Retirement plan examples for small businesses

Last updated: January 12, 2026

Alternatives to traditional retirement plans with high costs and administrative burdens are available to small business owners. Examples, such as the SIMPLE IRA and the safe harbor 401(k), reduce complexity, yet still have in-demand features that can help attract and retain talent.

Retirement plans for small businesses key takeaways:

• SIMPLE and SIMPLE IRAs – Ideal for businesses with 100 employees or less; employer contributions are required; lower contribution limits than traditional plans ($17,000 in 2026).
• Safe harbor 401(k) – Ideal for businesses of any size; employer contributions are required; higher employee contribution limits than SIMPLE plans ($24,500 in 2026).
• Starter 401(k) – Ideal for businesses that don’t already sponsor a plan; only employees may contribute ($6,000 limit in 2026); automatic enrollment is standard.
• Enhanced tax credits and $1,100 catch-up contributions for participants age 50 or older, courtesy of the SECURE 2.0 Act, may be available to small businesses that sponsor a new retirement plan.

401(k) plan and SIMPLE IRA

The Savings Incentive Match Plan for Employees (SIMPLE and SIMPLE IRA) combine the features of a traditional 401(k) with simplified administration. This option is suitable for companies with 100 or fewer employees seeking a small business retirement plan that’s easy to administer.

Key features

• Employer contributions: Employers are required to match employee contributions (up to 3% of their compensation) or provide a non-elective contribution of 2% of each eligible employee’s compensation, regardless of their participation.
• Lower administrative burden: These plans do not require annual nondiscrimination testing, saving time and money.
• Contribution limits: Employees can contribute up to $17,000 in 2026, with an additional $4,000 catch-up contribution, totaling $21,000 for those age 50 or older. If a company has 25 or less employees, the employees may defer an additional 10%, or $18,100, and a catch-up contribution of $3,850. If the company has more than 25 employees, employees can defer the higher limits if the employer makes an additional employer contribution. Participants who are ages 60 to 63 have an increased catch-up limit and may defer $5,250 in catch up.

Advantages

• Easy to set up and maintain
• Non-discrimination testing is not required
• Mandatory employer contributions help employees benefit from the plan

Disadvantages

• Contribution limits are lower than traditional plans
• Mandatory employer contributions can be a challenging financial obligation

Safe harbor 401(k) plan

A safe harbor plan eliminates the need for nondiscrimination testing by requiring employer contributions. The design is flexible with different contribution formulas that employers can choose from.

Key features

• Employer contributions: Employers must provide either a match of 100% on the first 3% of an employee’s compensation (plus 50% on the next 2%) or a non-elective contribution of 3% of compensation for all eligible employees.
• Higher contribution limits: Employees can contribute up to $24,500 in 2026, with an additional $8,000 catch-up contribution for those age 50 or older.

Advantages

• Avoid nondiscrimination testing, which simplifies plan administration
• Allows higher employee contribution limits compared to SIMPLE plans
• Highly customizable with Roth and profit-sharing options

Disadvantages

• Mandatory employer contributions can be expensive
• Slightly higher administrative costs compared to SIMPLE plans

Read more about safe harbor 401(k) plan examples, including the different matching contribution formulas.

Side by side comparison of SIMPLE and safe harbor plans

Feature	SIMPLE IRA	Safe harbor 401(k)
Business size	Small businesses with 100 or fewer employees	Any size
Contribution limits	Lower ($17,000 in 2026)	Higher ($24,500 in 2026)
Employer contributions	Mandatory	Mandatory and often more generous
Employee vesting	Employer contributions are immediately 100% vested	Employer contributions are immediately 100% vested
Non-discrimination testing	Not required	Not required
Administration	The simplest and lowest cost retirement plan	More administration required
Loans	Not allowed	Optional
Plan design flexibility	Limited to basic employer and employee contributions	Highly customizable with features that include Roth options and profit-sharing

Starter 401(k) plan

A starter 401(k) plan is an entry-level option for employers who don’t already offer a small business retirement plan and want benefits that are simple and affordable.

Key features

• Employee-only contributions: Employers are not permitted to make contributions.
• Lower contribution limits: The annual employee contribution limit for 2026 is $6,000, with an additional $1,100 catch-up catch-up contribution allowed for those age 50 and older
• Automatic enrollment: Employees are automatically enrolled at a contribution rate set by the business, ranging between 3% and 15% of their salaries, unless they opt out.

Advantages

• Budget-friendly with simplified plan management that reduces administrative tasks
• Exempt from nondiscrimination testing
• Encourages employees to save and prepare for retirement with access to a tax-advantaged savings option
• More investment options than state plans

Disadvantages

• May not be suitable for higher income employees looking to maximize retirement contributions
• Lack of employer contributions may reduce employee engagement

Potential tax incentives

The SECURE 2.0 Act of 2022 (SECURE 2.0) enhanced tax credits for small businesses that offer a 401(k) plan. As a result of this legislation, small businesses can claim a tax credit for the first three years of a new 401(k) plan to cover qualified startup costs, including expenses for establishing and administering a plan and educating employees about it.

Businesses with 50 or fewer employees can claim a tax credit for 100% of startup costs, up to a maximum of $5,000 per year. Businesses with 51 to 100 employees can claim a tax credit for 50% of startup costs, up to a maximum of $5,000 per year.

Discover potential tax incentives using the ADP SECURE Act Tax Credit Calculator.

ADP Starter-k Complete

ADP puts retirement plan benefits within reach with the affordable, easy-to-manage ADP Starter-k Complete. It’s designed to be a streamlined experience without the administrative burden often associated with traditional plans.

Starter-k Complete takes care of complex tasks with embedded 3(16) administrative fiduciary services and 3(38) investment management services, so small companies can stay focused on their businesses. It also features the tax flexibility of Roth contributions and allows loans and hardship distributions, giving employees access to their money when they need it most.

Do small businesses have to offer retirement plans?

Small businesses in states with government-mandated retirement savings programs may be required to sponsor an eligible retirement plan or automatically enroll their employees in the state-run program. Business size usually dictates whether the employer must abide by the requirements, though specifics vary by jurisdiction. In some cases, the mandate applies to businesses with as few as one employee.

What penalties apply if a business doesn't comply with state requirement laws?

The penalties for failing to comply with a government-mandated retirement program vary by state and are typically assessed per employee, per year of noncompliance.

Based on current state guidance, penalties generally range from around $100 per employee in some states to as much as $750 per employee in others, depending on the specific mandate, length of noncompliance and enforcement structure.

Many states also issue multiple notices before fines are applied, but penalties can escalate if a business continues to ignore the requirement.

ADP retirement plans for small businesses

ADP’s retirement plan solutions readily meet the unique needs of different small businesses. We provide a personalized experience using advanced technology and analytics that help employers and their employees make better retirement plan decisions. Plan administrators and participants also have access to a robust resource center with educational content on a variety of financial wellness topics.

Employers already using an ADP payroll solution have even more reason to choose ADP Retirement Services. Data seamlessly integrates across both platforms to help simplify administration and reduce compliance risk.

Compliance Code:
M-856069-2025-12-19

ADP Inc. owns and operates the ADP.com website. Unless otherwise disclosed or agreed to in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products. Please consult with your own advisors for such advice. Investment options are available through the applicable entity(ies) for each retirement product. Investment options in the “ADP Direct Products” are available through either ADP Broker-Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 or (in the case of certain investments) ADP, Inc. Only registered representatives of ADP BD may offer and sell ADP retirement products and services or speak to retirement plan features and/or investment options available in any ADP retirement products.