How to Pick the Best Small Business 401(k) Plan Provider

Look at the options available and research thoroughly before choosing a retirement plan for employees.

The Best Small Business 401(k) Plan Providers

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Some 401(k) plan providers cater to smaller companies, such as a startup or those with fewer than 50 employees, while others are set up for medium-sized or large businesses.

To attract and keep talented employees, it can be a smart move to add a 401(k) plan to your small business. As a result of the SECURE Act , which was passed in 2019, there are now more opportunities for small employers to offer retirement plans. The law allows small businesses to participate in pooled employer plans, making it easier and less costly for small employers to provide workers with a retirement plan. Here's how to select the right 401(k) plan provider for your small business.

Find the Best 401(k) Providers for Small Business

Since there are many providers to choose from, keep in mind that not all will offer the same services or prices. Some 401(k) plan providers cater to smaller companies, such as a startup or those with fewer than 50 employees, while others are set up for medium-sized or large businesses.

These providers specialize in 401(k) plans for small businesses:

  • American Funds. Small businesses of any size, from startups to those that have recently merged, can find traditional and Roth options through this provider.
  • Betterment. Through its online cost calculator, small business owners can enter their number of employees and plan preferences to gain a personalized estimate of 401(k) costs.
  • Charles Schwab. Charles Schwab provides 401(k) plans for companies of any size and creates customized plans to fit a business’ specific needs.
  • Employee Fiduciary. With 401(k) plan establishment fees that start at $500, Employee Fiduciary provides personalized service from setup through plan administration.
  • Fidelity Investments. Fidelity has small business 401(k) plans available for businesses with more than 20 employees and an app that employees can use to monitor their accounts.

How to Set Up a 401(k) for a Small Business

To offer a 401(k) plan for employees, the IRS lays out four steps to get started. These include:

  • Adopt a written plan. If you have assistance from a professional or a financial institution, this step will usually be provided for you.
  • Arrange a trust for the assets. A plan’s assets need to be in a trust to make sure they are used only for the participants and their beneficiaries.
  • Develop a recordkeeping system. If you work with a financial institution, you can generally expect to have help with keeping the necessary records.
  • Communicate information to employees. This includes sharing details about the plan with workers who are eligible to participate.

You will also have to decide on the type of 401(k) plan to offer employees. This could be a traditional 401(k) plan, a safe harbor 401(k) plan or an automatic enrollment plan. With a traditional 401(k) plan, the employer can elect to make contributions for all plan participants or offer a 401(k) match , but is not required to contribute. A safe harbor 401(k) plan requires the employer to make annual contributions on behalf of employees. An automatic enrollment 401(k) plan permits the company to automatically sign employees up for the plan and place salary deductions in certain investments.

Consider Whether to Match Employee 401(k) Contributions

Many employees rely on a 401(k) plan to help fund their retirement. “In our experience, a company’s contribution to the plan has become a key recruitment and retention tool of high-performing leaders,” says Eric Shisler, vice president and director of research and retirement plan services at Budros, Ruhlin & Roe in Columbus, Ohio. You might offer a match which consists of a percentage of an employee’s contribution, up to a specified percentage of the employee’s salary. Or you could provide a match up to a certain dollar amount.

Another type of employer contribution is 401(k) profit sharing, which allows a business to set aside a portion of its pre-tax profits in employee retirement accounts. You may choose to contribute a certain dollar amount, or a percentage of each employee’s salary. Before committing to contributions, you’ll want to think about short- and long-term profit projections. “Another key consideration for business owners when setting up a plan is if the company can sustain their contribution if cash flow fluctuates,” Shisler says.

Look at Small Business 401(k) Costs

Providing 401(k) accounts to employees will come with fees , and you should carefully sort through the fine print before selecting a 401(k) plan. A small business 401(k) plan might charge recordkeeping fees, investment fees and transaction fees.

Keep in mind that fees might change if the company hires more workers. “Look to understand how the fees quoted may change as the plan grows,” Shisler says. “Plans with the cheapest pricing upfront are not always the cheapest plans over time, especially with well-funded plans.”

Consider the Small Business 401(k) Investment Options

Look for a 401(k) plan that provides an assortment of investment options , rather than just a few ways to invest. “One of the major things that you want to look for in a plan for small companies is what kind of lineup of investment options will be available to the employees,” says Mike Scarborough, president and CEO of Oak Wealth Partners in Lexington Park, Maryland. “It should be broad-based in the sense that it should have large and small stocks, various types of bonds, some international exposure that is very broad-based, as well as emerging markets."

Carefully Select a Small Business 401(k) Provider

You’ll typically want to involve experts in the financial industry to help oversee the 401(k) plan. "Many individuals in the financial services industry can sell you a plan, but usually there are certain advisors who specialize in working with 401(k)s," says Art Haws, CEO and managing partner and HawsGoodwin Wealth in Franklin, Tennessee. "They can help you navigate the many issues and decisions made when starting and maintaining a plan."

A trustee will manage the 401(k) plan assets, and carries the responsibility of making decisions according to the plan's terms. A 401(k) custodian does not make management decisions, but holds plan assets.

When researching options, ask about the third party administration setup. "Some plans bundle the TPA services like plan design and documents, testing and tax preparation, while others require you to work with an outside TPA," Haws says. "An experienced financial advisor can help explain the benefits of either, and recommend the best solution for your specific situation." Some financial professionals will help you communicate about the retirement plan to employees. Also ask about payroll integration, as a 401(k) provider with payroll-related services might make your 401(k) plan easier to manage.

How to Max Out Your 401(k) in 2021

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7 Top 401(k) Providers for 2022

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Table of Contents

How to choose a 401(k) provider

7 best 401(k) providers for small businesses.

Regardless of your business’s size, offering your employees a retirement savings plan is a crucial part of any HR operation. The key is to choose a 401(k) provider that is specially equipped to provide small businesses with quality retirement plans, investment advisory services and administrative support.

There are a few retirement plans available for self-employed and small businesses, including SEP-IRA, SIMPLE IRA and individual 401(k) plans, but traditional 401(k) plans are by far the most common option. Traditional 401(k) plans allow participants to make pre-tax contributions to an individual retirement account up to the limit set by the IRS. Employers can also choose to make contributions on behalf of their employees, match their employees’ contributions or both, also up to the IRS limit.

In this guide, we’ll go over seven of the best 401(k) providers for small businesses and walk you through how to go about choosing the best 401(k) provider for you and your employees.

» MORE : NerdWallet's best HR software for small businesses

You’ll first need to choose the firm that provides the type of retirement plan you really want to offer, whether that’s a traditional 401(k) plan or something else. Also take a look at the plan design to ensure that their eligibility requirements, vesting schedule, investment options and other details are appropriate for your employees. You’ll also need to evaluate the fees attached to your retirement plan. Often, fees vary depending on your business and the number of employees, so you will need to get in touch with each provider directly to receive a quote.

On a qualitative level, you’ll likely want to work with a 401(k) provider with excellent customer service, individualized investment and plan design guidance and a support team that’s easy to reach — especially because the landscape of retirement plans can be confusing to navigate, both for you and your employees.

Moreover, you should consider a provider that acts as a fiduciary advisor. Fiduciaries are legally and ethically bound to provide unbiased investment advice that aligns with their clients’ best interests. They also manage, monitor and adjust their clients’ retirement plans. There are several types of fiduciaries, but you’ll most often see the term 3(38) fiduciary.

Also note that a couple of the 401(k) providers in this round-up are online-based, which is a great option if you’re looking to really streamline and digitize this process. Certain providers can offer employer benefits beyond 401(k) plans, as well, which is a good option if you want to integrate all your fringe benefits under one provider.

Here are seven of the best and most reputable 401(k) providers for small businesses that you should consider in 2022.

ADP is one of the most respected names in payroll processing, but their comprehensive HR and employer services suite includes retirement plans and administration. While they can serve businesses of all sizes, ADP is unique in that they extend their full arsenal of services and decades’ worth of expertise to small businesses (which they define as businesses with one to 49 employees), in addition to large enterprises.

If you sign up for ADP’s retirement planning service, you’ll have access to a team of professionals who can help you browse, choose and customize which of their available retirement plans is best for you and your employees. In addition to 401(k) plans, ADP offers SIMPLE and SEP IRA options, which are great choices for very small businesses. They also offer tiered investment options, which are suitable for investors with all experience levels.

Once they’ve helped you design a retirement plan, your ADP advisors will help you implement and manage your plan to ensure you’re staying compliant. If you’re an ADP payroll client, your retirement plan’s record-keeping system will automatically integrate with your payroll system.

2. Betterment for Business

Betterment for Business is the 401(k) channel of Betterment, a robo-advisor that helps consumers make smarter investment choices using a combination of technology and human expertise. With this service, Betterment for Business’ human advisors and technology help business owners design 401(k) plans and advise employees on the smartest investments they can make in a variety of ETFs to optimize their retirement savings. Betterment for Business is a certified 3(38) fiduciary, so they’re legally and ethically required to act in your company’s best interests when giving investment advice.

Obviously, Betterment for Business is only a viable option if you and your employees are comfortable using a robo-advisor and managing your plan digitally. If you are interested, we’d recommend taking a look at our Betterment for Business review for a more in-depth understanding of this unique 401(k) provider.

3. Charles Schwab

Charles Schwab is one of the most established and best-known investment and retirement firms in the country — a better option if you consider yourself a bit too much of a technophobe to opt for a robo-advisor. Charles Schwab offers a managed account service that offers your employees personalized advice on a range of investment options, including ETFs or index mutual funds.

They’ll also provide ongoing account monitoring and automatic adjustments. As an alternative, Charles Schwab also offers SIMPLE and SEP IRA plans; or, if you’re self-employed, you can opt for their Individual 401(k) plan, which is essentially a traditional 401(k) plan designed particularly for individually owned businesses. It’s worth noting that this plan has no setup or monthly maintenance fees.

4. ShareBuilder 401k

Sharebuilder 401k allows self-employed individuals and small businesses to buy and set up low-cost 401(k) plans completely online. They also act as 3(38) fiduciaries, so they’re certified to make investment advice, manage portfolios, and handle plan administration.

With Sharebuilder 401k, you’ll have four retirement plan options: Solo 401(k), Safe Harbor 401(k), Traditional 401(k) and Tiered Profit-Sharing 401(k). All plans require a one-time setup fee, a flat monthly administration fee and an annual fund fee that varies from 0.04% to 0.39% per year. Investment options include index ETFs and five types of model portfolios based on the individual investor’s risk tolerance.

5. Fidelity Investments

Another trusted name in retirement services, Fidelity has over 30 years of experience and currently over 30 million plan participants under their belt. Fidelity can service businesses of all sizes, but they say that 86% of their business clients have fewer than 500 employees — so despite the big name, they’re fully equipped to serve small businesses.

Fidelity’s 401(k) plan offers a wide range of investment options, including over 16,000 mutual funds from 380 fund companies. They also offer comprehensive advisory services, as well as administrative, reporting and compliance support, and you can reach their advisors either in person, online or over the phone. Their advisors will help you design a plan or you can choose to work with your current broker. Plus, Fidelity has an app and online dashboard where you and your employees can view and manage their plans and get in touch with advisors whenever they need. Beyond retirement plans, Fidelity also offers integrated employer benefits, including payroll and health plans.

6. T. Rowe Price

At 83 years old, T. Rowe Price is the most established asset management firm on this list. They offer four retirement plans for small businesses: SEP-IRA, SIMPLE IRA, Individual 401(k) and a 401(k) for Small Business. The former three plans are best for self-employed individuals or businesses with under 100 employees, while the latter plan is best suited for businesses with up to 1,000 employees.

Under the 401(k) for Small Business, plan sponsors can choose from over 100 no-load mutual funds and over 5,400 non-proprietary funds. T. Rowe Price also offers plan participants 24/7 phone support, plus an online portal where they can manage their plans and conduct transactions.

7. Merrill Edge

Under the Merrill Small Business 401(k) plan, independent advisors select and manage funds and model portfolios for all participants. Unlike the other participants on this list, pricing for this plan is very transparent: It costs a one-time setup fee of $390 and a monthly administration fee of $90. Then, each participant is responsible for a $4 monthly recordkeeping fee and an annual asset-based fee of 0.52%. You also have the option of converting your existing 401(k) plan to a Merrill Small Business 401(k), in which case you may end up saving money.

Merrill Edge’s Merril Small Business 401(k) is suitable for corporations, partnerships and nonprofits, but they also offer SEP-IRA, SIMPLE IRA and Individual 401(k) plans for sole proprietorships and self-employed individuals.

» MORE: NerdWallet's best small-business apps

This article originally appeared on Fundera, a subsidiary of NerdWallet.

On a similar note...

Best 401(k) plans of 2024

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A 401(k) retirement plan is a key benefit for any private-sector worker, and employees have come to expect a robust plan as part of their total benefits package. So businesses looking to establish a retirement plan for their employees should carefully consider which 401(k) plan provider fits their needs in terms of cost, service and investment funds, among other factors.

Here are the best 401(k) plans by provider and some key facts about each.

Best 401(k) plans

  • Merrill Edge 401(k)

Vanguard 401(k)

Fidelity investments 401(k).

  • Betterment for Business 401(k)

Charles Schwab 401(k)

Methodology.

Bankrate selected its top 401(k) providers based on the following criteria:

  • Types of available plans
  • Customer support
  • Investment funds
  • Education and advice

Merrill Small Business 401(k)

Merrill offers a 401(k) plan with low one-time fees and low ongoing fees for the company. Fees for employees are higher, however, with both a flat administrative fee and a fee based on assets under management, so it grows as the portfolio grows. But that fee does buy something extra, including portfolios managed by a third party management firm and access to advisors, even in person at parent Bank of America. Plus, a benefit of a 401(k) here is that employees may already be customers of the bank, letting them keep their finances under one roof.

  • Costs to company: $390 setup fee, then $90 per month
  • Costs to employees: 0.52 percent of assets annually, $4 per month administrative fee

One of the biggest advantages of going with a Vanguard 401(k) is that you’re working with a leader in low-cost investing, especially when it comes to its in-house funds. Not only will a 401(k) have access to all Vanguard’s low-cost funds, but it can access up to 12,000 other funds, if your plan has at least $2 million in assets. Vanguard also offers the option to let employees self-direct their portfolio, giving them full flexibility in what they invest in – perfect for experienced investors – and even allows them to invest in company stock.

  • Cost to company: Fees vary
  • Costs to employees: Fees vary

Fidelity is a great pick for a 401(k) because of its robust investment options and strong advisory and administrative support. Fidelity can offer literally thousands of mutual funds to participants, and advisors can help companies craft a plan that works for them. Higher employee costs help pay for that strong customer and advisor support, and employees also have access to their accounts at any time via a comprehensive dashboard that lets them adjust their investment choices and deductions at any time. With a 401(k) at a powerhouse financial institution like Fidelity, employees may have other accounts they can consolidate, making things a bit simpler.

  • Cost to company: $500 set-up fee and $300 per quarter
  • Costs to employees: $25 per quarter and 0.125 percent of assets quarterly (0.5 percent annualized)

One of the biggest advantages ADP may offer employers is an easy-to-implement 401(k) plan that can quickly integrate with the company’s other offerings, such as payroll processing. ADP offers three 401(k) service tiers for companies of various sizes, including automatic enrollment and fiduciary advisors starting with the entry-level tier. The plan provides access to more than 13,000 funds, giving you plenty of investment options. ADP may be a good pick if your company already receives service here or is thinking about moving your business here.

  • Cost to company: $150 monthly fee plus $4 per employee plus 0.1 percent month for assets under management (subject to a minimum of $20.83 per month)

Betterment at Work 401(k)

Robo-advisor Betterment offers three tiers of service at various price points. Participants have access to a variety of curated portfolios, including a core portfolio as well as a social impact portfolio, though more adept investors can adjust portfolio weights as they like, and fees are reasonable. Betterment lets you add financial coaching to its mid-tier package, while it’s a standard feature on the high-end offering. You can also set up automatic enrollment for employees as well as profit-sharing, giving you flexibility in employer contributions.

  • Cost to company: $500 one-time setup, then $1,200 (Essential), $1,800 (Pro) or $3,500 (Flagship) annually plus $5-$8 per employee per month
  • Costs to employees: 0.25 percent of assets under management, or the employer can pay

Charles Schwab has long been known as one of the most investor-friendly outfits, and for its 401(k) it offers a managed portfolio for plan participants, providing personalized investment advice and support for sponsors. Schwab can automatically enroll employees and can set up matching contributions if your company intends to offer them. Support is always a strong suit at Schwab, too, meaning your employees can reach someone knowledgeable quickly.

How does a 401(k) work?

Along with Social Security , a 401(k) can form a cornerstone in your retirement savings strategy. Here’s how a 401(k) works and the key things to know about it.

A 401(k) is a tax-advantaged retirement plan offered by employers that allows employees to contribute and invest a portion of their salary. Contributions are automatically deducted from an employee’s paycheck and can then be invested in potentially high-return investments such as index funds. This setup makes it easy for employees to save without having to think about it.

Many companies match contributions made by their employees, up to a certain percentage of their salaries, often 4 or 5 percent. The 401(k) match is one of the key benefits of the plan, and can supercharge employees’ ability to accumulate money for retirement.

The 401(k) plan has two varieties: the traditional 401(k) and the Roth 401(k).

A 401(k) has a maximum annual contribution amount, which is $23,000 in 2024. Those age 50 and older can make a “catch-up” contribution of up to $7,500. Matching contributions from an employer do not count toward this annual limit.

How to choose a 401(k) provider

Choosing a 401(k) provider depends on a variety of factors, but most crucially on what features your company wants to provide to employees as well as how much it’s willing to pay for them.

  • Cost: What will the company have to pay for the plan? What will employees have to pay for the plan, if anything?
  • Investment options: What investment funds does the plan offer? What do they cost and are they expensive relative to other options? Can employees buy individual stocks? Are target-date funds available?
  • Advice and guidance: Does the 401(k) provider offer any advice or guidance for participants? Does it offer the option to have the account managed for you?
  • Customer support: Does the provider offer strong customer support for participants who have questions about the program and how it works?
  • Other features: Can you take a loan against your account balance, and at what rates? Will the plan automatically increase your contribution each year? Does the provider offer a Roth 401(k) option? Does the plan offer in-service rollovers?

Other types of retirement plans

While the 401(k) is the most common type of retirement plan, it’s a better fit for somewhat larger businesses, given the expenses and other administrative burdens of the 401(k). But small businesses, including sole proprietors, have other types of retirement plans that were designed specifically for smaller companies and can be easier to manage and administer.

These plans are among the best retirement plans on offer.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

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What Is a Solo 401(k)?

How the solo 401(k) works.

  • Who Is Eligible?

How to Set Up a Solo 401(k) Plan

  • Eligibility Requirements
  • Contribution Limits

Other 401(k) Plans

Contributions example, other benefits of a solo 401(k), the bottom line.

  • Retirement Planning

A 401(k) Plan for the Small Business Owner

The solo 401(k) plan is worth a look

best 401k plan for small business

Roger Wohlner is an experienced financial writer, ghostwriter, and advisor with 20 years of experience in the industry.

best 401k plan for small business

The 401(k) plan has gained popularity among small business owners ever since 2001 when some changes to federal tax law made it a better and more flexible choice for their needs compared with some other retirement savings options. These 401(k) plans are known as solo 401(k) or self-employed 401(k) plans.

Key Takeaways

  • A solo 401(k) plan—also called a self-employed 401(k)—is for businesses whose only eligible participants in the plan are its owners (and spouses).
  • These plans are often less complicated and cost less to set up.
  • If you have non-owner employees, they must not meet the eligibility requirements you select for the plan.
  • There are two components to a solo 401(k) plan: employee elective-deferral contributions and profit-sharing contributions.
  • A solo 401(k)s may also offer loans, doesn’t require nondiscrimination testing, and allows for the deduction of plan contributions of up to 25% of eligible compensation.

Solo 401(k)s are a retirement savings option for small businesses whose only eligible participants in the plan are the business owners (and their spouses if they are also employed by the business). It can be a smart way for someone who is a sole proprietor or an independent contractor to set aside a decent-sized nest egg for retirement.

Not content with the federal acronym, various financial institutions have their own names for the solo 401(k) plan. The independent 401(k) is one of the most generic. Other examples include:

  • The Individual(k)
  • Solo 401(k) or Solo-k
  • One-Participant k
  • Self-Employed 401(k)

If you are not sure which name your financial service provider uses, ask about the 401(k) plan for small business owners. The IRS provides a handy primer on such plans.

Who Is Eligible for Solo 401(k) Plans?

A common misconception about the solo 401(k) is that it can be used only by sole proprietors. In fact, the solo 401(k) plan may be used by any small businesses, including corporations, limited liability companies (LLCs), and partnerships. The only limitation is that the only eligible plan participants are the business owners and their spouses, provided they are employed by the business.

A person who works for one company (in which they have no ownership) and participates in its 401(k) can also establish a solo 401(k) for a small business they run on the side, funding it with earnings from that venture. However, the aggregate annual contributions to both plans cannot collectively exceed the Internal Revenue Service (IRS)-established maximums.

For small business owners who meet certain requirements, most financial institutions that offer retirement plan products have developed truncated versions of the regular 401(k) plan for use by business owners who want to adopt the solo 401(k).

As a result, less complex documentation is needed to establish the plan. Fees may also be relatively low. Make sure to receive the proper documentation from your financial services provider.

As noted above, the solo 401(k) plan may be adopted only by businesses in which the only employees eligible to participate in the plan are the business owners and eligible spouses. For eligibility purposes, a spouse is considered an owner of the business, so if a spouse is employed by the business, you are still eligible to adopt the solo 401(k).

If your business has non-owner employees who are eligible to participate in the plan, your business may not adopt the solo 401(k) plan. Therefore, if you have non-owner employees, they must not meet the eligibility requirements you select for the plan, which must remain within the following limitations.

You may exclude nonresident aliens from a solo 401(k) who receive no U.S. income and those who receive benefits under a collective-bargaining agreement.

Solo 401(k) Eligibility Requirements

Setting the wrong eligibility requirements could result in you being excluded from the plan or non-owner employees being eligible to participate in the plan.

For example, say you elect zero years of service as a requirement to participate, but you have five seasonal employees who work fewer than 1,000 hours each year. These employees would be eligible to participate in the plan because they meet the age and service requirements. Consequently, their eligibility would disqualify your business from being suitable to adopt the solo 401(k) plan. Instead, you could adopt a regular 401(k) plan.

Some solo 401(k) products, by definition, require further exclusions. Before you decide to establish a solo 401(k) plan, be sure to check with your financial services provider regarding its provisions.

Contribution Requirements

For 401(k) employee elective-deferral contributions you may require an employee to perform one year of service before becoming eligible to make elective-deferral contributions .

For profit-sharing contributions, you may require an employee to perform up to two years of service in order to be eligible to receive  profit-sharing contributions. However, most solo 401(k) plans will limit this requirement to one year.

For plan purposes, an employee is considered to have performed one year of service if they work at least 1,000 hours during the year. While you may generally choose to require fewer than 1,000 hours under a regular qualified plan, most solo 401(k) plans include a hard-coded limit of 1,000 hours.

Solo 401(k) Contribution Limits

There are two components to the solo 401(k) plan: employee elective-deferral contributions and profit-sharing contributions.

Employee Contribution Limits

You may make a salary-deferral contribution of up to 100% of your compensation but no more than the annual limit for the year. For 2023, the limit is $22,500 (increasing to $23,000 for 2024), plus $7,500 for people age 50 or over for both years.

Employer Contribution Limits

The business may contribute up to 25% of your compensation (calculations are required in the case of the self-employed) but no more than $66,000 for 2023 ($69,000 for 2024). An employee aged 50 or above can still contribute an additional $7,500 for 2023 and 2024.

