How to Set Up a Retirement Plan for Your Small Business in Pennsylvania
Federal tax credits can cover 100% of startup costs for businesses with 50 or fewer employees. Learn how to choose between a SIMPLE IRA, 401(k), or SEP-IRA with PAC Financial in Harrisburg.
Setting up a retirement plan for your small business costs less than most owners think. In many cases, federal tax credits cover the ENTIRE startup cost for the first three years. PAC Financial, a family-owned financial advisory firm in Harrisburg, Pennsylvania, helps Central PA business owners choose the right plan, set it up, and claim every credit available under the 2026 tax code.
Here is what you need to know to get started.
Which Retirement Plan Fits Your Business?
Three plan types cover 90% of small businesses. Each works differently. The right choice depends on your employee count, your budget, and how much flexibility you want.
SIMPLE IRA
Best for: Businesses with 100 or fewer employees that want a low-cost, low-paperwork option.
Employee contribution limit: $17,000 in 2026 (or $18,100 for certain applicable plans).
Catch-up: $4,000 ($5,250 if aged 60-63).
Employer requirement: Match employee contributions dollar-for-dollar up to 3% of pay, OR contribute a flat 2%.
Admin burden: Low. No annual compliance testing.
401(k)
Best for: Growing businesses that want higher limits and more features.
Employee contribution limit: $24,500 in 2026.
Catch-up: $8,000 ($11,250 if aged 60-63).
Employer options: Match at any formula you choose. Add profit-sharing. Offer Roth 401(k). Allow participant loans.
Admin burden: Medium. Requires annual compliance testing (unless choosing a Safe Harbor plan).
SEP-IRA
Best for: Self-employed owners and very small businesses with few employees.
Contribution limit: Up to 25% of compensation, capped at $73,000 in 2026.
Key detail: Only the employer contributes. Employees do not make their own contributions.
Admin burden: Very low. One form to open.
A dental practice in Mechanicsburg with 8 employees might start with a SIMPLE IRA. A construction company in Dauphin County with 40 employees might need a 401(k) with profit-sharing. The plan should fit the business, not the other way around.
What Tax Credits Can Your Business Claim in 2026?
The SECURE 2.0 Act created two powerhouse credits that make starting a retirement plan almost free for small businesses.
- Startup Cost Credit: Up to $5,000 per year for three years. For businesses with 50 or fewer employees, this covers 100% of your admin and setup costs.
- Employer Contribution Credit: Up to $1,000 per employee per year for employer contributions. For a 15-person shop, that is up to $15,000 in dollar-for-dollar tax credits in year one.
For many Central PA businesses, the tax credits are actually LARGER than the cost of the plan itself.
Why Pennsylvania Business Owners Have an Extra Advantage
Pennsylvania does not tax retirement income at the state level. That means your employees' 401(k) distributions and SIMPLE IRA withdrawals will not be taxed by PA when they retire. This is a massive recruiting advantage over neighboring states like New Jersey or Delaware, where retirement income is often taxed heavily. Your team in Harrisburg gets a better deal in retirement just by living and working here.
What About the Keystone Saves Program?
Pennsylvania is moving closer to a state-run retirement program called Keystone Saves. If it passes the Senate (as HB 1263), businesses with five or more employees without a plan will be forced into a state-managed Roth IRA. Setting up your own SIMPLE IRA or 401(k) today exempts you completely. You keep control of the plays and the investment strategy.
Talk to PAC Financial
Setting up a retirement plan is like building your offensive line. It protects your team, your taxes, and your freedom from state mandates. Call PAC Financial at (717) 564-6400 for a free consultation. We serve Harrisburg, Mechanicsburg, Camp Hill, Hershey, and all of Central PA.
Compliance Notice
This information is provided for educational purposes only. Tax implications vary based on individual circumstances. Consult with a qualified tax professional. PAC Financial is a financial advisory firm serving Central Pennsylvania. Securities and advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC.