S Corp retirement plan options are vast. There are several options, some of which might be a better choice for you than others. If you operate as a very small S Corp, having a retirement plan for employees can cost you between $2,000 and $4,000 a year for administrative and insurance costs. Further, some plans require that the S Corp employer contribute to the employee accounts, at approximately 3–4 percent for each employee.

Advantages of a Small Business Retirement Plan

While there are some disadvantages to the cost of having an S Corp retirement plan for your employees, there are some significant benefits, including:

  • An S Corp retirement plan helps secure your business’s future, as well as your employees’ futures.
  • Offering a retirement plan for employees gives you a competitive edge over other companies that might not offer a retirement plan.
  • There are some tax benefits to having a retirement plan, as plan contributions are deductive business expenses.

Simplified Employee Pension Individual Retirement Account

This type of retirement plan is also referred to as a SEP IRA. Some main benefits to this type of plan include that it is simple to set up and maintain; there is no initial or ongoing fee; there is flexibility in the annual funding requirements; and there are several investment choices.

The employer and employee contribute to this type of retirement plan. Generally, the employer will match what the employee puts in, with a ceiling amount. As of 2018, the limit for contribution is up to 25 percent of the compensation of the employee, with a $55,000 cap.

Other benefits of this type of plan include the fact that the employee can withdraw the funds at any time, although there will be a 10 percent penalty if you are under the age of 59½.

Self-Employed 401(k) Small Business Retirement Plan

This type of retirement plan is for self-employed individuals and businesses with no employees. Similar to a SEP IRA, there are several investment choices available; no initial setup fees; and no ongoing maintenance fees. Both the employee and employer contribute to the 401(k) plan.

The 2018 limits are up to $18,500 in salary deferrals by the employee ($24,500 if you are 50 or older). The employer can contribute up to 25 percent of the employee’s compensation, with a ceiling of $55,000. This type of plan comes with an annual administrative filing requirement if the plan assets are greater than $250,000. The employee cannot withdrawal the funds until a significant event occurs, i.e. disability; plan termination; or turning 59½.

Simple IRA

This is a retirement plan for businesses with no more than 100 employees or those who are self-employed. Some benefits of this type of retirement plan include salary deferral, several investment choices, and low-cost options of $25/per participant or $350 per plan. Both the employer and employee contribute to this type of plan. In 2018, the salary deferral limit is $12,500 for employees ($15,500 if 50 or older). The employer can either match employee contributions up to 3 percent of their compensation or contribute 2 percent of the employee’s compensation up to $5,500. There are no administrative responsibilities.

The employee can withdrawal the funds at any time by paying a 10 percent penalty if you are under the age of 59½. Furthermore, if you withdraw when the plan is two years old or less, then the penalty will increase to 25 percent. Remember that you will be taxed on the amount you withdrawal in addition to the penalty imposed when withdrawing the funds.

401(k) Small Business Retirement Plan

This type of retirement plan is for any public or private company with 20 or more employees. This is one of the most common types of retirement plans offered by employers. There are several advantages to this type of plan, including flexibility in terms of investment choices, investment management, and participant educational programs. There is also a wide range of mutual fund options.

In 2018, employees can contribute up to $18,500 in deferred salary ($24,500 if you are 50 or older). The total contribution overall cannot exceed $54,000. Employers can choose to match the contribution made by employees or engage in profit sharing contribution up to 25 percent of the employee’s compensation, not exceeding $55,000. Employers must file Form 5500 to ensure that the plan itself isn’t favoring those who are highly compensated in the business.

If you need help finding S Corp retirement plan options, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.