IRA/ Roth IRA

Understanding Retirement Plan Requirements for Small Businesses

Colorado SecureSavings and State Retirement Mandates

As a small business owner, offering a retirement plan can help employees prepare for their future while providing valuable tax benefits to your business. In some states, including Colorado, certain employers are required to either offer a qualified retirement plan or participate in a state-sponsored retirement savings program.

Colorado SecureSavings Program

Colorado SecureSavings Program is a state-sponsored retirement savings program designed for employees whose employers do not offer a retirement plan.

Colorado Employer Requirements

Colorado employers generally must register for Colorado SecureSavings if they:

• Have 5 or more employees
• Have been in business for at least 2 years
• Do not already offer a qualified retirement plan

Eligible employees are automatically enrolled and may opt out at any time.

Employee Contributions

• Contributions are made through payroll deductions.
• The default contribution rate is generally 5% of pay unless the employee chooses a different amount.
• Accounts are Roth IRA-based and owned by the employee.

Employer Responsibilities

Employers are required to:

• Register with the program.
• Facilitate payroll deductions.
• Submit employee contributions.

Employers are not required to make matching contributions.

How to Exempt Your Business from Colorado SecureSavings

An employer is exempt if it offers a qualified retirement plan such as:

• 401(k) Plan
• Safe Harbor 401(k)
• SIMPLE IRA
• SEP IRA
• 403(b) Plan
• Profit Sharing Plan
• Defined Benefit Pension Plan

IRS Retirement Plan Options for Small Businesses

1. SIMPLE IRA

Best for businesses with 100 or fewer employees.

IRS Rules

Under Internal Revenue Code Section 408(p):

• Employer must either:
  • Match employee contributions up to 3%, or
  • Make a 2% non-elective contribution for eligible employees.
• Easy administration.
• Lower costs than a 401(k).

Advantages

• ✓ Simple to establish
• ✓ Mandatory employer contribution
• ✓ No annual Form 5500 filing
• ✓ Can satisfy Colorado retirement mandate

2. SEP IRA

Best for self-employed individuals and small businesses.

IRS Rules

Under Internal Revenue Code Section 408(k):

• Employer contributions only.
• Employees cannot defer salary.
• Employer generally contributes the same percentage for all eligible employees.

Advantages

• ✓ Very easy administration
• ✓ Flexible annual contributions
• ✓ No annual IRS reporting
• ✓ Exempts employer from Colorado SecureSavings

3. Traditional 401(k)

Governed by:

• Internal Revenue Code Section 401(k)
• ERISA regulations

Advantages

• ✓ Higher contribution limits
• ✓ Employee salary deferrals
• ✓ Employer match optional
• ✓ Loans may be available
• ✓ Strong recruitment and retention tool

Considerations

• More administration
• Annual testing requirements
• Form 5500 filing required

4. Safe Harbor 401(k)

A popular option for small business owners who want to maximize contributions.

IRS Requirements

Employers must provide:

• 3% non-elective contribution, or
• Safe Harbor matching contribution formula

Benefits

• ✓ Avoids most nondiscrimination testing
• ✓ Owners can maximize contributions
• ✓ Exempts employer from state retirement mandates

Why Many Small Businesses Choose a Retirement Plan Instead of State Programs

A qualified retirement plan can provide:

For Employers

• Tax deductions for contributions
• Potential federal tax credits for starting a new plan
• Better employee recruitment and retention
• Greater flexibility and control

For Employees

• Potentially higher contribution limits
• Employer contributions
• Investment flexibility
• Long-term retirement savings opportunities

Other States With Retirement Mandates

Several states have enacted similar programs:

Most of these programs follow a similar approach: employers that do not offer a qualified retirement plan must facilitate payroll deductions into state-sponsored Roth IRA accounts.

What Is Usually the Best Choice?

Sole Proprietor or Self-Employed

• SEP IRA or Solo 401(k)

Small Business (1–10 Employees)

• SIMPLE IRA
• Safe Harbor 401(k)

Growing Business (10+ Employees)

• Safe Harbor 401(k)
• Profit Sharing Plan

Businesses Wanting to Avoid Colorado SecureSavings

• Establish a SIMPLE IRA, SEP IRA, or 401(k) plan before state deadlines.

Important IRS References

• IRC §401(k) – Cash or Deferred Arrangements
• IRC §408(k) – SEP IRA Rules
• IRC §408(p) – SIMPLE IRA Rules
• ERISA (Employee Retirement Income Security Act of 1974)
• SECURE Act of 2019
• SECURE 2.0 Act of 2022

Disclaimer: This information is for educational purposes only and is not tax, legal, or investment advice. Business owners should consult with qualified tax, legal, and retirement plan professionals regarding their specific situation and compliance obligations.