A retirement plan is usually the largest deduction a profitable trade business owner isn't taking. It also helps retain good technicians in a market where they can change jobs within a week.
The three plan types compared
| SIMPLE IRA | SEP IRA | Safe harbor 401(k) | |
|---|---|---|---|
| Employee deferral (2026) | $17,000 ($18,100 with 25 or fewer employees) | None | $24,500 |
| Catch-up at 50+ | $4,000 ($3,850 with 25 or fewer employees) | None | $8,000 |
| Employer contribution | 3% match or 2% of pay for everyone | Up to 25% of pay, same % for all | Safe harbor match plus optional profit sharing |
| Max per person | Deferral, catch-up, and 3% of pay (about $26,450 at $150,000 pay, age 50+) | $72,000 | $72,000 plus catch-up |
| Admin cost | Very low | Very low | Moderate |
If you are buying a truck, adding crew, or weighing a 401(k) before year-end, Summer Associates can model the federal and Connecticut result first.The first consultation is free, with no obligation.
Book a free consultationWhen each plan fits
For a shop of 5–25 employees whose owner is comfortable saving about $17,000 to $27,000 a year, a SIMPLE IRA is a good fit. It is inexpensive and quick to set up.
A SEP IRA works for a solo operator or a shop where the owner is the only high earner. Because you must contribute the same percentage of pay for every eligible employee, a SEP becomes expensive with a crew.
Owners who want to save $50,000 to $80,000 a year are best served by a safe harbor 401(k). The safe harbor match, for example 100% of the first 4% deferred, satisfies the ADP/ACP nondiscrimination tests automatically. A profit-sharing layer with a new comparability allocation can direct more employer dollars to owners within the rules, but it must pass its own nondiscrimination testing, which usually means a minimum contribution for staff.
Key numbers: 401(k) $24,500 · catch-up $8,000, Roth-only if prior-year wages topped $150,000 · ages 60–63 catch-up $11,250 · SIMPLE $17,000, or $18,100 with 25 or fewer employees · total DC limit $72,000 · compensation limit $360,000.
SECURE 2.0 credits lower startup costs
Employers with up to 50 employees can claim a startup credit of up to 100% of eligible plan setup and administration costs for three years. The credit is capped at the greater of $500 or $250 per eligible non-highly compensated employee, up to $5,000. A separate credit of up to $1,000 per employee helps offset employer contributions in the early years, and auto-enrollment adds another $500 a year.
A worked example
An HVAC owner, age 52, pays herself $150,000 in W-2 wages through an S corp and has 10 employees earning an average of $60,000.
- SIMPLE IRA: an $18,100 deferral at the higher limit for shops with 25 or fewer employees, plus a $3,850 catch-up and a 3% match of $4,500, comes to $26,450 for her. The match for staff costs up to $18,000.
- Safe harbor 401(k) with profit sharing: a $24,500 deferral, plus an $8,000 catch-up, a 4% match of $6,000, and profit sharing up to the limit, comes to about $80,000. Staff cost depends on plan design and is often 5–7% of pay.
At a combined 35% federal and state rate, the extra $53,550 she can defer saves about $18,700 a year in current tax. The example assumes her prior-year wages were $150,000 or less. Above that level, SECURE 2.0 requires her 401(k) catch-up to go in as Roth, with no current deduction. That rule doesn't apply to SIMPLE IRAs.
Common mistakes
- Choosing a SEP with a crew and then being surprised by the required employee contributions.
- Missing the October 1 deadline to set up a new SIMPLE IRA, or the notice deadlines for safe harbor plans.
- Excluding eligible part-time employees under SECURE 2.0's long-term part-time rules.
- Depositing employee deferrals late, a frequent Department of Labor finding.
How Summer Associates helps
Summer Associates models each plan against your real payroll, works with a third-party administrator on design, and claims the startup credits on your return.
Sources
This guide is general education based on federal and Connecticut law as of 2026-11-15. State rules differ and facts matter. Before acting, get advice for your situation from Summer Associates or another qualified advisor.