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Your Guide to Retirement Plans
Looking to learn more about different plan types? This guide highlights common retirement plans along with key benefits and considerations of each — so you can make the best decision for your clients.
| PLAN BREAKDOWN | 401(K)1 | 403(B)2 | SIMPLE IRA | SEP IRA | CASH BALANCE & DEFINED BENEFIT |
|---|---|---|---|---|---|
| Who is this available to? | All businesses | Nonprofits, religious organizations, and certain public entities | Businesses with 100 or fewer employees | All businesses | All businesses |
| Which employees can participate?2 | Generally, employees age 21+ working at least 1 year for 1,000+ hours plus certain eligible part-time employees | Generally, employees are immediately eligible with a few exceptions | Employees earning $5,000+ for the past 2 years and current year | Employees age 21+ earning $750+ per year and employed for 3 of the past 5 years | Generally, employees age 21+ working at least 1 year for 1,000+ hours |
| How much can employees contribute in 2025?4 | 100% of pay up to $23,500 + $7,500 in catch-up if match 50+ individuals aged 60-63 can make additional catch-up contributions up to $11,250 | 100% of pay up to $23,500 + $7,500 in catch-up if age 50+ individuals aged 60-63 can make additional catch-up contributions up to $11,250 | Up to $16,000 + $5,500 in catch-up if age 50+ individuals aged 60-63 can make additional catch-up contributions up to $5,250^{a}$ | Employee contributions not available | Employee contributions typically not required; contributions dependent on plan design |
| Are employers required to contribute each year? | For non-safe harbor 401(k), contributions are optional; For safe harbor 401(k), contributions are required | Contributions optional | Contributions required | Contributions optional | Contributions required |
| If required, what are an employer's annual contribution options? | For safe harbor 401(k), an employer catch-up if match 100% of the first 3% and 50% of the next 2% of contributions, or offer a 3% contribution to everyone, even if they do not contribute | Contributions optional | Option 1: offer a 2% contribution to everyone, even if they do not contribute Option 2: 100% match of the first 3%; Employers may make an optional, additional contribution up to the lesser of 10% of compensation or $5,000^{b}$ | Contributions optional, but employers must contribute an equal percentage of pay for all employees | Determined annually based on plan design and benefit formula |
| What is the maximum employee + employer contribution amount allowed in 2025?4(Excludes catch-up) | 100% of employee pay up to $70,000 | 100% of employee pay up to $70,000 | If option 1, max $23,500. If option 2, max $27,000. With the optional, $5,000 contribution, option 1, max $28,500. If option 2, max $32,000 | 25% of employee pay up to $70,000 | Determined annually based on plan design; retirement benefit payout has limits |
| What are the vesting options? | For safe harbor 401(k), immediate 100% vesting required; For non-safe harbor 401(k), vesting options vary | Vesting options vary | Immediate 100% vesting required | Immediate 100% vesting required | Vesting options vary |
| Are loans and hardship withdrawals permitted? | Loans and hardship withdrawals are permitted, depending on employer's plan design choices | Loans and hardship withdrawals are permitted, depending on employer's plan design choices | Loans not permitted; withdrawals available | Loans not permitted; withdrawals available | Loans depend on employees' plan design; withdrawals generally not permitted |
| Are auto-enroll & auto-escalation available? | Yes, required for new plans starting 1/1/2025 onward | Yes, required for new plans starting 1/1/2025 onward | No | N/A | N/A |
Safe Harbor 401(k)
Available to:
All businesses
Benefits
- Bypasses certain compliance tests
- Employers can provide a generous employee benefit
- Great for employee attraction & retention
- Various options for plan design
- Vestwell handles annual IRS 5500 filing and any additional compliance testing
- Employer contributions are tax deductible up to IRS limits and employee contributions may reduce taxable income and grow tax-deferred
- Small businesses can receive tax credits that offset plan costs
Considerations
- Employer contributions required
- QACA safe harbor plans are the only plan types that allow a vesting schedule
- Plans including 100+ participants with an account balance may be subject to an annual CPA audit
Non-Safe Harbor 401(k)
Available to:
All businesses
Benefits
- Offered by Vestwell
- Great for employee attraction & retention
- Various options for plan design and vesting
- Employers can provide a generous employee benefit
- Vestwell handles annual IRS 5500 filing and compliance testing
- Employer contributions are tax deductible up to IRS limits and employee contributions may reduce taxable income and grow tax-deferred
- Small businesses can receive tax credits that offset plan costs
Considerations
- Annual compliance testing is mandatory
- Plans including 100+ participants with an account balance may be subject to an annual CPA audit
- Contributions may be limited for highly compensated employees
403(b)
Available to:
Nonprofits and certain public entities
Benefits
- Offered by Vestwell
- Employees generally immediately eligible to participate
- Simplified compliance testing relative to a 401(k)
- Great for employee attraction & retention
- Employers can provide a generous employee benefit
- Vestwell handles annual filing and any compliance testing
- Employee contributions may reduce taxable income and grow tax-deferred
Considerations
- Certain compliance tests may be required dependent on plan type
- Plans including 100+ participants with an account balance may be subject to an annual CPA audit
- 403(b) may have less name recognition for your employees than 401(k)
Which plan is best for your clients' goals?
Vestwell is here to help. Thousands of employers trust Vestwell to power their savings programs. Contact us at sales@vestwell.com, and our team of retirement plan experts can help you find the plan type best suited for your clients.