Retirement Plans for Small Practices: SIMPLE IRA, SEP and 401(k)

Retirement benefits are common across the private economy and noticeably rarer at the small end of it — which is the gap a plan lets a small practice close.

In the Bureau of Labor Statistics' National Compensation Survey, 72 percent of private-industry workers had access to retirement benefits in March 2026.

An access rate is the share of workers whose employer offers the benefit, not the share who take it.

Health care and social assistance — a broad BLS industry group that takes in hospitals, nursing homes and child care, not behavioral health practices alone — matched the national access rate at 72 percent, with 55 percent of workers participating.

Size is what separates: at private-industry establishments with 1 to 49 workers, only 55 percent of workers had access to retirement benefits, against 72 percent across all private industry.

A practice with 1 to 49 workers sits in that band, so when a clinician compares your offer against a hospital system's, the retirement line is one place you can close a gap without matching anyone dollar for dollar on salary.

A plan also compounds the rest of what you already offer.

It is one line in the benefits package — next to the CEU money, licensure fees, supervision support and malpractice coverage that guide walks through — and an employer match is a visible, concrete number you can put in an offer letter.

The behavioral health hiring hub collects how all of it fits together, stage by stage.

The rest of this page walks through the three plan types a small employer actually chooses between, then the state auto-IRA programs that can require you to register even if you offer nothing, and the SECURE 2.0 tax credits that offset the cost of setting up.

A SIMPLE IRA is the plan the IRS designed for employers your size: it is available to any small business — generally with 100 or fewer employees.

The trade-off is exclusivity: an employer maintaining a SIMPLE IRA cannot maintain any other retirement plan.

Employees fund it through salary deferrals.

For 2026, the deferral limit is $17,000, plus a $4,000 catch-up for participants age 50 or older — or $5,250 for those turning 60 through 63 in the year.

SECURE 2.0 adds a wrinkle worth checking before you write the limits off: employers with 25 or fewer employees get a higher employee deferral limit of $18,100 for 2026.

You are not a bystander — the employer contribution is mandatory, in one of two forms.

Each year you either match employee deferrals dollar for dollar up to 3 percent of compensation, or make a 2 percent nonelective contribution for every eligible employee — in either case counting compensation up to $360,000 for 2026.

The match scales with what employees choose to defer; the nonelective is owed for every eligible employee regardless of what they defer, which makes it a predictable flat cost and a benefit even for employees who defer nothing.

Coverage is broad by default: the plan must generally include any employee who received at least $5,000 in compensation from you during any two preceding calendar years and is expected to receive at least $5,000 in the current year.

You may use less restrictive rules than that.

Timing matters if you want the plan running this year: a new SIMPLE IRA plan can be set up effective on any date from January 1 through October 1 of a year, provided you did not previously maintain one.

Only businesses formed after October 1 can start later.

A SEP — simplified employee pension — is the other stripped-down option, and it works differently in one important way: all of the money comes from the employer.

Employees do not defer their own pay into a SEP-IRA; the practice funds it, and it must contribute equally — the same percentage of compensation — for all eligible employees.

A practice funding at, say, 20 percent funds every eligible employee's account at 20 percent; there is no matching formula to tune.

That single-percentage rule is the SEP's defining constraint.

A practice with a highly paid owner or senior clinician and modestly paid staff feels it quickly, because the owner's percentage is everyone's percentage.

Practices with a flatter pay spread absorb it more easily.

The 2026 ceiling is high: contributions to an employee's SEP-IRA are capped at the lesser of 25 percent of the employee's compensation or $72,000.

That headroom — well above the SIMPLE IRA's $17,000 deferral limit — is what makes a SEP attractive when the goal is maximizing how much goes into the owner's own account.

Eligibility is set by rule, and it screens differently than a SIMPLE IRA's: a SEP must cover each employee who is at least age 21, has worked for the employer in at least 3 of the last 5 years, and received at least the SEP minimum compensation amount — $800 for 2026.

Less restrictive rules are allowed, but the default tests screen out staff under 21, which the SIMPLE IRA's rule does not, and look back for work in 3 of the last 5 years rather than the SIMPLE IRA's $5,000 in any two preceding years.

The 401(k) is the plan candidates know, and its 2026 deferral limit of $24,500 — up from $23,500 in 2025 — sits well above the SIMPLE IRA's $17,000.

Participants age 50 and older add a catch-up contribution of $8,000, and a higher catch-up of $11,250 applies to participants who turn 60, 61, 62 or 63 during the year.

The combined ceiling matters once employer money enters: total annual additions to a participant's defined contribution plan account — employee plus employer, excluding catch-ups — are capped at $72,000 for 2026, counted on compensation up to $360,000.

