What retirement plan works best when my business has 20 employees?
A practical owner tax decision
The direct answer
An owner with 20 employees should compare a 401(k) with employer contributions, safe harbor features, and possibly a defined benefit design. Eligibility, nondiscrimination tests, turnover, owner age, and staff cost may drive the choice more than the owner's profit.
Work through the facts
A 20-person company may find that a one-participant solo 401(k) is unsuitable and that a conventional 401(k) requires nondiscrimination testing or safe-harbor contributions. Model several employee eligibility and contribution designs against owner benefits.
Employee demographics alter plan economics. A mature owner with a young staff may see one result under a defined benefit formula; a similarly profitable owner with older, long-tenured employees may see another. Plan testing, required notices and administration are annual commitments. Model the next three years rather than looking only at this year's deduction.
A plan quoted only on the owner's maximum deduction omits staff coverage and recurring administrative costs.
Records to prepare
Obtain the census with ages, compensation and service, current plan document, projected profit and turnover information.
Compare the available choices on the same set of facts, including current-year tax, later-year effects and administrative cost. A hypothetical illustration is not a filed client result or a promised tax saving.
Primary reference and next step
Review the official guidance for the relevant tax year. The entity documents, complete return, actual transactions and applicable state rules should be checked before implementation.
Talk Through Your Situation
Every situation turns on its own facts. Schedule a discovery call and we will walk through what applies to you, what it is worth, and what it would take to put it in place.