Choosing a small business retirement plan: Start with what works, not what sounds perfect
By: Jasmin Sethi
Jasmin Sethi is the CEO of Sethi Clarity Advisers and a member of the SEC Small Business Capital Formation Advisory Committee. She advises clients on how to expand access to retirement saving.
A retirement plan is often one of the most meaningful benefits a small business can offer. It can help employees build long-term financial security, improve retention, and demonstrate that the business is investing in its workforce. Many owners also want a more structured way to save for their own futures beyond personal IRAs. Yet despite these motivations, deciding where to begin can feel overwhelming.
The challenge is not a lack of information. In fact, the opposite is true. A quick online search produces endless providers, comparison articles, calculators, and educational materials. But much of the information that truly matters is fragmented, overly technical, or difficult to compare across providers.
Understanding state auto-IRA options
For many small business owners, the first practical step is not choosing between providers. It is understanding whether their state already requires or offers some form of retirement savings access through an automatic IRA program. States including California, Colorado, Illinois, Oregon, and many others now require many employers without retirement plans to either enroll employees in a state-sponsored auto IRA program or establish another qualifying retirement plan. All states with auto-IRA mandates permit employers who are not required to enroll in the state’s program to do so if they choose. Georgetown University’s Center for Retirement Initiatives maintains one of the clearest public trackers of these programs and their requirements. If you want to do something to make it easy for your employees to contribute part of their pay and do not have the funds to match, start with the auto-IRA if available. If your state does not have a program yet, setting up an auto IRA is likely not easy to do as most payroll companies do not offer them.
Alternatives to state programs
If an auto IRA is not available in your state to your business or you want to explore different plan features for you and your employees, definitely consider your options. In auto-IRAs, employers typically cannot contribute directly to employee accounts, and contribution limits are lower than employer-sponsored retirement plans. This is where employers should begin comparing SIMPLE IRAs and 401(k)s – especially if they want to offer their employees an employer match. Here is a handy table that can help you get started.
SIMPLE IRA vs. 401(k): Key differences for employers
(All numbers as of 2026)
| Feature | SIMPLE IRA | 401(k) |
| Employee contribution limits | Lower annual contribution limits: $17,000 for businesses greater than 26 employees. $18,100 for businesses lower than 26 employees. | Significantly higher contribution limits. $24,500 for all employees. |
| Employer contribution requirement | Mandatory contribution each year using a prescribed formula. | Employer contributions are optional. |
| Employer match flexibility | Fixed matching or fixed percentage contribution applied uniformly. If an employee contributes less than 3%, then employer contributes a nonelective 2% of the Employee’s salary up to a maximum salary of $360K. If the employee contributes more than 3%, then employer contributes an elective match of 3% with no salary cap. Under SECURE 2.0 for business with employees of 26-100 employees that employers may choose to match up to 4%. | Highly flexible matching formulas: usually match dollar for dollar up to a percentage of salary, e.g. 3-5%. |
| Ability to vary contributions by employee | No flexibility; same rules apply to all eligible employees. | Can vary contributions using vesting schedules, age, tenure, or seniority. |
| Plan design complexity | Simple, standardized structure. | Highly customizable plan design. |
| Administrative burden | Minimal administration. | Higher administrative complexity. |
| Typical cost structure | Generally limited to modest annual fees for participants and minimal employer costs. | Multiple potential fees including recordkeeping, administration, investment, and compliance costs. |
| Fee transparency | Easier to understand upfront. | Requires careful questioning and comparison. More flexibility and administration usually costs more. |
Any plan at all is better than no plan
The most important question is often not which plan is theoretically “best,” but which plan realistically fits the business today. If an owner expects to maximize retirement contributions, wants more flexibility in plan design, or anticipates business growth, a 401(k) may justify the additional cost and effort. If the owner is primarily focused on establishing a manageable benefit with predictable expenses, a SIMPLE IRA may be the more practical choice.
Too often, small business owners are led to believe that a 401(k) is the only serious option and that simpler plans represent a compromise. In reality, the better outcome is often the plan that actually gets implemented. A SIMPLE IRA or an auto IRA can meaningfully improve retirement access for employees and owners alike if it is understandable, affordable, and sustainable for the business.
For many small businesses, progress matters more than perfection. The goal is not to identify the ideal retirement plan in theory. It is to establish a workable path toward retirement security that employees and owners will actually use.