What Is a Small Business Retirement Plan?

By Kristi Waterworth – Updated Jul 4, 2025 at 12:20 AM

Key Points

Small businesses can easily offer IRAs and 401(k)s, with minimal admin required.
Simplified plans like SIMPLE IRAs allow both employer and employee contributions.
Safe Harbor 401(k)s avoid complex annual testing, ideal for very small businesses.

As a small business owner or someone who has decided to stay on at a small business for the long haul, knowing your options for a small business retirement plan is vital. This is how you plan for your future in your post-work years. So, pay attention as we outline the main options below.

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Retirement Plan folder sitting atop charts and next to coffee and a pen. — Image source: Getty Images.

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Traditional small business 401(k)s are exactly as you'd expect, with features like employer contributions that become vested over time and employee contributions that are vested immediately. They can be either opt-in, meaning the employee has to elect to open the 401(k) and start contributions, or opt-out, meaning the employee is automatically enrolled unless otherwise specified.

Traditional 401(k) plans require annual testing to ensure they do not discriminate in favor of more highly compensated employees. Safe Harbor 401(k)s, on the other hand, do not require annual testing, which is why they are often the choice of very small businesses that must keep their retirement plans simple. They do require employer contributions, and all contributions are 100% vested immediately. Otherwise, they behave just the same as any 401(k).

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Pension

A pension is a type of retirement plan that promises workers a specific monthly benefit when they retire.

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Employers primarily fund defined-benefit plans, and the contribution is calculated based on the pension's final value. These plans may require some time to vest before the employee can access them and may or may not permit loans against them.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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