In comparison with other popular retirement plans, the solo 401(k) plan has high contribution limits as outlined above, which is the key component that attracts owners of small businesses. Some other retirement plans also limit the contributions by employers or set lower limits on salary-deferred contributions.

The following is a summary of contribution comparisons for the employer plans generally used by small businesses.

As mentioned earlier, you may make employee elective-deferral contributions of up to 100% of your compensation but no more than the elective-deferral limit for the year. Profit-sharing contributions are limited to 25% of your compensation (or 20% of your modified net profit if your business is a sole proprietorship or partnership).

The total solo 401(k) contribution is the employee elective-deferral contribution plus the profit-sharing contribution—up to $66,000 for 2023 and 69,000 for 2024.

If your business is a corporation, the profit-sharing contribution is based on the W-2 wages you receive. If you receive $70,000 in W-2 wages, for instance, your profit-sharing contribution could be up to $17,500 ($70,000 x 25%). When added to a salary-deferral contribution of $19,000, the total would be $36,500.

If your business is a sole proprietorship or partnership, the calculation gets a little more involved. In this case, your profit-sharing contribution is based on your modified net profit and is limited to 20%. The IRS provides a step-by-step formula for determining your modified net profit in IRS Publication 560.

There are a number of other benefits that come with the Solo 401(k).

As with other qualified plans, you may be able to borrow from the solo 401(k) up to (1) the greater of $10,000 or 50% of the balance or (2) $50,000, whichever is less. Check the plan document to determine if any other limitations apply.  

5500 Filing May Not Be Required

Because the plan covers only the business owner, you may not be required to file Form 5500 series return unless your balance exceeds $250,000.

No Nondiscrimination Testing

Generally, certain nondiscrimination testing must be performed for 401(k) plans. These tests ensure that the business owners and higher-paid employees do not receive an inequitably high amount of contribution when compared with lower-paid employees.

Such tests can be very complex and may require the services of an experienced plan administrator , which can be costly. Because the solo 401(k) plan covers only the business owner, there is no one against whom you can discriminate, so these tests are not required.

Deducting Contributions

Similar to other employer plans, the solo 401(k) allows you to deduct plan contributions of up to 25% of eligible compensation. For plan purposes, compensation is limited to $330,000 in 2023 and $345,000 in 2024. Earnings over that amount are disregarded for plan purposes.

Can I Have a 401(k) for My LLC?

Yes, any business is able to set up a 401(k). If you are self-employed, you can create a solo 401(k) as a limited liability company (LLC)—assuming you meet all the other eligibility requirements.

What Is the Minimum Number of Employees Needed for a 401(k)?

A business of any size can offer a 401(k) plan. A solo 401(k) is for business owners with no employees.

How Much Can a Small Business Owner Contribute to a 401(k)?

The maximum contribution for a small business owner to a 401(k) for 2023 is $66,000 ($73,500 if you’re 50 or older)—which includes contributions as the employee and employer. For 2024, the contribution limit is $69,000, and $76,500 if you are 50 or older.

If you own more than one business, you must check with your tax professional to determine whether you are eligible to adopt the solo 401(k) . Ownership in another business that covers employees other than the business owner could result in your being ineligible for this type of plan.

Internal Revenue Service. " One-Participant 401(k) Plans ."

Internal Revenue Service. " Retirement Plans for Self-Employed People ."

Internal Revenue Service. " Tax Guide for Small Business (For Individuals Who Use Schedule C) .” Pages 2-3.

Internal Revenue Service. " Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits ."

Internal Revenue Service. “ Election for Married Couples Unincorporated Businesses .”

Internal Revenue Service. “ 401(k) Plan Fix-It Guide - Eligible Employees Weren't Given the Opportunity to Make an Elective Deferral Election (Excluding Eligible Employees) .”

Internal Revenue Service. “ A Guide to Common Qualified Plan Requirements .”

Internal Revenue Service. “ 401(k) Plan Qualification Requirements .”

Internal Revenue Service. " 401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000 ."

Internal Revenue Service. " 2024 Limitations Adjusted as Provided in Section 415(d), etc ." Page 1.

Internal Revenue Service. " 2024 Limitations Adjusted as Provided in Section 415(d), etc ." Page 2.

Internal Revenue Service. “ Retirement Topics - SIMPLE IRA Contribution Limits .”

Internal Revenue Service. " Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) .” Page 6.

Internal Revenue Service. " Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) .” Page 12.

Internal Revenue Service. " Publication 560: Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) .” Page 23.

Internal Revenue Service. " Retirement Plans FAQs Regarding Loans ." Select "4. Under What Circumstances Can a Loan Be Taken From a Qualified Plan?"

Internal Revenue Service. " 401(k) Plan Fix-It Guide - The Plan Failed the 401(k) ADP and ACP Nondiscrimination Tests ."

Internal Revenue Service. " 401(k) Plan Overview ."

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  • SEP IRA vs. Solo 401(k): Which Is Better for Business Owners? 18 of 18

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401(k) for Small Business Owners: The Comprehensive Guide

Last Updated: October 13, 2023 | Read Time: 14 min

One-Minute Takeaway

  • A 401(k) plan offers employees a tax-advantaged way to save for retirement, often with employer matching contributions.
  • Small business owners can elect to self-administer or use a financial adviser to manage their 401(k) plan.
  • Self-administration involves a lot of record-keeping and compliance management.

As a small business owner, you have your hands full, juggling roles that range from daily operations manager to long-term strategy architect. But have you ever considered adding the role of “Retirement Benefits Planner” to your list? Offering a 401(k) plan not only provides your employees with a way to save for retirement but also helps you enhance your business’s competitiveness and employee retention. This comprehensive guide aims to unpack everything you need to know about administering a small business 401(k) plan.

What Is a Small Business 401(k) Plan and Why Should You Offer One?

A 401(k) is an employer-sponsored retirement savings plan that enables your employees to set aside a portion of their pre-tax earnings for retirement. You, as the employer, can match these contributions, boosting the size of your employees’ retirement savings.

  • Tax Benefits for Small Business Owners . Not only are the contributions you make to your employees’ accounts tax-deductible, but you may also be eligible for a tax credit for the costs to set up and administer the plan. New tax incentives have made it even more financially advantageous for small businesses to set up 401(k) plans.
  • Employee Retention and Competitive Compensation . In today’s competitive labor market, offering a robust 401(k) plan can set you apart, making your business a magnet for high-quality candidates. Studies have shown that retirement benefits are among the top considerations for job seekers.
  • Personal Savings for Business Owners . It’s easy to overlook your own retirement while handling the day-to-day challenges of running a business. A 401(k) plan enables you to invest in your future by making contributions that are tax-deferred until withdrawal, building your own nest egg.
  • Tax Benefits for Employees. Employees gain the ability to save for retirement in a tax-efficient manner. Pre-tax deductions reduce their current taxable income. An employer match serves as an additional financial incentive for employee participation. Offering a retirement plan can also improve financial wellness across the company, which is known to reduce stress and increase productivity.

Setting up a 401(k) for Small Business: Step-By-Step

Choosing the right 401(k) plan requires thorough analysis and expert guidance. A certified financial advisor can evaluate your business’s financial health, provide tailored advice, and help you navigate the complex landscape of 401(k) plans. In a nutshell, we’ll cover the main points you’ll need to consider if you want to self-manage your plan.

Determine Which 401(k) Plan You Want to Offer

Understanding the distinct types of 401(k) plans is crucial for selecting the one that’s the perfect fit for your business.

  • Traditional 401(k) : This option offers high contribution limits and flexible employer contributions but requires annual testing to ensure compliance.
  • Safe Harbor 401(k) : This is an excellent choice for small businesses looking for a plan that’s easier to manage in terms of compliance. Mandatory employer contributions may be a drawback for you, but it can help you attract and retain employees.
  • SIMPLE 401(k) : Specifically designed for small businesses with fewer than 100 employees, this plan type has lower contribution limits but also fewer administrative burdens.

Plan Administration

Administering a 401(k) plan involves several tasks, from ensuring compliance with federal regulations to educating employees about their investment options. Hiring a plan administrator instead of self-managing your plan is often an excellent investment.

  • Self-Administration:  If you opt to administer the plan yourself, you’ll be responsible for record-keeping, compliance with federal regulations, employee education, and ensuring timely contributions and distributions.
  • Outsourcing:  Contracting a specialized plan administrator can lift the burden of these duties, allowing you to focus on running your business.

Whether you self-administer or outsource, remember that you hold a fiduciary responsibility to act in the best interests of your employees by ensuring the plan’s effective management.

The Nuts and Bolts of Self-Administering a 401(k) Plan

If you opt to self-administer your small business 401(k) plan, the responsibility for compliance, record-keeping, and a slew of other administrative tasks falls squarely on your shoulders. This route can be cost-effective but also incredibly labor-intensive, with a range of compliance intricacies. Below is a deeper dive into what you need to know.

  • Record-Keeping. One of your key responsibilities as a self-administering employer is to maintain accurate records. This includes tracking employee contributions, employer matches, investment gains or losses, and distributions. Failure to maintain these records can result in severe penalties from the IRS and the Department of Labor (DOL).
  • Employee Notifications and Education. Federal law mandates that you furnish employees with certain disclosures:
  • Summary Plan Description (SPD):  This document outlines the benefits, rights, and obligations of participants in simple language.
  • Summary Annual Report (SAR):  A yearly financial summary of the 401(k) plan.
  • Individual Benefit Statements: Quarterly or annual statements that detail the individual employee’s account activity.

Additionally, consider organizing informational sessions to help employees understand the nuances of their 401(k) investment choices and how to make changes to their contributions.

  • Timely Contributions. The law stipulates that you must deposit employee contributions “as soon as they can be segregated from the employer’s assets, but no later than the 15 th business day of the month following the payday.” Delayed deposits can result in penalties.
  • Regular Testing. Certain compliance tests ensure that the benefits of your 401(k) plan are not disproportionately skewed towards higher-income employees:
  • ADP and ACP Tests:  Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests measure the fairness of deferrals and contributions among different groups of employees.
  • Top-Heavy Test:  This test evaluates if key employees own more than 60% of plan assets.

If your plan fails these tests, you’ll need to take corrective actions like refunding excess contributions to higher-earning employees or making additional contributions for lower-earning employees.

Compliance Watch-Outs

As with most things HR and payroll, you’ll need to keep a close eye on a few things:

  • Non-Discrimination Rules. As we mentioned previously, you need to be aware of the regulations that ensure your 401(k) plan does not discriminate in favor of highly compensated employees or owners.
  • Investment Oversight. You’re responsible for the selection and monitoring of investment options. Poor choices or excessive fees can lead to legal consequences under your fiduciary duties.
  • Form 5500. You’ll need to file Form 5500 every year to report financial conditions, investments, and operations. Failure to file or late filing can result in steep fines from both the IRS and DOL.
  • Fiduciary Responsibilities. The Employee Retirement Income Security Act (ERISA) imposes fiduciary duties on plan administrators. You must act solely in the interest of the plan participants and their beneficiaries. Failing to do so can open the door to lawsuits and regulatory actions.
  • Required Minimum Distributions (RMDs). As plan administrator, you’re responsible for initiating required minimum distributions for all 401(k) account holders starting at age 72. Failing to do this can result in a tax penalty of 50% of the amount not distributed as required.
  • Plan Audits. If your plan has 100 or more participants, an annual audit by a qualified independent accountant is generally required. Failing to meet audit requirements can lead to plan disqualification.

By giving due attention to these factors, self-administering a 401(k) can be a rewarding endeavor that adds substantial value to both your business and your employees. However, given the complexities and risks involved, you may want to consult regularly with a tax advisor or a certified financial planner specialized in retirement benefits.

Contribution Limits and Rules

Employee Contributions

  • Annual Contribution Limits : The annual limit is subject to periodic updates by the IRS. For 2023, the limit is $22,500 or $30,000 if the employee is 50 or older.
  • Catch-Up Contributions : Employees over 50 can make additional contributions, which for 2023 is set at $7,500.

