’s a real commitment, so it’s something to think through carefully with your own numbers before you commit. The good news is you can generally deduct those contributions as a business expense.

There’s also a SIMPLE Roth IRA option now. I’d encourage you to ask your financial and benefits advisors whether that structure might serve your business and your team even better.

Don’t Assume You Can’t Afford This

If you’ve been telling yourself “we’re too small” or “we can’t afford it,” I want you to challenge that assumption—because that’s exactly the kind of thing we talk about when we ask, “what don’t I see?” There are lower-cost 401(k) options out there too, beyond SEP and SIMPLE plans.

This is exactly the kind of decision where I’d love to sit down with you, look at your budget, your tax situation, and what your team actually needs, and help you find the right fit. Reach out—let’s figure this out together.