Are you unsure which retirement plan is right for your S-Corp? Have you been putting off setting one up because it feels too complex or expensive?
You see your corporate-job friends maxing out their 401(k)s with employer matches, and you're not even sure what options you have as a business owner.
Maybe you've looked into it before only to become overwhelmed by the questions, the compliance requirements, and the costs.
This article breaks down your four retirement plan options so you can choose the one that fits your business best. We’ll cover Traditional & Roth IRAs, Simple IRAs, SEP IRAs, and 401(k)s, including when to use each and when to avoid them.
Your Four Retirement Plan Options as a Business Owner
If you own a business, you have four primary retirement plan options to consider. Some of these work whether you're a business owner or not, while others are specifically designed for business owners with employees.
The key is understanding which option fits your current situation best and knowing that your choice might evolve as your business grows.
Want a quick side-by-side view of each plan's contribution limits, setup deadlines, and compliance requirements? Download our Business Retirement Plan Comparison Guide.
1. Traditional vs. Roth IRAs for Business Owners
These work the same whether you own a business or work for someone else, so they're likely familiar options.
- Traditional IRA: You contribute pre-tax dollars that adjust your income downward. The money grows tax-deferred, and you'll pay taxes when you withdraw in retirement. There are contribution limits each year, and depending on your income level, you may hit limits on how much you can deduct.
- Roth IRA: You contribute after-tax dollars, but the money grows completely tax-free. You won't pay any taxes when you withdraw in retirement. Like traditional IRAs, Roth IRAs have income limits that may restrict your ability to contribute.
When this works: IRAs are a solid foundation for retirement savings, but the contribution limits mean they're probably not enough as your business grows and becomes more profitable. Most business owners will want additional options that allow for higher contributions and better tax planning opportunities.
2. Why Most Small Business Owners Should Start with a Simple IRA
If you're looking for a place to start with business retirement plans, a Simple IRA is probably your best bet.
Really, you're looking at a couple hundred bucks to administer a year. It's the easiest way to put money aside and creates a very straightforward structure for most business owners.
How it works: A Simple IRA has straightforward matching rules. Whatever percentage you contribute for yourself, you contribute the same percentage for eligible employees. The structure is simple (hence the name), and it doesn't require the extensive administration that more complex plans demand.
The contribution limits are higher than traditional or Roth IRAs, giving you more room to defer income and reduce your current tax liability.
When this works: You have employees, you want something straightforward, and you don't have a lot of time to devote to plan administration. Simple IRAs work particularly well for businesses with 1-25 employees who want to offer a retirement benefit without getting buried in compliance requirements.
When to skip it: If you need more flexibility in how you structure contributions or if you want to maximize your personal contributions beyond what a Simple IRA allows, you'll want to consider a 401(k) instead.
3. Why SEP IRAs Are a Good Option for Solo Business Owners
A SEP (Self-Employed Pension) IRA usually only makes sense if you're the only employee in your business.
The big catch: Whatever percentage you fund for yourself as the employer, you must fund the same percentage for all your employees. This makes SEPs impractical for most businesses with multiple employees because the cost becomes prohibitive quickly.
However, if you're a solo practitioner—think doctors who work at a hospital facility but are still their own S-Corp—a SEP can make a lot of sense. The contribution limits are significantly higher than Simple IRAs, giving you substantial tax deferral opportunities.
When this works: You're the only employee in yourbusiness, or you're a one-person operation looking to maximize retirement contributions.
When to skip it: You have more than one employee. The matching requirement makes this option too expensive for most multi-employee businesses.
4. Why 401(k) Plans for S-Corp Owners Are Flexible and Help You Maximize Contributions
For established businesses that want the most flexibility and the highest contribution limits, a 401(k) is my recommendation for most small businesses.
Why 401(k)s are more accessible now: Thanks to the SECURE Act tax credits, the cost between a Simple IRA and a 401(k) is pretty darn close, if not even better with a 401(k) today. The credits available for new plans mean the administrative costs are lower than they've ever been.
Maximum contribution potential: With a 401(k), you can contribute anywhere from $69,000 to $80,000 in 2026, depending on your age and how the plan is structured. That’s significantly more than any other retirement option, and it opens the door to powerful tax planning opportunities.
More flexibility means more options: With a 401(k), you can add Roth contributions, giving you a way to get money into a Roth when your income is too high for a Roth IRA. You also have options to set eligibility requirements that can limit who participates in your plan and when.
The trade-off: Setting up a 401(k) means answering a lot of questions upfront. How old do employees have to be? How many hours do they need to work? What's the vesting schedule? What's your safe harbor match? What are your investment choices?
There are a ton of questions to ask, and while that can feel overwhelming, the good news is that most providers will walk you through all of these decisions.
When this works: You have an established, profitable business and you want to maximize tax deferral. You have the cash flow to support contributions, and you're comfortable with more administrative requirements.
When to skip it: You're brand new in business or you don't have enough profit yet to make the administrative investment worthwhile. In those cases, start with a Simple IRA and graduate to a 401(k) when you're ready.
The Compliance Factors You Need to Know
Retirement plans can be powerful wealth-building tools, but only if you stay compliant. This isn't an area where you want to guess your way through. The rules are strict, the penalties are real, and the burden is fully on you as the plan sponsor.