Employer Contributions

  • Annual Employer Match Limits : Total combined 401(k) plan contributions by the employee and employer can’t exceed $66,000 ($73,500 for employees who are 50 or older). Total contributions can’t exceed 100% of an employee’s annual compensation.

Employer Matching and Vesting

Employer matching is highly flexible. You can set a flat rate or tier it based on employee salary or years of service. The key is to find a balance that motivates employee participation without straining your finances.

There are generally two types of vesting schedules:

  • Cliff Vesting : Employees become fully vested after a specific number of months or years.
  • Graded Vesting : Employees gradually become vested over time.

Investment Options

A well-structured 401(k) plan offers a range of investment options to suit different risk profiles and financial goals. The most common are mutual funds, although plans can offer everything from individual stocks and bonds, to target date funds, to real estate investment trusts (REITs).

Costs of Administration

The costs of 401(k) plan administration can vary widely depending on the plan type, the provider, and the range of services offered. While some plans charge a flat fee, others may charge a percentage of plan assets.

  • Setup Fees : Initial costs can range from $1,000 to $5,000.
  • Ongoing Fees : Expect to pay around 0.5% to 2% of the total plan assets annually.

Disclosing to Employees

It’s essential to educate your employees about their new retirement plan. Workshops, webinars, and one-on-one meetings are useful methods to communicate the ins and outs of their 401(k) options.

Implementing a 401(k) for small business is a win-win. It enables you to offer competitive compensation and flexible work arrangements, while also setting both you and your employees on a path towards financial security in retirement. With careful planning and ongoing administration, a 401(k) can be more than just an employee benefit; it can be a cornerstone of your business’s long-term success.

How Paycor Helps

Secure your employees’ futures with a tailored small business 401(k) plan , while ensuring their well-being. Paycor’s benefits solutions makes the process more manageable by reducing administrative work and mitigating compliance risk.

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SE 401(k) : Self-employed individual or business owner with no employees other than a spouse.

SEP IRA : Self-employed individual or small business owner, primarily those with only a few employees. 1

Fidelity Advantage 401(k) : Small and medium- sized businesses looking to offer a 401(k) for the first time.

SIMPLE IRA : Self-employed individuals or businesses with 100 or fewer employees.

How do contributions work?

SE 401(k) : Employers may contribute up to 25% of compensation, up to a maximum of $69,000 in 2024 ($76,500 if age 50 or older).⁵ Employees may contribute up to $23,000 for 2024 ($30,500 if age 50 or older).⁵

SEP IRA : Employers may contribute between 0% and 25% of compensation up to a maximum of $69,000 for 2024.⁵ Each eligible employee must receive the same percentage.

Fidelity Advantage 401(k) : Employers make matching contributions, up to 4% of the annual gross compensation of all employees.⁴ Employees may contribute up to $23,000 for 2024 (catch up contributions available).⁵

SIMPLE IRA : Employers contribute either a matching contribution of 1, 2, or 3% or a non-elective contribution of 2%. 7 Participants may contribute up to 100% of compensation with a maximum of $16,000 for 2024 ($19,500 if age 50 or older). 8

Who can contribute?

SE 401(k) : As someone who's self-employed, you can contribute as both employer and employee.

SEP IRA : Only the employer can contribute.

Fidelity Advantage 401(k) : Both employees and employers can contribute.

SIMPLE IRA : Both employees and employers can contribute.

What about fees and tax credits?

SE 401(k) : There are no account fees and no minimum to open an account, $0 commission for online US stocks and ETF trades.⁶

SEP IRA : There are no account fees and no minimum to open an account. $0 commission for online US stocks and ETF trades.⁶

Fidelity Advantage 401(k) : There are no additional management fees or, with limited exceptions, fund expenses beyond the $300 per quarter fee.

SIMPLE IRA : There are no account fees and no minimum to open an account, $0 commission for online US stocks and ETF trades.⁶

When can withdrawals be made?

SE 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59 ½ or older, and a few others. However, some withdrawals may incur a 10% penalty. 4

SEP IRA : You can withdraw at any time, but a 10% penalty may apply if you're not yet age 59½. 4

Fidelity Advantage 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59½ or older, and a few others.⁴ However, some withdrawals may incur a 10% penalty. In the event of certain types of financial emergencies, you may be able to take a hardship withdrawal.

SIMPLE IRA : You can withdraw at any time, but a 10% (or 25% if within the first two years of participation) penalty may apply if you're not yet age 59½. 4

Important Information Virtual Assistant is Fidelity’s automated natural language search engine to help you find information on the Fidelity.com site. As with any search engine, we ask that you not input personal or account information. Information that you input is not stored or reviewed for any purpose other than to provide search results. Responses provided by the virtual assistant are to help you navigate Fidelity.com and, as with any Internet search engine, you should review the results carefully. Fidelity does not guarantee accuracy of results or suitability of information provided.   Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.   Fidelity does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation.  Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917  796549.1.0

Financing | Buyer's Guide

8 Best 401(k) Companies

Published July 29, 2022

Published Jul 29, 2022

Matthew Sexton

WRITTEN BY: Matthew Sexton

When looking to grow a small business, it’s critical to offer retirement benefits for your employees so that they can save for the future. A 401(k) plan allows you and your workforce to save up to $61,000 annually through tax-free salary deferrals, employer matching, and profit sharing. Choosing the best 401(k) provider largely depends on the level of plan management needed, the costs and fees involved, the customer service required, and the investment options available.

Based on our evaluation, here are the eight best 401(k) companies:

  • ShareBuilder 401k : Best overall for digital-only low-cost 401(k) plans
  • Merrill Edge : Best for simple pricing and full-service business banking
  • Wells Fargo : Best traditional 401(k) provider with a highly-customizable plan
  • Guideline : Best for multiple 401(k) options and regulatory compliance assistance
  • Vanguard : Best for companies seeking the widest range of low-cost mutual funds
  • Fidelity : Best for owners looking for low-maintenance target date funds
  • Charles Schwab : Best for investors who want low to no fees on various trades
  • Employee Fiduciary : Best for small businesses looking for personalized service from dedicated account managers

Best 401(k) Companies At a Glance

*Setup fees may vary by location, business type, and plan type. The value listed here is the most typical setup fee cost. Visit the provider websites for more specific pricing information.

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ShareBuilder 401k: Best Overall for Digital-only Low-cost 401(k) Plans

ShareBuilder 401K logo.

  • Investment Options
  • Setup & Plan Details

ShareBuilder 401k offers specific types of managed portfolios that include:

  • Index exchange-traded funds (ETFs)
  • Money market
  • Model portfolios

ShareBuilder 401k offers 401(k) plans for businesses with as few as one employee to corporations with hundreds of workers. This is ideal for a business that might be growing shortly. ShareBuilder 401k focuses on the following:

  • Plan administration
  • Investment platform
  • Mobile and web access
  • Online enrollment, videos, and retirement calculators
  • Roth 401(k) option
  • Auto rebalancing
  • Customer service available 9 a.m. to 8 p.m. Eastern time, Monday to Friday

ShareBuilder 401k offers four tiers of plans for businesses of all sizes:

  • Solo 401(k): Self-employed, owner-only, and spouses contributing more than $6,000 per year
  • Safe Harbor 401(k): Owners and highly compensated employees can contribute to the plan without restrictions
  • Traditional 401(k): Businesses wanting flexibility in matching or not, vesting schedules, and employee eligibility
  • Tiered profit-sharing 401(k): Rewarding employees by group, tenure, or age

ShareBuilder 401k is our choice for the best overall 401(k) company due to its low-cost, digital-only retirement plans, making it easy for businesses of all sizes and locations to open an account. Whether you have just one employee or a whole corporation, it has a plan that can meet your needs.

It offers four different 401(k) plans: Solo 401(k), Safe Harbor 401(k), Traditional 401(k), and Tiered Profit-sharing 401(k). Administration fees start as low as $25 for Solo 401(k) plans and $190 for Tiered Profit-sharing plans. ShareBuilder 401k is an excellent option for small businesses looking to get started with 401(k) as they grow.

Its offerings include the lowest-cost, best-in-class investment options available. With it, small business owners can set up a plan online for a flat fee and start investing immediately.

The company’s customer service can be reached via the toll-free phone number from 9 a.m. to 8 p.m. Eastern time Monday through Friday or via email.

Merrill Edge: Best for Simple Pricing & Full-service Business Banking

Merrill Edge, solo 401k providers

Merrill Edge offers investors a host of investment options, many from the premium Merrill Lynch parent name, including:

  • Mutual funds
  • Target date funds

Merrill Edge is predominantly a discount brokerage arm and trading platform. As a 401(k) provider, Merrill handles many services seamlessly, including:

  • Recordkeeping
  • Account reporting

It offers the following types of retirement accounts:

  • Individual 401(k)
  • Small business 401(k)

While Merrill is not a payroll provider, it does make it easy to coordinate contributions to your plan by setting up automatic contributions for employees as well as cash sweeps for employer matching and any profit sharing.

Merrill Edge is another company that provides excellent 401(k) plans with a full-service business banking experience through its Bank of America partnership. Bank of America, one of our best banks for small business , offers one of the best small business checking accounts on the market. So, if you’re looking for excellent business banking to go with your investment services, the Merrill Edge–Bank of America partnership can be a one-stop shop for all your needs.

Merrill Edge provides straightforward, up-front pricing, with a one-time setup fee of $390 and a monthly administration fee of $90. It offers 401(k) plans, including individual 401(k), small business 401(k), and several IRA plans, including SEP and SIMPLE. Its customer service is available by phone from 8 a.m. to 5 p.m. Central time Monday through Friday or in Merrill Edge and Bank of America branch locations.

It’s a great online companion to Merrill Lynch, which typically caters to high-income investors. Through Merrill Edge, you can open smaller accounts that are more cost-effective and widely available than Merrill Lynch provides, yet those accounts are still outstanding retirement products.

Wells Fargo: Best Traditional 401(k) Provider With a Highly Customizable Plan

Wells Fargo logo.

Wells Fargo provides a host of in-house and independent investment options for 401(k) clients, including:

In a 401(k) plan, Wells Fargo can help with the following:

  • Cash management
  • Trading platform
  • Investment advice
  • Proprietary investment options

If you’re looking for a Traditional 401(k) provider with a wide range of plan options, physical locations, and a full range of banking products, Wells Fargo is an excellent choice. It offers a full range of 401(k) investment options and services. Fees aren’t readily available on the company’s website but, generally, they’re in line with other national providers.

In addition to the 401(k) products, Wells Fargo offers business banking and commercial lending options. It has business checking and savings accounts, credit cards, merchant services, payroll services, and other business resources.

If you need commercial lending products, you can get several types of small business loans through Wells Fargo, including business lines of credit, Small Business Administration (SBA) loans, commercial real estate loans, and healthcare practice financing, among others.

It also has 4,900 retail banking branches in 36 states and online access and customer service. The company’s toll-free customer service line is available 24 hours a day, seven days a week.

Guideline: Best for Multiple 401(k) Options & Regulatory Compliance Assistance

Guideline logo that links to Guideline homepage.

  • Setup Costs

Guideline offers employees two options for investing, so every 401(k) plan participant can find investments that suit their needs. There are two investment methods with Guideline:

  • Index funds
  • Managed portfolios

Guideline offers three tiers:

  • The entry-level Core
  • The midlevel Flex
  • The high-level Max

All three plans provide a full array of features for businesses, including:

  • Assistance with regulatory compliance
  • Robust account management features
  • Payroll integrations with popular software

Flex also gives you the flexibility to open a Safe Harbor 401(k) or Traditional 401(k), adds features like profit sharing and vesting schedules, and conducts IRS nondiscrimination tests.

Max includes all benefits of the other two plans, plus comparability profit sharing, a dedicated onboarding specialist and client relationship manager, and support for controlled group plans.

