ExamFinch.com My Study

Study guide

F.50 Retirement Plan Selection for Businesses

Practice this exam

Certified Financial Planner CFP

Track your progress as you read

Finished sections get a check mark.

1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

F.50 Retirement Plan Selection for Businesses

Key Takeaways Explain This Topic AI

SEP-IRA allows employer contributions up to 25% of compensation or $72,000 (2026), with 3-of-5 year eligibility and establishment by tax filing deadline

SIMPLE IRA permits $17,000 employee deferrals (2026) plus 3% match or 2% non-elective employer contribution; limited to employers with 100 or fewer employees

Solo 401(k) maximizes contributions for self-employed: $24,500 employee deferral + 25% employer contribution up to $72,000 (2026)

403(b) plans serve tax-exempt organizations and public schools with similar contribution limits to 401(k) plus special 15-year catch-up

  • 457(b) plans offer government employees unique double-deferral opportunities with standard employer plans
  • Last updated: October 2026

Retirement Plan Selection for Businesses

Selecting the right retirement plan is one of the most important decisions a business owner makes. The optimal choice depends on factors including business size, cash flow predictability, desired contribution flexibility, and whether the goal is to maximize owner benefits or provide broad employee coverage. This section examines the major plan types available to businesses and provides a framework for making the right selection.

SEP-IRA: Simplified Employee Pension

The Simplified Employee Pension (SEP-IRA) is the easiest retirement plan to establish and maintain, making it popular among small businesses and self-employed individuals.

2026 SEP-IRA Contribution Limits

  • Parameter 2026 Limit
  • Maximum contribution Lesser of 25% of compensation or $72,000
  • Compensation cap $360,000
  • Self-employed contribution Approximately 20% of net self-employment income
  • Key SEP-IRA Features

Employer-only contributions : Only the employer contributes to a SEP-IRA. Employees cannot make elective deferrals, which simplifies administration but limits employee participation.

3-of-5 eligibility rule : Employees must be covered if they:

  • Are at least 21 years old
  • Have worked for the employer in 3 of the past 5 years
  • Received at least $800 in compensation during the year (2026)

Flexible and discretionary : Employers can vary contribution amounts year-to-year, contributing 0% to 25% based on business performance. However, all eligible employees must receive the same percentage.

Late establishment : A SEP can be established and funded by the employer's tax filing deadline, including extensions. This is unique among retirement plans and allows retroactive planning.

Immediate 100% vesting : All contributions are immediately and fully vested to employees.

SEP-IRA Advantages and Disadvantages

  • Advantages Disadvantages
  • Simplest to establish and administer No employee deferral option
  • Lowest administrative costs Must cover all eligible employees equally
  • Flexible annual contributions Cannot skew benefits to owners
  • Can establish after year-end Early withdrawal penalties apply (10%)
  • SIMPLE IRA: Savings Incentive Match Plan for Employees

The SIMPLE IRA bridges the gap between SEP-IRAs and traditional 401(k) plans, offering employee deferral contributions with simpler administration than a 401(k).

2026 SIMPLE IRA Contribution Limits

  • Contribution Type Standard Limit Small Employer (<=25 employees)
  • Employee deferral (under 50) $17,000 $18,100
  • Catch-up (age 50-59 or 64+) $4,000 $3,850
  • Super catch-up (age 60-63) $5,250 $5,250
  • Maximum employee contribution (age 60-63) $22,250 $23,350
  • Employer Contribution Requirements

Employers must choose ONE of these contribution formulas each year:

  • Option 1: Matching contribution
  • Match 100% of employee deferrals up to 3% of compensation
  • Can reduce to 1% match in 2 of any 5 years
  • Option 2: Non-elective contribution
  • Contribute 2% of compensation to ALL eligible employees
  • Made regardless of whether employee defers
  • SIMPLE IRA Eligibility and Restrictions

Employee eligibility :

  • Earned at least $5,000 in any 2 preceding years
  • Reasonably expected to earn $5,000 in current year

Employer eligibility :

  • 100 or fewer employees earning $5,000+ in preceding year
  • Cannot maintain another qualified plan simultaneously

25% early withdrawal penalty : Withdrawals within the first 2 years of participation are subject to a 25% penalty (instead of the usual 10%). After 2 years, the standard 10% penalty applies.

SIMPLE IRA Advantages and Disadvantages

  • Advantages Disadvantages
  • Employee deferral contributions allowed 100-employee limit
  • Lower administrative costs than 401(k) Mandatory employer contributions
  • No discrimination testing required Lower contribution limits than 401(k)
  • 100% immediate vesting 25% penalty for early withdrawals in first 2 years
  • Solo 401(k): Maximizing Self-Employed Retirement Savings

The Solo 401(k) (also called Individual 401(k) or Self-Employed 401(k)) allows self-employed individuals and business owners with no full-time employees (except a spouse) to maximize retirement contributions.

