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As creative and marketing agencies grow past the half-million and million-dollar marks, taxes become one of the largest expenses in the business. One of the most widely recommended ways to reduce that tax burden is to invest in a retirement plan.
Yet here’s the uncomfortable truth, most retirement plans recommended to small business owners are designed for solo operators.
Once an agency begins hiring employees, several new factors must be considered:
What worked during the early stages may no longer be efficient once a team is involved. Continuing to use the same plan can lead to thousands of dollars in unnecessary contributions, fees, and compliance costs each year.
SEP IRAs are simple to set up and work well for owners with no W-2 employees. They are often recommended because of their convenience and the ability to make relatively large contributions based on salary.
For solo operators with stable profits, they are a great option.
Under SEP IRA rules, employer contributions must be applied equally as a percentage of salary across all eligible employees.
For example, if you contribute $20,000 on a $100,000 salary and have a project manager earning $60,000, that employee would receive a $12,000 contribution from you as well. As payroll grows, required contributions can increase quickly, regardless of profitability in a given year. This makes SEP IRAs more expensive than expected.
Use this only if you are solo and staying solo for a while.
Solo 401(k) plans offer more flexibility than SEP IRAs and allow for higher total contributions. They also include both traditional and Roth contribution options.
They are best for owners with no employees or only a spouse on payroll.
Once you hire full-time employees, you cannot keep a Solo 401(k). The plan must transition into a traditional 401(k) structure.
Traditional 401(k) plans require annual nondiscrimination testing. These tests compare owner contributions to employee contributions to ensure fairness across the plan.
If the gap between owner and employee contributions is too large, excess contributions may need to be refunded and become taxable income.
Safe Harbor 401(k) plans are best for creative agencies that:
These plans allow owners to contribute the maximum allowable amount while avoiding nondiscrimination testing.
Safe Harbor plans use a defined employer contribution formula, typically around 3–4% of employee pay. This is significantly less aggressive than SEP IRAs’ contribution requirements, which must match the owner’s contribution percentage, and more predictable than a traditional 401(k).
Because Safe Harbor plans satisfy testing requirements upfront, owners can make full contributions without worrying about year-end refunds or adjustments.
For agencies competing for experienced designers, marketers, developers, and project managers, offering a structured retirement plan can signal stability, sophistication, and long-term planning. It can also support more competitive compensation packages and improve retention.
Even if a Safe Harbor 401(k) is the best option for growing creative agencies, timing matters.
There are situations where it is better not to pull the trigger on such retirement plan yet if:
In these situations, simpler options may still be appropriate in the short term.
If the agency is not yet stable enough for a structured employer plan, a personal IRA may be a practical temporary option.
As of 2026:
Contributions can be made until April 15 of the following year.
A Roth IRA provides:
Even if income exceeds direct contribution limits, a backdoor Roth strategy still allows contributions.
Here is the blueprint in a nutshell.
Solo owner, no plans to hire employees
Use a Solo 401(k) for maximum savings or a SEP IRA for simplicity.
Solo now, but planning to hire soon
Prepare and plan to transition to a Safe Harbor 401(k).
Agency with employees and stable revenue
Safe Harbor 401(k) is often the best option if you plan to maximize your contributions.
Cash flow is tight or heavy reinvestment phase
Use a personal IRA temporarily and revisit later.
The most effective retirement plan is not necessarily the simplest one. It is the one that aligns with the size, stability, and direction of the agency.
Using the wrong plan can result in unnecessary costs and missed long-term opportunities. As agencies grow, retirement planning should evolve alongside hiring, compensation, and profitability.
Ready to partner with our expert team? Book a free discovery call today.
The SEP IRA does not need to be closed, but you should stop making contributions to it once the Safe Harbor 401(k) becomes your primary retirement plan.
Existing SEP IRA funds can remain invested and continue growing tax-deferred. Many owners choose to either:
Keep in mind that rollovers between accounts are generally tax-free unless funds are converted to a Roth.
Once you hire eligible full-time employees, a Solo 401(k) can no longer remain open.
The most common paths are:
Existing contributions are not lost. They are simply transitioned into the new plan once employees are hired.
Yes, this is the whole point of having a Safe Harbor plan. As an employer, in exchange for maximizing your owner contributions without nondiscrimination testing, you commit to a minimum matching contribution formula (typically 3–4% of each eligible employee’s salary). These plans require employer matching contributions regardless of whether the owner contributes personally.
This is because this type of plan automatically satisfies IRS nondiscrimination testing rules. In exchange for that benefit, the employer must commit to a minimum matching contribution formula.
Yes, Safe Harbor plans require employer matching contributions regardless of whether the owner contributes personally.
This is because this type of plan automatically satisfies IRS nondiscrimination testing rules. In exchange for that benefit, the employer must commit to a minimum matching contribution formula.
You could be completely absolved only if employees choose not to contribute from their salaries, even if you make contributions to your own plan.
Any employee deferrals (from you as an owner or from your employees) must be deposited as soon as administratively feasible after the payroll run but no later than 7 business days after the run.
Employer Safe Harbor matching contributions are more flexible. They are due by the business entity tax filing deadline, including extensions:
Implementing and maintaining a Safe Harbor plan with employees requires a structured cash management system to sustainably grow and build wealth.
Jose Cardenas, CPA, EA
Jose is a Certified Public Accountant in the state of Florida and an Enrolled Agent, and is the Founder and Managing Member of Westfront Tax & Accounting. He works with creative and marketing agencies with team structures that need more than year-end tax preparation. Through structured monthly accounting and proactive tax planning, he helps agency owners gain clarity over cash flow, margins, and long-term financial strategy. With a background in manufacturing finance, Jose brings a unique operational perspective and the ability to break down labor, pricing, and cost structure, helping agencies operate with stronger financial control as they scale.
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