For many small business owners, focusing on immediate goals such securing lending or growing their business can leave little room to adequately consider the future and retirement plans–a situation reflected in a survey from Fidelity Investments that found 53 percent of the nation’s six million small businesses may not have the retirement plan best suited for their needs. “This confirmed to us what we really see in practice, which is that small business owners wear many hats and don’t have a lot of time to devote to this type of thing,” says Anne Coveney, vice president at Fidelity Investments.

The survey presented basic questions about the features and benefits of SEP IRAs, SIMPLE IRAs, and Self-Employed 401(k)s to 500 small business owners, with respondents answering 66 percent correctly, on average; only 10 percent managing to get a perfect score; and about 26 percent scoring lower than 50 percent. Coveney says what was truly noteworthy in the study was that 90 percent of small business owners believed they were in the right retirement plan, yet more than half may not have an optimal plan in place. “This was really illuminating to us because we felt there was some additional awareness that would benefit them to the fact that they may not be in the correct plan or a plan that best fits their needs,” Coveney says.

Coveney goes on to debunk some of the common misconceptions of SEP IRA, SIMPLE IRA, and Self-Employed 401(k) retirement plans that small business owners who took the survey appeared to be in the dark about:


  • Funded solely by employer contributions
  • Employer tax filings are required
  • Maximum contribution limit for 2012 is $50,000 or 25 percent of the employee’s salary, whichever is the lesser amount


  • May be funded by both the employer and employee
  • Employer tax filing is not required
  • Maximum contribution limit from an employee for 2012 is $11,500
  • For employees 50-years-old and up, catch-up contributions are allowed with a 2012 limit of $2,500
  • Employers may choose between non-elective or matching contributions

Self-Employed 401(k)

  • Maximum contribution limit for 2012 is $17,000
  • For employees 50-years-old and up, catch-up contributions are allowed with a 2012 limit of $2,500
  • This plan is not appropriate for a business with employees other than a spouse

On average, the businesses in the survey have been in business for 18 years, which Coveney believes is where the disconnect between knowing and not knowing retirement plan basics could stem from. “So it may have been awhile since they set the plan up. What we always tell customers is to confirm their current situation,” she says. “Their plan may have changed and, particularly in the wake of the great recession, their businesses may have changed as well.”