Those small employer plans like a SEP or a SIMPLE-IRA are great opportunities for small businesses to save for retirement because of the no administration costs. However, like clothing for kids, there will be a time when these plans no longer fit.

When do they no longer fit? When you start adding employees that aren’t owners or related to owners because these plans allow no disparity in employer contributions. So if you want a 15% employer contribution, you have to give it to the employees who have been there for a year full time. There is also no salary deferral component in a SEP and a limited one for SIMPLEs, so the bulk of the retirement plan contributions are what you’re going to fund.

So that’s why you need to look into something that’s a better fit like a 401(k) plan or one that’s in conjunction with a cash balance plan.  So you need to know when the SEP no longer fits.