01 Apr I’m starting a business. What retirement plan should I choose?

Q. I’m starting a business and I want to start a retirement plan. It will be me and my wife, and also one or maybe two employees who will work part-time, hopefully increasing to full-time if things take off. I’m not sure of the options and whether I have to include the part-time people in the retirement plan?
— Entrepreneur

A. Starting a new business is an exciting time and can also come with great uncertainty.

There’s a lot to think about.

Before deciding and committing to which retirement plan is right for your business you need to consider all factors such as cash flows, employee turnover, nature of the business, and other economic factors, said Keith Onto, a certified financial planner with Beacon Wealth Partners in Nutley.

He said there is no one size fits all approach to implementing a retirement plan.

Some things to first consider would be your goals for this plan, he said. Is this plan meant to be used primarily for you and your wife’s retirement goals? Is this important to the part-time employees and will this plan be used to incentivize and retain employees?

Onto said you need to assess if the new business will be profitable in the early years? Will it generate enough cash flows that you need a retirement plan with higher contribution limits? How much growth do you anticipate in the next three, five or 10 years?

Next, consider the features of some commonly used small business retirement plans.

A SEP IRA allows for high contribution limits and the flexibility to vary contributions year-to-year

“Only the employer contributes, meaning you as the employer must contribute to your employees in the proportion you do your own account,” Onto said.

Then there’s the SIMPLE IRA, which is easy to set up and maintain and suitable for a business with up to 100 employees. It allows for employees and employers to make contributions, with employer contributions mandatory, he said.

Then there’s the 401(k), which has high contribution limits for employees and allows employers to contribute in accordance with company goals, Onto said. But the plans are most costly to setup and administer, and require annual compliance testing.

“As for whether you must include your part-time employees in the plan, each plan has its own rules,” he said. “Retirement plan eligibility will depend on factors such as age, earnings, and years of service.”

Before making this decision, Onto recommends you consult your financial advisor and your business tax advisor to discuss the ins and outs of these plans.

“Each business has its own unique needs, and the best plan should integrate these together,” Onto said. “Lastly, always remember that your business will grow and evolve in time, your retirement plan should actively be monitored as well.”

Email your questions to Ask@NJMoneyHelp.com.

This story was originally published in April 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.