With three available plans to meet the varied needs of different sized businesses, Guideline provides multiple 401(k) options for your company. Its base-level option, the Core plan, offers payroll integration and automated recordkeeping. It allows Guideline to act as your 3(38) and 3(16) fiduciary and handle specific IRS and United States Department of Labor (DOL) reporting and filings.

The mid-tier plan, Flex, offers all of Core’s benefits and allows you to open either a safe harbor 401(k) or traditional 401(k) plan. You also get profit sharing and vesting schedules, and Guideline assists you by conducting IRS nondiscrimination testing for traditional plans.

The top-tier option, Max, gives you the benefits of the two previous plans plus custom features like comparability profit sharing, a dedicated onboarding specialist and client relationship manager, and support for controlled group plans.

Guideline offers email and phone support, and its service can be reached by phone from 6 a.m. to 4 p.m. Pacific time Monday through Friday. It’s a great option for multiple plans with low-cost funds, excellent customer service, and simple management.

Vanguard: Best for Companies Seeking the Widest Range of Low-cost Mutual Funds

Vanguard logo.

Vanguard’s primary role in the 401(k) industry is providing well-managed investment options, including:

  • Equity funds
  • Targeted-date funds
  • International funds
  • Money market funds

Vanguard is not a plan administrator. It offers relatively easy integration with banks and payroll service providers when used through an administrator platform.

This provider offers access to the following types of retirement accounts:

  • Small plan 401(k)

As a company with five of the top six largest mutual funds globally in 2021, Vanguard is a popular choice for a 401(k) provider. Its largest fund, Vanguard Total Stock Market Index Fund, had more than $1.3 trillion in funds. This was approximately four times larger than its nearest competitor, Fidelity 500.

Vanguard offers access to several types of 401(k) and IRA plans, including an individual 401(k) plan that’s our choice for the best solo 401(k) plan on the market. It also has a small plan 401(k), in addition to SEP-IRA and SIMPLE IRA plans.

This provider offers simple, straightforward plans with options to meet the needs of businesses of all sizes. You can contact Vanguard through a toll-free phone number or its company website to start the process.

Fidelity: Best for Owners Looking for Low-maintenance Target Date Funds

Fidelity logo that links to Fidelity homepage.

Fidelity makes an array of in-house and independent investment options available to 401(k) clients, including:

As a full-service financial firm, Fidelity offers a host of different financial services. In addition to its line of mutual funds, trading platform, and banking services, Fidelity offers several services specific to 401(k)s, including:

It also has four types of retirement accounts:

  • Self-Employed 401(k)
  • Fidelity Advantage 401(k)
  • SIMPLE 401(k)

Fidelity is another large mutual funds provider offering securities brokerage services and business and personal banking, including credit cards and business loans. It’s the best target date funds provider for 401(k)s because of the 14 Freedom Funds plans the company offers. They have targeted retirement dates in five-year increments ranging from 2025 to 2065. The funds adjust automatically as the targeted retirement date gets closer.

Small business owners can access 401(k) plan administration and recordkeeping services, a full trading platform, investment advisory services, and personal and business banking. Many of these services come from different business units but can all be provided by Fidelity as a full-service firm.

You can reach the company through online chat, available Monday through Friday from 8 a.m. to 10 p.m. Eastern and 9 a.m. to 4 p.m. ET Saturday and Sunday. An automated virtual assistant and a toll-free phone number are also available 24/7. You can also stop by one of more than 200 investor centers available across the country.

Charles Schwab: Best for Investors Who Want Low to No Fees on Various Trades

Charles Schwab

Charles Schwab provides a wide array of investment options for retirement plan customers, including:

  • Fixed income investments

It also provides the option for managed accounts, which enables plan participants to get personalized advice on asset allocation based on their contribution rate, age, account balance, salary, and employer contribution formulas.

When establishing a Schwab 401(k) plan for your business, you will get a customizable plan designed to meet your organization’s and employees’ needs. The primary 401(k) services Schwab offers include:

  • Plan design and administration
  • Consultation in Employee Retirement Income Security Act of 1974 (ERISA) compliance
  • Plan analytics

It offers the following retirement plans:

  • Personal Defined Benefit Plan
  • Business 401(k)
  • Company Retirement Account

Charles Schwab offers a full-service 401(k) plan customized to your company with zero dollar trading fee, making it an excellent option for a low-fee provider and 401(k) owners wanting to trade stocks or bonds in their accounts. You also have the option to add investment advisory services to an existing 401(k).

Because Charles Schwab has a broker-dealer and banking subsidiary, it can provide a full range of financial services. It also offers proprietary mutual funds and ETFs to plan participants and other investment options.

The company offers individual and business 401(k) plans, SEP and SIMPLE IRAs, personally designed benefit plans, and company retirement accounts. It has a plan for your company, regardless of how many employees you have.

You can call a toll-free number to start the process or stop by one of 360 Charles Schwab branches across the United States.

Employee Fiduciary: Best for Small Businesses Looking for Personalized Service

Employee Fiduciary logo that links to Employee Fiduciary homepage.

Employee Fiduciary is one of the 401(k) companies with a seemingly limitless number of options for mutual funds. However, the company does not offer stocks or bonds as an investment option.

Employee Fiduciary 401(k) investment options include:

  • National Securities Clearing Corporation (NSCC)-tradable mutual funds
  • Vanguard funds, index funds, and ETFs

Employee Fiduciary begins providing personalized service from the first day. You’ll receive plan design consultation, training, and support. The primary 401(k) services offered by Employee Fiduciary include:

  • Training and support
  • Regulatory compliance assistance
  • Bookkeeping and recordkeeping services

You can choose two different types of 401(k) plans with Employee Fiduciary:

  • 401(k) plan
  • Solo 401(k) plan

Employee Fiduciary is a 401(k) plan administrator that caters to small businesses of all sizes. Every company that signs up for a 401(k) plan with Employee Fiduciary will go through a plan design consultation to create one that meets the company’s goals and budget. Companies with existing 401(k) plans will also benefit from Employee Fiduciary’s plan conversion services as they move to this new provider.

The company is a bundled 401(k) provider, meaning that it provides all the administration services needed, including asset custody, participant recordkeeping, and third-party administration . On its website, you can compare Employee Fiduciary’s fees to more than 40 other leading 401(k) providers, or you can request a no-cost fee comparison for your current plan.

Employee Fiduciary offers a detailed fee schedule with startup fees and annual base and custodial fees listed on its website. Startup fees range from $250 to $500, with annual fees at $500 or $1,500, plus 0.08% annually in custodial fees.

You can reach the company through a web contact form or by phone at a toll-free number.

How We Evaluated the Best 401(k) Companies

When comparing the best 401(k) companies, we considered:

  • Setup fees charged
  • Annual fees charged
  • Types of retirement accounts available
  • Types of investment funds available
  • Online-only or physical locations available
  • Ease of account setup and management
  • Customer service
  • Customer reviews

Bottom Line

For small business owners looking to add retirement services to their companies, the 401(k) providers listed here can provide you with excellent investment accounts with a wide range of benefits. Whether you’re a sole proprietor or a corporation with hundreds of employees, one of our recommendations will meet your retirement account needs. Compare the providers and their strengths and choose the one that best fits your company’s size and needs.

About the Author

Matthew Sexton

Find Matthew On LinkedIn

Matthew Sexton

Matt Sexton is a banking and finance expert at Fit Small Business, specializing in Business Banking. Since starting at FSB more than two years ago, he has written more than 200 articles reviewing banking and financing providers and buyer’s guides. He holds a bachelor’s degree from Northern Kentucky University and has more than 15 years of finance experience and more than 25 years of journalism experience. He has worked for both small community banks and national banks and mortgage lenders, including Fifth Third Bank, U.S. Bank, and Knock Lending.

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Give your business an edge with competitive retirement benefits

A small business 401(k) is a streamlined and affordable retirement plan designed with small business owners and their employees in mind., small business 401(k) features, to learn more about how a small business 401(k) can benefit you and your business, select any of the links below., discover affordable and straightforward pricing, pricing for your business footnote  6, pricing for individuals with a balance footnote  7, what's a key difference between a small business 401(k) and a simple ira, get started with a small business 401(k) in 3 easy steps, answer a few questions, review your proposal, purchase your plan, explore all plans available for small business, frequently asked questions, what types of businesses can set up a small business 401(k), what are the potential tax benefits of a 401(k), how much can employers contribute annually, how much can employees contribute annually, does my business have to contribute to employee accounts, what is a safe harbor plan, how much does it cost to set up and administer a small business 401(k) for my company, what is the difference between roth and traditional 401(k) contributions.

  • The basic difference between Roth and traditional 401(k) contributions is when taxes are paid out. For Roth contributions, federal taxes are due in the same year you contribute. When you take a qualified withdrawal from your 401(k), earnings gained on top of the Roth contributions you made will be tax free. A qualified withdrawal for Roth contributions is one that is made at least five years after the year of your first designated Roth contribution (counting the first year as part of the five) and is made on or after attainment of age 59½, disability, or death. IRS Retirement topics, Designated Roth Account  popup State income tax laws vary, and we recommend consulting with a tax professional to determine how your state treats Roth distributions from qualified plans (which include 401(k) plans).
  • Traditional 401(k) contributions do not require taxes to be paid at the same time you contribute. For traditional 401(k) contributions, taxes on contributions and earnings are due when withdrawn. Consult with a tax professional to determine further requirements, if any, on your 401(k) withdrawal for traditional 401(k) contributions.

When are contributions fully vested?

What investment choices are offered, can participants withdraw funds or take loans from their 401(k)s, what is the plan establishment deadline, is irs reporting required, when are the plan purchase deadlines.

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The performance data contained herein represents past performance which does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For performance information current to the most recent month end, please contact us.

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Market price returns are based on the prior-day closing market price, which is the average of the midpoint bid-ask prices at 4 p.m. ET. Market price returns do not represent the returns an investor would receive if shares were traded at other times.

Returns include fees and applicable loads. Since Inception returns are provided for funds with less than 10 years of history and are as of the fund's inception date. 10 year returns are provided for funds with greater than 10 years of history.

Before investing consider carefully the investment objectives, risks, and charges and expenses of the fund, including management fees, other expenses and special risks. This and other information may be found in each fund's prospectus or summary prospectus, if available. Always read the prospectus or summary prospectus carefully before you invest or send money. Prospectuses can be obtained by contacting us.

Expense Ratio – Gross Expense Ratio is the total annual operating expense (before waivers or reimbursements) from the fund's most recent prospectus. You should also review the fund's detailed annual fund operating expenses which are provided in the fund's prospectus.

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Small plan 401(k), see what vanguard assets qualify.

Eligibility is first calculated using qualifying assets for an individual client. We then combine the qualifying assets of clients sharing a residential address to determine final eligibility*.

Assets that qualify

  • Any assets under management of Vanguard Personal Advisor Services .
  • Vanguard mutual funds and Vanguard ETFs held by a client in certain personal accounts qualify. Personal account types include: individual non-retirement, education savings accounts, IRAs, Joint, Trust, Custodian, Guardian, UTMA, UGMA, Estate, Sole Proprietorship, and Single-Participant SEP IRA plans.

Note: Vanguard assets in a Vanguard 529 Plan, Vanguard Variable Annuity, Multi-participant SEP IRA plans, SIMPLE, i401k, 403(b), family partnership, family corporation, or employer-sponsored retirement plans for which Vanguard provides recordkeeping services may be included in determining eligibility if you also have a personal account holding Vanguard mutual funds or Vanguard ETFs. Assets held in other account types are not eligible to be included in service eligibility determination.

We review qualifications periodically

The qualification criteria (for example, asset levels) are reviewed periodically and could change at any time. Vanguard reserves the right to discontinue enrollment in any of these services or reassign any investor, without prior notification, to the appropriate service level if the investor fails to continue to meet the applicable qualification criteria. Vanguard reserves the right to amend or cancel selected features and benefits at any time without prior notification.

In addition, ongoing access by any particular investor to individual services, discounts, and exemptions is subject to periodic review and may be restricted based upon criteria established solely by Vanguard. While these services are complimentary, some underlying services may charge fees and expenses. Vanguard does not guarantee any level of service.

