Many business owners tend to think of 401(k)s as the standard retirement plan solution, but it may not always be the right fit. There are different retirement plan options available to meet a variety of business needs, each providing tax advantages to employers and in some cases their participants. Below are the pros and cons of the most popular 401(k) and IRA options for small businesses.

What is the difference between offering a 401(k) vs. an IRA?

Investment options

• 401(k)s are plan solutions that employees are offered in larger organizations which allow employees to defer a percentage of their income, typically pre-tax, into a retirement savings account. Contributions are then put into various assets selected by the plan provider (often mutual funds). Plan providers control the options for investments, which in some cases can limit the participant's ability to diversify their retirement portfolio.
• Individual Retirement Accounts (IRAs) can be opened by anyone, including small businesses, and are typically held by a bank, investment firm, or an IRA custodian. IRAs tend to be more flexible than 401(k)s and they cost less to administer. Traditional investments like stocks, bonds, and mutual funds can be held in an IRA, however, the account holder can also wrap in alternative assets like real estate, private placements, and precious metals.   

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