Those small employer plans like SEPs and SIMPLE-IRAs? They\u2019re great starter tools for retirement savings. Think of them like toddler clothes: low maintenance, affordable, and easy to manage. No administration costs, no annual 5500s, and they get the job done\u2014for a while.<\/p>\n
But like kids\u2019 clothing, there comes a time when these plans no longer fit. When\u2019s that time? It\u2019s when your business starts growing\u2014specifically, when you add employees who aren\u2019t owners or family. These plans don\u2019t allow for contribution disparity. That means if you want to give yourself a 15% contribution, you\u2019ve got to give the same to your eligible employees. There\u2019s no flexibility. And in a SEP, there are no employee salary deferrals. In a SIMPLE, deferrals are capped and employer contributions are limited. Translation: you\u2019re carrying the full load on funding.<\/p>\n
That\u2019s when you know it\u2019s time to graduate to something more robust\u2014like a 401(k) plan or even pairing that with a cash balance plan if your business can support it. Don\u2019t wait until the plan stops working to make the change. Know when the SEP no longer fits\u2014and be ready to upgrade before your business growth turns into a compliance headache.<\/p>\n
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