2026 Solo 401(k) Contribution Limits

  • Contribution Type 2026 Limit
  • Employee deferral (under 50) $24,500
  • Employee deferral (age 50-59 or 64+) $32,500
  • Employee deferral (age 60-63) $35,750
  • Employer contribution Up to 25% of compensation
  • Total annual limit (under 50) $72,000
  • Total annual limit (age 50-59 or 64+) $80,000
  • Total annual limit (age 60-63) $83,250
  • Dual Contribution Advantage

The Solo 401(k)'s power comes from combining roles:

As employee : Defer up to $24,500 (2026) of compensation As employer : Contribute up to 25% of compensation

Example : A self-employed consultant with $100,000 net income:

  • Employee deferral: $24,500
  • Employer contribution: $20,000 (20% of net self-employment income)
  • Total: $44,500
  • Solo 401(k) Features
  • Loan provisions : Can borrow up to $50,000 or 50% of vested balance
  • Roth option : Many plans offer Roth 401(k) contributions
  • Spouse participation : Working spouse can also contribute
  • No discrimination testing : Owner-only plans exempt from ADP/ACP tests
  • 403(b) Plans: Tax-Exempt Organizations

403(b) plans (Tax-Sheltered Annuities or TSAs) are available to:

  • Public school employees
  • Employees of 501(c)(3) tax-exempt organizations
  • Certain ministers
  • 2026 403(b) Contribution Limits
  • Contribution Type 2026 Limit
  • Employee deferral (under 50) $24,500
  • Standard catch-up (age 50+) $8,000
  • Super catch-up (age 60-63) $11,250
  • 15-year catch-up (HER organizations) Up to $3,000/year
  • Total annual addition limit $72,000
  • 15-Year Catch-Up Rule

Employees of Health, Education, and Religious (HER) organizations with 15+ years of service may contribute an additional $3,000 per year, up to a $15,000 lifetime maximum. This is in addition to age-50 catch-ups.

  • Maximum 403(b) deferral (age 60-63 with 15-year catch-up) : $24,500 + $11,250 + $3,000 = $38,750
  • 403(b) Investment Options
  • Annuity contracts from insurance companies
  • Mutual funds held in custodial accounts
  • Collective investment trusts (added by SECURE 2.0)
  • 457(b) Plans: Government and Tax-Exempt Employers

457(b) plans are deferred compensation arrangements for:

  • State and local government employees
  • Employees of tax-exempt organizations (limited participation)
  • 2026 457(b) Contribution Limits
  • Contribution Type 2026 Limit
  • Employee deferral (under 50) $24,500
  • Standard catch-up (50+) - Governmental only $8,000
  • Final 3-year catch-up Up to $24,500 additional
  • Maximum in final 3 years $49,000
  • Double-Deferral Opportunity

Government employees with both a 457(b) and a 401(k) or 403(b) can defer to BOTH plans:

  • 457(b): $24,500
  • 401(k) or 403(b): $24,500
  • Total: $49,000 (before catch-ups)
  • Governmental vs. Tax-Exempt 457(b)
  • Feature Governmental Tax-Exempt 501(c)
  • Asset protection Protected in trust Subject to employer creditors
  • Rollovers To IRA, 401(k), 403(b) Only to other 457(b)
  • Age-50 catch-up Yes No
  • Eligible employees All employees Top-hat group only
  • Plan Selection Decision Framework
  • Factors to Consider

Business size and workforce :

  • Solo practitioner with no employees: Solo 401(k)
  • Small business with 1-5 employees: SEP or SIMPLE
  • Growing business planning to hire: SIMPLE or 401(k)
  • 100+ employees: Traditional 401(k)

Cash flow and contribution flexibility :

  • Variable profits: SEP-IRA (0-25% flexibility)
  • Stable income: SIMPLE or 401(k)
  • Maximize owner contributions: Solo 401(k)

Administrative capacity :

  • Minimal administration: SEP-IRA
  • Moderate administration: SIMPLE IRA
  • Full-service capabilities: 401(k)
  • Quick Comparison Chart
  • Feature SEP-IRA SIMPLE IRA Solo 401(k) 403(b) 457(b)
  • Max contribution (2026) $72,000 $22,250 $72,000 $72,000 $49,000
  • Employee deferrals No Yes Yes Yes Yes
  • Employer required contrib No Yes No Varies No
  • Loan provision No No Yes Yes Yes
  • Max employees Unlimited 100 0 (or spouse) Varies Varies
  • Filing requirements None None Form 5500-EZ (over $250K) Yes Yes
  • On the CFP Exam

Expect questions testing your ability to:

  • Match appropriate plan types to business scenarios
  • Calculate maximum contributions under different plans
  • Identify eligibility requirements (3-of-5 for SEP, $5,000 for SIMPLE)
  • Distinguish between employer and employee contribution types
  • Recognize special catch-up provisions (15-year, super catch-up, final 3-year)