Below are the critical compliance factors S-Corp owners must understand before moving forward.
What ERISA Means for Your Retirement Plan
Most employer-sponsored retirement plans are governed by ERISA (Employee Retirement Income Security Act). That means there are clear rules about:
- Who is eligible to participate (and when)
- How and when contributions must be deposited
- What documents must be filed with the IRS and provided to employees
And no, being a small business doesn't mean you're exempt. Even the simplest plans have ERISA requirements, and violations can trigger penalties, backpay, or disqualification of the plan itself.
You don’t want to go into this blindly, thinking you’ll figure it out as you go.
Who You'll Work With
Most retirement plans today are administered by a team of professionals, many of whom are bundled together by your plan provider. Here's who typically plays a role:
- Record Keeper: Tracks contributions and ensures funds are deposited accurately and on time.
- Custodian: Holds the plan’s assets (your employees’ money) in trust.
- TPA (Third-Party Administrator): Handles compliance testing, eligibility tracking, and required filings like Form 5500.
You’ll also need to establish a formal plan document that outlines all the rules of your plan, from vesting schedules to matching formulas, and make sure employees receive proper notices each year.
Most reputable providers today bundle all of these services and guide you through each step.
Avoid These Common Compliance Mistakes
Even with a good provider, mistakes happen. This is often because business owners don’t know what to ask going in. Here are the most frequent (and expensive) missteps we see:
- Not understanding matching rules or eligibility thresholds
→ This leads to unplanned contributions or out-of-compliance setups. - Missing key deadlines like the Form 5500 filing or employee notification windows
→ Penalties add up quickly when filings are late or incomplete. - Delaying employee deferral deposits
→ You typically have just 3–4 business days after payday to deposit these funds. Waiting longer can trigger a compliance violation. - Choosing the wrong type of plan for your stage of business
→ Some plans become cost-prohibitive as you hire more employees. - Trying to DIY setup
→ We've seen business owners get attorneys involved to fix what could have been avoided with proper setup and guidance.
You don’t have to become an ERISA expert. But you do need a provider who is, and who walks you through every decision.
Critical Timing Rules To Be Aware Of
Understanding when contributions must be made is crucial for staying compliant and maximizing your tax benefits.
Employee deferrals (money withheld from paychecks): These must be funded before year-end. In fact, you typically have only 3-4 business days after the pay date to deposit these funds. Why? Because you're essentially holding your employees' money kind of hostage at that point. It's their paycheck that they've elected to put into their 401(k), and it needs to get there quickly.
Employer contributions (your match or profit sharing): You have much more flexibility here. You have until your extended tax filing deadline to make these contributions:
- S-Corps and LLCs: September 15
- C-Corps: October 15
The reason for this flexibility? As a business owner, you often don’t know your final profit until the year wraps up. The IRS recognizes that you need time to calculate final profitability before determining employer contributions.
This timing flexibility creates year-end tax planning opportunities. Working with your accountant, you can calculate optimal contribution amounts that maximize your tax benefits while ensuring you're meeting all compliance requirements.
How to Choose the Right Plan for Your Business
With four options on the table, how do you decide which retirement plan is right for you?
Quick decision framework:
- Just you in the business? → SEP IRA or Solo 401k
- 1-25 employees and want something simple? → Simple IRA
- Want maximum flexibility and contribution limits? → 401(k)
- Just starting out or minimal profit to defer? → Traditional or Roth IRA for now
Questions to ask yourself:
- How many employees do I have (including myself)?
- How much profit can I realistically defer each year?
- What's my tolerance for administration and compliance?
- Am I using this as a recruitment and retention tool for employees?
- Do I want the option for Roth contributions?
Remember, you can always start simple and upgrade later. Many business owners begin with a Simple IRA when they're smaller and transition to a 401(k) as they grow and become more profitable. No rule says you have to pick the "perfect" plan right out of the gate.
The most important thing is to start somewhere. The tax benefits and retirement savings compound over time, so getting started (even with a simpler option) is better than waiting for perfect conditions.
Choosing the Right Retirement Plan Doesn't Have to Be Overwhelming
You came here looking for clarity, and now you have it. You understand the four main retirement plan options available to S-Corp owners, when each works best, and the costly compliance traps to avoid.
We know retirement planning can feel intimidating, especially when you're juggling the day-to-day responsibilities of running a business. But with the right guidance and setup, these plans become powerful tools for lowering your tax burden, building long-term wealth, and rewarding your team.
If you're still unsure where to start, that's normal. The key is to take one step forward today. Whether that means starting simple or transitioning into a more robust plan, you're not in this alone.
Your next step is to download our free comparison guide, Business Retirement Plan Comparison Analysis, or schedule a consultation with our team. We'll walk you through your options, run the numbers, and help you implement a plan that aligns with your business goals… all without the compliance headaches.
At Patrick Accounting, we've helped hundreds of business owners set up retirement plans that work. We’ll help you avoid the pitfalls, maximize your tax benefits, and get it right the first time.
You don’t need perfect conditions to start planning for retirement, just a clear path and a trusted partner.
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