*Business addresses and other non-residential addresses are not eligible to be aggregated for purposes of determining services.

*Self-employed individuals must calculate their maximum contribution using the rate table or worksheets in Chapter 5 of IRS Publication 560 Retirement Plans for Small Business , or see a tax advisor.

**For plans with $2 million or more in assets or plans using an advisor or investment fiduciary service.

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* ShareBuilder 401k plan expenses range from 23% to 68% less than the industry average at various data points from a $50K plan with 6 participants to a $100M plan with 2,000 participants based on 401k Averages Book 2023 Data and Custom Benchmarking report prepared for ShareBuilder Advisors. Cost comparisons are based on plan assets and number of participants and reflect core on‐going 401(k) plan expenses that a company and/or its employees can expect to incur as a percentage of assets with most any 401(k) plan. This includes administration, recordkeeping, tax filing prep documents, plan testing, fund expense ratios, and other investment costs passed on to every participant to service the plan. It does not include unique employee-initiated transactions such as loans, distributions or employer transactions such as plan amendments. ShareBuilder 401K pricing is based off of standard pricing rates for our typical Safe Harbor 401(k) plan design. This claim is not applicable to solo 401(k) plans.

1 High-quality Funds: The ShareBuilder Advisors Investment Committee conducts an annual review of the Exchange-Traded Funds offered as ShareBuilder 401k investment options. The review includes multiple variables including length of time since inception, asset level, historic performance over one to ten years, expense ratios, and how the funds compare to their respective benchmark index. Each fund is monitored and changes are made to the fund lineup as needed to align the investment options to the Investment Committee’s investment policy.

Small Business 401k Plans Explained

Your Complete Guide to 401(k) Plans for Small Businesses

Customize a simple, affordable retirement solution for your small business in just a few clicks.

What is a small business 401(k) plan?

401(k) retirement savings plans aren’t exclusive to large corporations; they can be a game-changer for small businesses too. With Ubiquity Retirement + Savings, you can secure a promising future for both your business and its team.

A small business 401(k) isn’t just about financial protection—it’s about building something that lasts. Each pre-tax contribution has the potential to decrease your annual tax burden while also setting the stage for future compounded growth .

Choosing this route means you’re not only prepping for retirement but also creating a more stable and promising future for all stakeholders.

How does a small business 401(k) work?

With a small business 401(k) , you (and your employees, if you have them) can save for retirement while lowering your taxable income. Contributions you and your employees make to a 401(k) plan are contributed on a pre-tax basis. In the short term, that translates to a smaller tax bite on your annual salary. In the long run, it means extra security as your investments grow tax-free until you’re ready to retire.

Thinking about starting a retirement plan for yourself or your small company? Read on to get the facts from this complete guide to 401(k) plans for small business

Why adopt a 401(k) plan for your small business?

Attract and Retain Top Talent: In today’s competitive job market, offering a small business 401(k) plan can set your business apart. Quality employees often see retirement benefits as a crucial part of their compensation. By providing a 401(k), you position your business to bring in and hold onto the best in the field who value long-term financial stability.

Tax Advantages for Both You and Your Employees: Your business can enjoy significant tax deductions from contributions made to your small business 401(k) plan. For your employees, their contributions are made pre-tax, which means they can lower their taxable income now. Additionally, the funds invested grow tax-free until they decide to withdraw.

Secure Your Own Retirement Future: Beyond the benefits for your team, a 401(k) plan offers you, the business owner, a structured way to plan for your retirement. Considering how often you might reinvest profits back into the business, a 401(k) ensures you don’t neglect your personal financial future.

  • Learn more about how 401(k) plans work
  • Find out how you can benefit from a 401(k) plan

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Answer a few simple questions to find the optimal plan for you and your small business..

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Why save with a 401(k) plan instead of an IRA?

Opting for a small business 401(k) offers higher contribution limits and the potential for employer matching, amplifying your retirement savings potential.

Setup & Management

  • IRA: Requires individual setup and management.
  • 401(k): Established by employers, including owner-only businesses.

Contribution Limits (for 2024)

  • IRA: Max contribution of $7,000, with an additional $1,000 catch-up for those 50 or older.
  • 401(k): Max contribution of $23,000, with an added $7,500 catch-up for individuals 50 or older.

Employer Contributions

  • 401(k) plans allow employers to contribute up to 25% of an employee’s compensation towards retirement savings.

Flexibility

  • It’s possible to contribute to both a 401(k) and an IRA (specific rules apply).

Small Business 401(k) Plan Types

If you’re trying to learn about 401(k) plans, you may feel overwhelmed by all the information and terms out there. Rest easy; it’s a lot less complicated than it seems. Here are the different types you might have heard about:

Traditional small business 401(k)

A small business 401(k) plan is basically the same as a large business 401(k): a plan that lets you take money from your pay (before paying taxes on it) to save for your retirement. No matter the size of the business, a 401(k) plan has the same benefits and the same maximum contributions . The difference is that retirement plans big businesses get complicated—and expensive.

Big business 401(k) plans are designed for businesses with hundreds or thousands of employees. Because they are more complex, they often require in-person enrollment meetings and special human resources training. Most 401(k) plans for large businesses also have high fees —including assets under management, or AUM fees. AUM fees are charged based on a percentage of the money in your account. That means that the more you save, the higher the fees.

The Ubiquity 401(k) plans detailed below are all small business 401(k) plans. They’re designed for small businesses and individuals who don’t have lots of time and budget to devote to managing a retirement plan. We eliminate all the jargon and offer straightforward, transparent monthly fees —and zero AUM fees—so you can jump in and start saving in minutes while contributing more towards your bottom line.

Roth 401(k)

The Roth 401(k) bridges the traditional 401(k) and Roth IRA’s best features, offering a dynamic retirement savings option for small business owners and their employees. Unlike the pre-tax contributions in a traditional 401(k), contributions to a Roth 401(k) are made with after-tax dollars. This means that while you forgo immediate tax deductions, you enjoy the perk of tax-free withdrawals during retirement – encompassing both your initial investments and the accumulated earnings. For this benefit, the account needs to be in place for at least 5 years, and distributions should commence when the account holder is 59½ or older, or in the case of disability or passing. Given the unpredictability of future tax landscapes, the Roth 401(k) offers a strategic hedge, positioning you and your employees for a financially sound retirement.

Safe Harbor 401(k)

The fairness principle is at the core of 401(k) plans – they must cater to everyone equitably, not just the higher-tier earners. However, sometimes, plans might not meet the annual fairness checks. That’s where the Safe Harbor 401(k) steps in. By selecting this structure, the business owner commits to specific contributions that vest to the employee immediately. This arrangement not only ensures fairness but allows high-earning individuals to contribute more to their 401(k), unrestricted by the contributions of their lower-earning peers. It’s an inclusive approach ensuring everyone maximizes their retirement savings potential.

New Comparability 401(k)

Standard profit-sharing has its advantages, but what if a business owner wishes to reward certain groups more? The New Comparability plan shines in this aspect. It allows owners to be generous with specific demographics, like seasoned or top-earning team members, without violating non-discrimination rules. For many small businesses, this design proves invaluable. It’s an avenue to appreciate and incentivize key players, all while providing a robust retirement framework for the entire team.

Sole Proprietor Plan

Tailored for the self-employed individual, the sole proprietor 401(k) — a.k.a solo(k) —  stands out in the realm of retirement savings. By donning both the employer and employee hats, one can channel more funds into retirement savings. It’s a unique arrangement, unclouded by corporate intricacies or the need for extensive consultations. With a transparent fee structure and the absence of concealed costs, it’s an attractive retirement route for those steering the ship alone.

“I am a new plan sponsor for my employer with Ubiquity. The friendliness of customer support was outstanding. So far, I am very impressed with Ubiquity! ”

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No matter the type or size of your small business, whether you’re a sole proprietor or have dozens of employees, Ubiquity can help you save.

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Group 401(k) Plans

For small businesses with 1-100 employees

What it is:  A budget-friendly retirement solution, tailored by experts for small business owners.

Who it’s for: Small businesses with 1-50 employees that want to get a plan in place quickly and keep administration as simple as possible.

How much can I save? Contribute up to the 401(k) maximum—up to $23,000 for 2024 ($30,500 if you’re age 50 or older).

What it is: Customizable savings for small businesses. Get a fully optimized 401(k) retirement savings plan tailored just for your needs.

Who it’s for: Small businesses with 1-100+ employees who want a plan personalized to their needs.

What it is: All inclusive, customizable savings for small businesses. Get the white glove treatment with a 401(k) retirement savings plan designed for you, with extras included.

Who it’s for: Small businesses with 1-100+ employees who want to maximize their tax savings.

Sole Proprietor 401(k) Plans

For businesses with no full-time employees except the owner/spouse/partner (up to 2 total).

Single(k) Plans

What it is: Smart savings for solo business owners. Get a big business 401(k) plan even as a one-person operation.

Who it’s for: Sole proprietors and businesses with no full-time employees.

How much can I save? Contribute up to the 401(k) maximum—up to $23,000 for 2024 ($30,500 if you’re age 50 or older) plus optional employer contribution up to $43,500.

Single(k) Plus Plans

What it is: A record-kept 401(k) plan tailored for solo business owners. Benefit from the features of a standard 401(k) plan and leave the paperwork to us.

Who it’s for: Designed specifically for sole proprietors and businesses without any full-time employees.

How much can I save? For 2024, you can contribute up to $23,000, and if you’re 50 or older, this limit increases to $30,500. Additionally, there’s an option for an employer contribution of up to $46,000.

Talk to Sales Schedule a Free Consultation Contact Support Visit our Help Center [email protected] Monday–Friday 6am–5pm PT / 9am–8pm ET © 2024 Ubiquity Retirement + Savings 44 Montgomery Street, Suite 300 San Francisco, CA 94104

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Retirement benefits aren’t a luxury reserved just for midsized and large businesses. A variety of retirement  plan solutions exist today, from 401(k) to SIMPLE IRAs and SEP IRAs, that can help small business owners not only secure a nest egg for themselves, but also attract and retain talented employees .

401 (k)

What types of 401(k) plans are available for small business owners?

Small business owners generally have many retirement plan options to choose from, some of which may be more appropriate than others, depending on the size of their organization. Examples include:

Traditional 401(k)

Individual or solo 401(k), safe harbor 401(k), roth 401(k), who is eligible for an individual or solo 401(k) plan.

Generally, only businesses that consist of an owner and a spouse, if that individual also works for the organization, may participate in a solo 401(k). Those who adopt these plans may need to set eligibility requirements, such as years of service. If the business hires non-owner employees  who at some point meet those requirements, then the employer may no longer be eligible for an individual 401(k) and would have to choose a different type of plan, e.g., traditional 401(k) or SIMPLE IRA.

Can owners of an LLC contribute to a 401(k)?

Solo 401(k) plans are not limited to sole proprietorships. Businesses that are structured as limited liability corporations (LLC), as well as partnerships, may also participate in these plans if they meet all the eligibility requirements.

Can those who are self-employed contribute to a 401(k)?

There are several different types of retirement plans – Solo 401(k), SEP IRA, SIMPLE IRA and traditional 401(k) – that are available to self-employed individuals. The Solo 401(k), in particular, was designed specifically for entrepreneurs and their spouses. Those whose business is a side venture may also contribute to a 401(k) offered by an employer, but the combined contributions between both plans must not exceed the annual limits set by the IRS.

How does a solo 401(k) plan benefit the small business owner?

The primary benefit to a solo 401(k) is that it permits small business owners to contribute large portions of eligible compensation to the plan, thereby maximizing their retirement savings. Other advantages include:

  • Within certain limits, participants may be able to borrow from the plan.
  • Filing Form 5500, Annual Return/Report of Employee Benefit Plan may not be necessary, depending on the plan’s balance.
  • Since these plans usually only cover one individual, discrimination testing is moot and not required.

