Retirement Plans for business owners with full time W-2 employees

When a small business owner has W-2 employees (other than themselves or a spouse) who work more than 1,000 hours they are not eligible for an Individual 401k. Small business owners who have W-2 employees may be required to make contributions on behalf of their employees. Small business owners who have full time W-2 employees typically select a corporate 401k, Simple IRA, SEP IRA or Defined Benefit Plan.

Small business owners with full time employees generally select from retirement plans that fall into 3 categories.

1) Retirement plans that are exclusively funded by the employer.

SEP IRA - The employer makes a contribution for any eligible employees according to a percentage between 0 to 25% of compensation. The percentage is the same for employer and eligible employees.

Defined Benefit Plan - The employer makes the contributions according to a specific formula based on actuarial calculations. The maximum retirement income benefit is $230,000 in 2020.

2) Retirement plans that are employer and employee funded.

SIMPLE IRA - Employees can make a voluntary contribution in 2020 up to $13,500 or $16,500 if age 50+ and the employer makes a mandatory match according to 2 options.

Small Business 401k - Employees can make voluntary contributions in 2020 up to $19,500 or $26,000 if age 50+. The employer has the option of making a company match or a profit sharing contribution. An employer match and/or profit sharing contribution is not required.

3) Retirement plans that are exclusively employee funded.

Small Business 401k - Employees can make voluntary contributions in 2020 of up to $19,500 or $26,000 if age 50+. An employer match is not required.


Beacon Capital Management Advisors provides retirement plans to the self employed, freelancers, entrepreneurs, independent contractors and small business owners and is registered in all 50 States.