Evaluating retirement plans requires a careful analysis of tax implications, regulatory limitations, and funding. William Blair’s Quick Reference Guide to Retirement Plans breaks down the features of available vehicles to help you identify the optimal strategy for your specific financial circumstances and objectives.
Individual IRA Options: Roth and Traditional IRAs
For individuals generating earned income, standard IRA options provide low-complexity, tax-advantaged growth. Both Roth and Traditional IRAs feature immediate vesting, though neither permits account loans.
- 2026 Contribution Limits: Both vehicles allow maximum individual contributions of $7,500, increasing to $8,600 for individuals aged 50 and older.
- Taxation and Withdrawals: Traditional IRAs may offer tax-free contributions with distributions taxed as ordinary income. Roth IRAs are not tax-deductible, but earnings and withdrawals are not taxed for qualified distributions.
- Required Minimum Distributions (RMDs): Traditional IRA owners must initiate RMDs at age 73. Roth IRAs do not require RMDs for the original account owner.
Small Business Retirement Plans and Self-Employed Solutions
Business owners require efficient vehicles that maximize deferred contributions without introducing excessive administrative overhead. Self-employed retirement plans and small business solutions offer immediate vesting and no annual 5500 filing requirements.
- SEP IRA: Funded exclusively by employers, this plan permits cash contributions up to 25% of compensation or $72,000, whichever is less. It represents a low-cost, flexible option for sole proprietorships and corporations.
- SIMPLE IRA: Designed for entities with 100 or fewer employees. Employees can defer up to $17,000 annually (or $21,000 for age 50+). Employers are required to provide either a 3% matching contribution or a 2% nonelective contribution.
- Individual 401(k): Optimized strictly for self-employed individuals. It allows individuals to defer up to $24,500 ($32,500 for ages 50 and older plus employer profit-sharing contributions up to the $72,000 total limit. Unlike standard IRAs, this plan may permit account loans.
Employer-Sponsored Plans: 401(k) and Profit Sharing
Mid-to-large-scale entities often require higher contribution thresholds and flexible plan designs. These employer-sponsored plans introduce moderate to high administrative complexity, including annual 5500 filings, but provide greater structural control.
- Traditional 401(k)s: Traditional 401(k)s carry high complexity but allow substantial employee funding responsibility and deferred vesting schedules. Employees can contribute up to $24,500 ($32,500 for age 50+), combined with employer contributions up to $72,000.
- Profit Sharing and Money Purchase: These plans are employer-funded with caps at the lesser of 25% of compensation or $72,000. Profit Sharing allows discretionary contributions in cash or securities, whereas Money Purchase plans require mandatory cash contributions. Both may permit loans and deferred vesting schedules.
- Defined Benefit Plans: Presenting the highest administrative complexity, these plans rely on calculated actuarial assumptions incorporating employee age and compensation. They require mandatory employer contributions but offer the mathematical possibility for significantly higher contribution levels compared to other retirement vehicles.
It is important to review your specific tax and financial circumstances to determine which plan(s) are appropriate for you.