Drawbacks to a solo 401(k)

A solo 401(k) may not be right for small businesses that plan to expand and hire employees in the near-term, since doing so would likely result in plan ineligibility. In addition, calculating profit-sharing contributions for sole proprietorships and partnerships tends to be complex because it requires modified net profits. The formula for this calculation is available in IRS Publication 560 .

What else do small business owners need to know about 401(k) plans?

Small business owners who offer retirement savings plans may be able to take advantage of tax incentives. Matching employee contributions, for instance, is generally tax deductible as a business expense. For the first three years of the plan, employers may also be eligible for tax credits up to 50% of the start-up and administration costs or $5,000 (not to exceed $250 per non-highly compensated employee), as well as a $500 automatic enrollment credit per year.

How do small business owners choose the best 401(k) for their needs?

To find the right 401(k) for their small business, employers generally look for plan providers that:

  • Charge reasonable plan and investment fees and have no hidden costs
  • Provide real-time integration between the 401(k) recordkeeping and payroll systems to eliminate manual data entry and reduce errors
  • Offer a simplified compliance process
  • Make administrative fiduciary oversight available
  • Offer ERISA bond and corporate trustee services
  • Help with investment fiduciary services and plan investment responsibilities
  • Make investment advisory services available for employees

Frequently asked questions about 401(k) for small business owners

How much can a small business owner contribute to a 401(k).

The combined limit for employee and employer contributions to a 401(k) is the lesser of 100% of an employee’s compensation or $66,000. This maximum increases to $73,500 if the employee is 50 years of age or older and participates in a plan that allows catch-up contributions.

Can I borrow from a SEP IRA, SIMPLE IRA or 401(k)?

Loans are permitted with 401(k), but not a SEP IRA or SIMPLE IRA. Although these types of loans are enticing because of the low interest rate environment, they can have long-term consequences on retirement savings. Individuals may want to consult a financial advisor before borrowing against their 401(k).

What is the best type of retirement plan for small business owners?

SEP IRAs and SIMPLE IRAs are generally good starting points to consider for small businesses, but 401(k) plans may offer greater choices in plan design. The right choice ultimately depends on the specific needs of the organization and its workforce.

If I offer a 401(k) to my employees, are there compliance regulations I must follow or can the retirement plan provider help with these?

Certain employers who offer 401(k) and other retirement plans must abide by the Employee Retirement Income Security Act (ERISA) of 1974, as amended, which helps ensure that plans are operated correctly and participants’ rights are protected. In addition, a 401(k) plan must pass non-discrimination tests to prevent the plan from disproportionately favoring highly compensated employees over others. The plan fiduciary is usually responsible for helping comply with these measures.

This information is intended to be used as a starting point in analyzing employer-sponsored 401(k) plans and is not a comprehensive resource of all requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services. For specific details about any 401(k) they may be considering, employers should consult a financial advisor or tax consultant.

Unless otherwise agreed in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products, financial advisors or service providers; engage or compensate any financial advisor or firm for the provision of advice; offer financial, investment, tax or legal advice or management services; or serve in a fiduciary capacity with respect to retirement plans. All ADP companies identified are affiliated companies.

ADP, Inc. is affiliated with ADP Broker-Dealer, Inc. (“ADP BD”), a limited purpose broker dealer registered with the Financial Industry Regulatory Authority (“FINRA”), and operating pursuant to Securities and Exchange Commission (“SEC”) Rule 15c3-3(k)(2)(i), approved by FINRA to offer 401(k) and SEP/ SIMPLE IRAs, and related retirement plans (the “Retirement Products”) on a payroll deduction basis.

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Small Business Retirement Plans

Schwab offers a number of retirement plans for small businesses, whether your company employs one or many. Use this information and our tools here to learn more and begin narrowing your options.

Explore our tools:

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Individual 401(k) plan

Individual 401(k) plans - traditional & roth.

Who it's for:

Owner-only businesses with no employees

Key features: 

  • All the benefits of a 401(k)
  • High contribution limits
  • Easy to administer

Individual 401(k) plan details

Owner-only businesses or those with just a few employees

Key features:

  • No IRS filing or reporting
  • Allows for contributions for you and any employees

SEP IRA plan details

Businesses with up to 100 employees

  • Primarily funded with employee salary-deferral contributions
  • Employer-matched contributions up to 3%
  • An easy and economical plan to administer

SIMPLE IRA plan details

retirement plans

Personal defined benefit plan.

Owner-only businesses or those with up to five employees

  • Highest contribution limits 
  • Contributions are generally 100% tax-deductible
  • Helps target your desired level of income in retirement

Personal defined benefit plan details

Business 401(k) Plan

Businesses of any size

  • Permits a higher level of salary deferrals by employees than other plans
  • Optional annual employer contributions
  • Greater plan customization

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Company Retirement Account (CRA)

Businesses with an established retirement plan

  • An investment-only solution
  • Access to Schwab’s full range of investment options
  • $0 account open or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply 1 .

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Is a SIMPLE 401(k) Plan Right For Me?

What is a simple 401(k) plan & how do you utilize it.

T he Savings Incentive Match Plan for Employees 401(k), or SIMPLE 401(k), is a simplified version of a traditional 401(k). SIMPLE plans were created so that small businesses could have a cost-efficient way to offer a retirement account to their employees.

Unlike many other workplace retirement plans, SIMPLE 401(k) plans do not require annual nondiscrimination tests to ensure that a plan is in line with IRS rules. This type of testing can be prohibitively expensive for small employers, preventing them from using other types of 401(k)s.

A SIMPLE 401(k) retirement plan is available to businesses with 100 or fewer employees including sole proprietorships, partnerships, and corporations. For small business owners or self-employed individuals, understanding how SIMPLE plans work can help decide whether it makes sense to set one up.

For employees whose employer already offers a SIMPLE 401(k), getting to know the ins and outs of the plan can help to understand the role they play in saving for retirement.

How Does a SIMPLE 401(k) Work?

A SIMPLE 401(k) functions much like a regular  401(k) . Employees contribute pre-tax money directly from their paycheck and invest that money in a handful of options offered by the plan administrator.

In 2024, the SIMPLE 401(k) limits are as follows: The maximum for employee elective deferrals is $16,000 ($15,500 in 2023); employees 50 and older could make an additional “catch-up” contribution of $3,500 to boost their savings as they neared retirement.

One significant difference between traditional 401(k) plans and SIMPLE 401(k) plans is that while employer contributions are optional with a 401(k) plan, under a SIMPLE 401(k) plan they are mandatory and clearly defined. Employers must make either a  matching contribution  of up to 3% of each employee’s pay or make a nonelective contribution (independent of any employee contributions) of 2% of each eligible employee’s pay. The contribution must be the same for all plan participants: For example, an employer couldn’t offer himself a 3% match while offering his employees a 2% nonelective contribution.

There are other limits on how much an employer can contribute. The maximum compensation that could be used to figure out employer contributions and benefits is $345,000 for 2024 ($330,000 for 2023). So if an employer offered a 2% nonelective contribution and an employee made $355,000 a year, the maximum contribution the employer could make would be 2% of $345,000, or $6,900.

As with a regular 401(k), contributions to a SIMPLE plan grow tax-deferred — meaning an employee contributes pre-tax dollars to their plan, and doesn’t pay income tax on that money until they withdraw funds upon retirement. Typically, the tax-deferred growth means that there is more money subject to compounding interest, the returns investments earn on their returns.

Withdrawals made during retirement are subject to income tax.

(Learn more:  Personal Loan Calculator ) 

Who Is Eligible for a SIMPLE 401(k)?

To be eligible for a SIMPLE 401(k), employers must have 100 or fewer employees. They cannot already offer these employees another retirement plan, and must offer the plan to all employees 21 years and older.

Employers must also file Form 5500 every year if they establish a plan.

For employees to be eligible, they must have received at least $5,000 in compensation from their employer in the previous calendar year. Employers cannot require that employees complete more than one year of service to qualify for the SIMPLE plan.

A SIMPLE IRA is also one of a number of  retirement options for the self-employed .

What Are the Pros of a SIMPLE 401(k) Plan?

SIMPLE 401(k)s offer a number of benefits that make them attractive to employers and employees.

  • Simplified rules: While large companies may have the money and staff to devote to nondiscrimination testing, smaller companies may not have the same resources. SIMPLE 401(k)s do not have these compliance rules, making them more accessible for small employers. What’s more, the straightforward benefit formula is easy for employers to administer.
  •  “Free money”: Employees are guaranteed employer contributions to their retirement account, whether via 3% matching contributions or 2% nonelective contributions.
  • Fully-vested contributions: All contributions — those made by employees and their employers — are fully vested immediately. Employees who qualify for distributions can take money out whenever they need it. While this can be good news for employees, for employers it removes the option to incentivize workers to stay in their job longer by having their contributions vest several years into their tenure with the company.
  • Loans and hardship withdrawals: While withdrawals made before age 59 ½ are subject to tax and a possible 10% early withdrawal penalty, employees can take out loans against their SIMPLE 401(k) just as they can with a traditional 401(k). These options add flexibility for individuals who need money in an emergency. It’s important to note that  401(k) loans  come with strict rules for paying them back. Failing to follow these rules may result in penalties.

What Are the Cons of a SIMPLE 401(k) Plan?

While there are plenty of positives that come from offering or contributing to a SIMPLE 401(k), there are also some important downsides.

  • Plan limitations: Employers cannot offer employees covered by a SIMPLE 401(k) another retirement plan.
  • Lower contribution limits: For 2024, a traditional 401(k) plan allows for $23,000 annual  maximum 401(k) contributions  from employees, with an additional $7,500 catch-up contribution for those 50 and older. These contribution limits are considerably higher than SIMPLE plan limits, which in 2024 are $16,000 with an additional “catch-up” contribution of $3,500 for employees over age 50. This means an employee could potentially contribute an additional $7,000 in elective deferrals and $4,000 in  catch-up contributions with a traditional 401(k)  rather than a SIMPLE 401(k).
  • Limited size: SIMPLE Plans are only available to employers with fewer than 100 employees. That means if a business grows beyond that point, they have a two-year grace period to switch from their SIMPLE plan to another option.

SIMPLE 401(k) vs SIMPLE IRA

Generally speaking, when comparing  SIMPLE IRAs  and SIMPLE 401(k)s, the rules are similar:

  • They’re only available to businesses with 100 or fewer employees.
  • Employers must either offer a 3% matching contribution or a 2% nonelective contribution.
  • Employers can only make contributions on up to $345,000 in employee compensation in 2024.
  • Employee contribution limits to SIMPLE IRAs are the same as their 401(k) counterparts.
  • Employer and employee contributions are fully vested immediately.

There are a few differences worth mentioning:

  • Whereas all employer contributions are subject to the cap for SIMPLE 401(k)s, only nonelective contributions are subject to the $345,000 compensation cap for SIMPLE IRAs. (This makes it possible that employees making more than $345,000 annually may receive higher matching contributions from a SIMPLE IRA than they would from a SIMPLE 401(k).)
  • If employers make matching contributions of 3%, they may elect to limit their contribution to no less than 1% for two out of every five years.
  • SIMPLE IRAs do not allow employees to take out loans from their account for any reason.
  • There are no minimum age requirements for SIMPLE IRA contributions.

The Takeaway

SIMPLE 401(k) plans can be especially attractive for self-employed individuals or small business owners, as they have many of the same benefits of a traditional 401(k) plan — including tax-deferred contributions and loan options — but without the administrative compliance costs that come with a regular 401(k) plan.

SIMPLE 401(k) plans can be especially attractive for self-employed individuals or small business owners.

Some of the requirements and rules associated with a SIMPLE 401(k) plan might be unattractive to some employers, however, including the fact that the IRS prohibits employers from offering other types of retirement plans to employees who are covered by a SIMPLE 401(k).

There are many answers to the question of  which retirement savings plan is right for you  or your business. Beyond traditional 401(k) and SIMPLE (401)k plans, there are traditional, Roth, SIMPLE and SEP IRAs, among other options.

