What Retirement Plan Is Right for Your Business?

• written by Perjan Duro
What Retirement Plan Is Right for Your Business?

Owning a business and being your own boss has lots of advantages. As well as getting the opportunity to do something you’re passionate about, you can set up your own unique working arrangements and design a company structure that works for you. 

As your business grows, you may want to take on employees or work with freelancers and subcontractors. If you do choose to hire people to work for your business, you’ll want to consider the salary package and benefits you can offer. 

Many companies provide their employees with retirement plans so that they can prepare for their future. If you offer a good range of employment benefits, in addition to a competitive salary, you’ll be able to attract the most qualified candidates. 

However, there are other advantages to introducing an employer-sponsored retirement plan. As the owner of your company, you’ll be entitled to take part in the plan too. This will help you to save towards your own retirement and prepare for your future as a business owner. In addition to this, the company can benefit from tax breaks and incentives when it offers employee benefits. 

Of course, deciding which retirement plan to introduce is a tricky process. You’ll want to balance the interests of your employees, the company, and yourself, as the owner. While there are lots of options to choose from, the most popular work-based retirement arrangements include:

1. Defined Benefit Plan

A defined benefit plan provides a benefit based on a number of factors, such as an employee’s salary and the length of time they’ve worked for the company. This encourages staff to remain loyal to the company and work their way up via promotions, rather than leaving to work for a competitor. 

If you choose to introduce this type of plan, both the employer and employee will be aware of how much individual employees are entitled to in the future. Instead of their future benefits being dependent on investments, employees are guaranteed the amount that is set out in their plan. 

As the owner, if you would like to know the amount you can contribute and deduct in a defined benefit plan, you can obtain an estimate using this defined benefit plan calculation. You can do this over at Saber Pension who has a handy defined benefit calculator that you can utilize.  They are experienced professionals who are also on hand to assist business owners in finding the right retirement plans for their businesses. With a focus on helping self-employed workers reduce their tax liability and maximize their investment, accessing professional advice can help you to select the right retirement plan for your firm.

While the relative simplicity and guaranteed outcome make defined benefit plans a popular choice, they do carry some level of risk for employers. Providing you invest the funds wisely, there will be enough to pay employees what they are owed when they become eligible to receive their funds, but a failed investment will mean there is a shortfall in funding. In these instances, employers are still liable for paying employees the amount they’re owed under the defined benefit plan and will need to make up the shortfall from poorly performing investments. 

2. 401(k) Retirement Plans

401(k) retirement plans offer employees the opportunity to make contributions towards their retirement throughout their working lives. Individuals may choose to make monthly contributions and have the amount deducted from their salary, for example. Employers match some or all of these contributions, up to a maximum amount as specified in the plan documentation. 

There are two types of 401(k) employee contributions: traditional and Roth. A traditional 401(k) results in employees facing a tax liability when they withdraw their funds, whereas a Roth 401(k) entitles them to make tax-free withdrawals. 

The amount received under a 401(k) plan is dependent on the success of investments made with the funds. Critically, employees choose the funds they invest in, which places the onus on them to make savvy investment decisions. 


A Simplified Employee Pension (SEP) IRA is designed to offer an easy and low-cost way for employers to contribute towards employees’ retirement. Contributions made by employers on behalf of employees are tax-deductible and can vary every year. This makes them a popular choice for businesses with unpredictable cash flows and profits. 

Although employers contribute to SEP IRAs, rather than employees, they are not responsible for making investment decisions. Instead, an IRA trustee is appointed who sets out a broad range of investment options. From here, individual employees are permitted to choose which funds they want to invest in.

Similar to 401(k) retirement plans, the amount an employee receives upon the culmination of a SEP IRA will depend on how well their investments have performed. 

Choosing a Retirement Plan for Your Business

As you can see, there are lots to consider when deciding which retirement plan is right for your business and your employees. With various tax implications to assess, it’s important to get independent professional advice before making any decisions. By doing so, you can ensure that your company is able to take advantage of the tax breaks available. Furthermore, seeking advice from professional investment advisors will enable your employees to access a reputable and reliable retirement plan.

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