Maximizing Retirement Tax Deferrals in 2025: When to Change Your Plan
Companies looking to maximize their retirement savings may require a new approach to their plan strategies. But when should an organization shift plans, and what plans are best for different businesses? Below, we’ve outlined a laddering system to help you navigate different plans, with each option offering a more advanced structure and increased annual tax-deferred contribution limits. Some structures also offer combined plans to provide even more savings, particularly for high earners.
Six Retirement Plan Structures to Maximize Tax Deferrals in 2025
The following plan structures offer benefits to businesses at different stages of growth, beginning at the top of the list with the lowest deferral and ending at the bottom of the list with the highest tax-deferral option among our plans.
6. Simple IRA
Max Deferral 2025: ~$17,000 with a $3,500 catch-up
Simple IRAs offer low contribution limits and require employer matching, making them best for small businesses with fewer to no team members and lower revenue. They also have higher contribution limits compared to standard IRAs, though still lower than a 401(k), and offer immediate vesting.
Best for: Very small businesses that are just starting out.
5. SEP IRA
Max Tax-Deferred Contribution 2025: Up to 25% of compensation with a cap at $69,000
SEP IRAs offer a higher contribution limit compared to standard and SIMPLE IRAs, but offer no employee deferrals. Contributions are immediately vested, but contributions must be the same percentage for all eligible employees, making them often better suited for small organizations.
Best for: Self-employed or small employers with few or no employees
4. Standalone 401(k)
Total contributions in 2025: Up to $69,500 for those under age 50, or $77,000 for those age 50 or over. Max tax-Deferred Contributions in 2025:
$23,000 employee deferral
$7,500 catch-up (age 50+)
$46,500 employer contribution
401(k)s are often the first plan when people think of retirement. Standard standalone 401(k) plans can help reduce taxable income, and if the employer opts for it, matching contributions to incentivize employee savings. However, 401(k) plans can be more expensive and complex for employers than plans earlier on our list.
Best for: Small to midsize businesses with employees
3. 401(k) + Safe Harbor Match
Max Tax-Deferred Contribution 2025: Up to $77,000 for those age 50 or over.
This plan structure provides many of the same benefits as a standard 401(k), with an additional Safe Harbor match and Profit Sharing of up to 25% of pay. A Safe Harbor Match also provides automatic compliance with IRS nondiscrimination testing, allowing highly compensated employees to max out their yearly contributions.
Best for: Businesses looking for larger contributions and Safe Harbor testing relief
2. 401(k) + New Comparability Profit Sharing
Max Tax-Deferred Contribution 2025: Up to $77,000 for those age 50 or over.
This plan structure allows for weighted allocations favoring owners and key employees. It also requires nondiscrimination testing to ensure the plan is fair to all other employees. Employer contributions can also fluctuate depending on company performance, allowing organizations to reduce costs when needed.
Best for: Business owners wanting to maximize contributions for a select group while controlling staff costs.
1. 401(k)/Profit Sharing and Market-Based Cash Balance Plan
Max Tax-Deferred Contribution 2025: For those age 55-65: $330,000 - $415,000+ per participant.
This plan structure combines the transparency of a defined contribution plan with the increased tax-deferral limits of a defined benefit plan to offer the best of both approaches. The features of a defined benefit plan also make retirement from this structure predictable. Read our complete guide to cash balance plans to learn more about the advantages of this plan structure.
Best for: High-earning owners, partners, and professionals looking for aggressive tax deferral and long-term funding strategies.
Start Designing Your Plan Today
Whether you need to reward key executives, reduce tax exposure, or boost retention with long-term wealth-building benefits, October Three can help. Request your free Cash Balance illustration today.