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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The best retirement plans of 2024

Maryalene LaPonsie

Hannah Alberstadt

Hannah Alberstadt

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Updated 6:02 p.m. UTC Feb. 13, 2024

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American workers have no shortage of options for selecting the best retirement plan.

  • Most people are eligible for more than one retirement plan.
  • 2024 retirement plans generally offer tax advantages. 

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Retirement is the end goal for most workers, but you can’t quit your job unless you have a source of income. While Social Security will pay for some expenses, the government says these benefits will cover only about 40% of your pre-retirement income.

In the past, many companies offered pensions that provided lifetime income to loyal employees. Now, pensions have all but disappeared, and most workers need to rely on their savings to fill gaps in their budgets.

Fortunately, several retirement plans are available, many of which offer attractive tax incentives or generous employer matches.

Best retirement plans of 2024

“You’re talking about an embarrassment of riches,” says Andrew Meadows, senior vice president of HR, brand and culture for Ubiquity Retirement + Savings, a 401(k) provider.

Plans exist for employees, self-employed individuals and small-business owners. Options within each category allow people to receive immediate tax deductions or set aside money for tax-free withdrawals in the future. The best retirement plans also offer various investment options with low fees. 

Employer-sponsored retirement plans

Employer-sponsored retirement plans are some of the best-known options, and if you are an employee — meaning you receive a W-2 at tax time — you likely have access to one of them.

These accounts can be a convenient way to save for retirement since payroll deductions fund them. Plus, many employers match a portion of employee contributions.

“You want to be sure you put enough in to qualify for whatever your employer is matching,” says Stuart Chamberlin, founder and owner of advisory firm Chamberlin Financial in Boca Raton, Florida.

Traditional 401(k)

Traditional 401(k)s are the most common retirement plans private companies offer employees.

Employee contributions to a traditional 401(k) are tax-deductible. You can access the money without penalty once you reach age 59½, and withdrawals are taxed as regular income. You must start taking required minimum distributions at age 73, meaning you cannot avoid taxes forever.

You can contribute up to $23,000 to a 401(k) plan in 2024. Savers age 50 or older can contribute an additional $7,500.

Roth 401(k)

A Roth 401(k) works like a traditional 401(k), except the tax benefits are different.

Because Roth accounts are funded with after-tax dollars, employee contributions are not tax-deductible. The benefit is that the money grows tax-free and can be withdrawn tax-free in retirement. If you make a withdrawal before age 59½ and before you have held the account for five years, some of it may be subject to income tax and a penalty.

Roth 401(k) contribution limits are the same as traditional 401(k) contribution limits.

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A 403(b) , also known as a tax-sheltered annuity, works like a 401(k) and may be offered in traditional and Roth versions. Typically, 403(b) plans are available to employees of public schools and certain tax-exempt organizations.

One unique provision of 403(b) plans is that workers with at least 15 years of service can make additional catch-up contributions, which may be worth up to $3,000. 

457(b) 

Employees of state and local governments and certain tax-exempt nongovernmental entities may be able to contribute to 457(b) plans. These accounts work like 401(k)s and can be found in traditional and Roth varieties.

Like 403(b)s, 457(b)s have a unique catch-up feature. Workers may be able to contribute up to twice the annual employee limit during the last three years before their normal retirement age. 

Thrift savings plan

The thrift savings plan is a retirement plan for federal government employees and uniformed members of the armed forces. It is comparable to a 401(k) account, with similar provisions and contribution limits. 

Individual retirement plans

Individual retirement arrangements, or IRAs, “have the lowest barrier to entry,” Meadows says.

You generally can open an IRA as long as you have earned income, even if you have a 401(k) plan or another workplace retirement account. But note that income limits may apply to deducting traditional IRA contributions and contributing to Roth IRAs.

Traditional IRA

Like a traditional 401(k), a traditional IRA offers an immediate tax deduction on contributions. Withdrawals after age 59½ are subject to regular income tax. Early withdrawals are subject to income tax and a 10% penalty. Required minimum distributions must begin at age 73.

You can contribute up to $7,000 to IRAs in 2024. Savers age 50 or older may make an additional $1,000 in catch-up contributions.

Your contributions may not be tax-deductible if you or your spouse is covered by a retirement plan at work and you exceed certain income limits. For 2024, the ability to deduct contributions begins to phase out at modified adjusted gross incomes above $77,000 for single filers and $123,000 for married couples filing jointly.

Roth IRAs don’t offer tax deductions on contributions, but withdrawals in retirement are generally tax-free. Further, because you’ve already paid taxes on your Roth IRA contributions, you can withdraw them anytime tax- and penalty-free. Early withdrawals of your earnings may be subject to income tax and a 10% penalty. 

Roth IRAs share the same contribution limits as traditional IRAs, but high earners are excluded from funding these plans. For 2024, the ability to contribute to a Roth IRA begins to phase out at MAGIs of $146,000 for single filers and $230,000 for married couples filing jointly. At incomes of $161,000 and $240,000, respectively, the opportunity to contribute to a Roth IRA is eliminated.  

Spousal IRA

A spousal IRA refers to the ability of a working spouse to open an IRA on behalf of a nonworking spouse. In this way, stay-at-home parents or other spouses without earned income can have their own IRAs with which to save for retirement.

Spousal IRAs can be traditional or Roth accounts and are subject to the same contribution and income limits as other IRAs. To open a spousal IRA, a couple must file their tax return jointly.

Rollover IRA 

A rollover IRA is a way to move money from one retirement account to another. For example, if you leave a job, you can roll over money from your 401(k) to an IRA rather than leave it in place.

You can opt for a direct rollover or an indirect rollover. With a direct rollover, the funds are transferred from the 401(k) administrator to the IRA administrator. With an indirect rollover, you receive a distribution from the 401(k) and then deposit the funds into the IRA. If you fail to deposit the full amount into the IRA within 60 days, it may be subject to both income taxes and a 10% penalty.

There is no limit on how much you can roll over. Note that rolling over into an account with a different tax treatment — from a traditional to a Roth, for instance — counts as a conversion and has tax implications.

Retirement plans for small-business owners and the self-employed 

One drawback of IRAs compared to employer-sponsored retirement plans is the low annual contribution limit. But if you are self-employed or a small-business owner, you have other options with higher limits. Becoming eligible for these plans may be easier than you think.

“If you have a side hustle and self-employment income, you absolutely have the ability to start your own retirement plan,” says Nathan Boxx, director of retirement plan services for financial advisory firm Fort Pitt Capital Group in Pittsburgh.

Whether you work for yourself or have a team of employees, the following accounts could be good options. 

Any self-employed individual or employer can open a SEP IRA , and workers can contribute the lesser of 25% of their annual compensation or $69,000 per year. That puts a SEP IRA in line with a 401(k) plan in terms of contributions. But you can’t make catch-up contributions to a SEP account.

There is no Roth SEP IRA option, so your contributions will be tax-deductible. Withdrawals in retirement will be subject to regular income tax, and you’ll also need to start taking RMDs at age 73.

If you like the idea of having some tax-free money available in retirement, there is no reason you can’t also open a Roth IRA. The IRS allows self-employed workers and business owners to contribute to both.

The SIMPLE IRA is what Boxx calls the “quick and dirty” option for small-business retirement plans. It is available to businesses with fewer than 100 workers and has few filing requirements.

“The trade-off is lack of flexibility,” Boxx says. You may not have the same plan or investment options that other accounts offer. SIMPLE IRAs also have lower contribution limits than 401(k)s.

In 2024, a worker can contribute up to $16,000 to a SIMPLE IRA. Savers age 50 or older can make $3,500 in catch-up contributions. All contributions are tax-deductible, and withdrawals in retirement are taxed as regular income. RMDs must be taken starting at age 73. 

Payroll deduction IRA

Payroll deduction IRAs can be traditional or Roth and have the same contribution limits as those accounts. The main difference is they are funded through payroll deductions.

These accounts can be an attractive option for small-business owners who would like to help their workers save for retirement but don’t want the expense that comes with creating a 401(k) plan. 

Solo 401(k) 

Also known as one-participant 401(k)s, solo 401(k)s allow business owners with no employees or self-employed individuals to open an employer-sponsored plan for themselves and their spouses.

The reporting rules make these accounts more complex than some of the other options. On the other hand, they have significantly higher contribution limits.

As an employee, you can make elective deferrals of up to $23,000 in 2024. Savers age 50 or older can contribute an additional $7,500. In addition, as an employer, you can make a profit-sharing contribution of up to 25% of your compensation from the business. Combined, the maximum solo 401(k) contribution is $69,000 in 2024. 

Solo 401(k)s may be opened as traditional or Roth accounts.

Why is having a retirement plan important?

Most people understand the value of having money set aside for retirement, but it may not be obvious why you should use a retirement plan. After all, you could invest the money in a regular brokerage account , put it in certificates of deposit or leave it in your savings account.

A retirement plan makes more sense for several reasons:

  • Retirement plans offer tax incentives — either deductions for contributions or tax-free withdrawals in retirement.
  • Your employer may match a portion of your contributions. That’s essentially free money to boost your savings.
  • Retirement plans are subject to certain standards and protections by law.

“Retirement money is sheltered from creditors up to a certain threshold,” Boxx says. That is one example of the type of protection your money gets when deposited in a retirement plan.

How to start investing in your retirement

The earlier you begin saving, the more likely you are to be financially secure in retirement. It isn’t hard to open a retirement account either.

If you work somewhere that offers employer-sponsored retirement accounts, contact your human resources office to start making contributions. Most plans let you choose from several investment options, and many now have target-date funds, which make it simple to invest based on your expected retirement date.

IRAs and other plans can be opened online or in person at many banks and brokerage firms. For instance, Ubiquity Retirement + Savings offers solo 401(k) plans, while Chase, Charles Schwab and Fidelity all have IRAs.   

How to choose the best retirement plan for you

If you have an employer-sponsored plan with a match, start there. You want to contribute enough to that plan to get the full match. After that, you can consider other options.

Here are some questions to ask yourself:

  • Do I do any contract work that would make me eligible for a small-business retirement plan?
  • How much do I expect to be able to contribute each year?
  • Do I want a tax deduction now, or would I rather have tax-free money in retirement?

Before you jump into any account, be sure to read the fine print. “What fees are you paying?” Meadows asks. Those fees include the expense ratios for specific investments and the costs to administer the plan.

An accountant or financial advisor can help you weigh your options and select the best retirement plan for your needs. 

Frequently asked questions (FAQs)

That depends on your unique circumstances. While Fidelity Investments suggests you save 10 times your income by age 67, you may need more or less to retire comfortably.

When determining how much money you’ll need, consider the following:

  • Whether you will have debt payments in retirement.
  • The cost of living in your area.
  • Your expected lifestyle.
  • How you will fill your time.
  • Your expected lifespan.

Each account has its pros and cons. IRAs typically offer more investment options, but they may come with more fees. With a 401(k) account, you can contribute significantly more, and your plan administrator is a fiduciary, meaning they are required to work in your best interest. Talk to a trusted financial advisor to decide which is right for you. 

Yes. “The IRS always gets theirs at the end,” Chamberlin says.

The difference is when you pay those taxes. Roth accounts are taxed upfront since you fund them with after-tax dollars. With a traditional account, the money isn’t taxed until you make withdrawals in retirement. If you die with money in a traditional account, your heirs will pay the taxes on the remaining amount.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy . The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Maryalene LaPonsie

Maryalene LaPonsie has been writing professionally for nearly 25 years and specializes in personal finance, retirement, investing and education topics. In addition to USA TODAY Blueprint, her work has been featured on Forbes Advisor, U.S. News & World Report, Money Talks News, MSN and elsewhere on the web.

Hannah Alberstadt is the deputy editor of investing and retirement at USA TODAY Blueprint. She was most recently a copy editor at The Hill and previously worked in the online legal and financial content spaces, including at Student Loan Hero and LendingTree. She holds bachelor's and master's degrees in English literature, as well as a J.D. Hannah devotes most of her free time to cat rescue.

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