The price of that headroom is administration.

A traditional 401(k) must pass annual nondiscrimination tests — the ADP and ACP tests — showing that deferrals and matching contributions do not favor highly compensated employees, which in a practice whose owners are its best-paid people is a real constraint.

A safe harbor 401(k) avoids those tests by making employer contributions that are fully vested when made: you commit to a known contribution in exchange for skipping the testing.

One more design change is settled by federal law: under SECURE 2.0 section 101, subject to exceptions, 401(k) and 403(b) plans established on or after December 29, 2022 must automatically enroll eligible employees, effective for plan years beginning after 2024.

If you are standing up a new 401(k) today, ask whether that requirement reaches your plan; the exceptions are spelled out in IRS Notice 2024-2, so confirm with your plan provider or tax adviser whether yours qualifies.

With all three on the table, the 2026 numbers side by side:

A dash means this guide's sources do not address that cell — not that no rule exists.

A retirement plan is not only a recruiting decision — in states with an auto-IRA program it is a compliance one too.

Each program confirmed below applies to employers that do not sponsor a qualified retirement plan; whether you register for the state program or certify an exemption depends on the program, and the size thresholds and deadlines differ by state.

Four are confirmed here from their own program or statute pages.

For the wider map, according to Georgetown University's Center for Retirement Initiatives (June 2026), 15 state auto-IRA programs are fully open to all eligible employers — California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Vermont and Virginia — with Washington's auto-IRA not scheduled to launch until July 2027.

• California: CalSavers was expanded by SB 1126 (2022) to employers with at least one employee; eligible employers must register unless they are exempt — for example, because they sponsor a qualified retirement plan.
• Illinois: Secure Choice applies to employers that employed at least 5 employees in Illinois during every quarter of the previous calendar year, have been in business at least 2 years, and do not offer a qualified retirement plan. After initial enrollment, new employees must be enrolled no later than 120 days after they are first employed.
• Oregon: OregonSaves applies only to businesses that do not offer a qualified retirement savings plan; employers that offer a plan, have no W-2 employees or are sole proprietors certify an exemption, and there are no employer fees.
• Colorado: SecureSavings is for employers that do not offer a qualified retirement plan; all eligible employers must register or certify their exemption by the deadline, it costs employers nothing, and employees can opt out.

Each of these four programs exempts or never reaches employers that sponsor a qualified retirement plan — which turns the mandate into an input for the plan decision on this page rather than a separate project.

Two scope cautions.

First, the 15-state figure is Georgetown CRI's tally as of June 1, 2026, not a state-by-state statutory verification, so treat it as a map of where programs exist and confirm your own state's threshold and deadlines with the program directly.

Second, the absence of a state from that list is not proof no mandate applies to you: Texas, Florida and Pennsylvania do not appear on CRI's June 2026 list of active state programs, but CRI also reports a Philadelphia city auto-IRA is expected to be implemented — so a Philadelphia practice still has a local question to ask.

The IRS offsets setup costs with a tax credit of up to $5,000 a year, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan such as a 401(k).

Eligibility turns on size — you had 100 or fewer employees who received at least $5,000 in compensation from you in the preceding year — and the plan must have at least one non-highly compensated participant.

The percentage depends on how small you are.

With 50 or fewer employees who received at least $5,000, the credit is 100 percent of eligible startup costs, up to the greater of $500 or the lesser of $250 multiplied by the number of eligible non-highly compensated employees or $5,000; employers with 51 to 100 employees get 50 percent.

The per-employee formula, not the paperwork bill, sets your ceiling — run your headcount through it with your tax preparer.

SECURE 2.0 layered a second credit on top: employers with 1 to 50 employees can also claim a credit for employer contributions to a new defined contribution plan, SEP or SIMPLE IRA of up to $1,000 per participant — 100 percent of the contribution in years one and two, 75 percent in year three, 50 percent in year four and 25 percent in year five.

The credit phases down by 2 percentage points for each employee above 50, and it does not apply to employees earning above an indexed wage threshold, which the IRS page states only as $100,000 for 2023 — a current (2026) figure was not published on the sources this page read, so check the threshold in effect before you count on it.

And if your new 401(k) auto-enrolls — whether the federal requirement applies or you choose it — note that the auto-enrollment feature carries its own credit: an employer that adds an eligible automatic enrollment feature to a new or existing plan can claim an additional $500 tax credit per year for three years.

One rule catches people: you cannot both deduct retirement plan startup costs and claim the startup tax credit for the same expenses — pick one treatment per dollar, with your tax preparer.