Retirement contributions

Retirement contributions refer to the money set aside—either by an employee, employer, or both—into a retirement savings plan, such as a 401(k) or IRA.

Homebase Team

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What are retirement contributions?

Retirement contributions refer to the money set aside—either by an employee, employer, or both—into a retirement savings plan, such as a 401(k) or IRA. These contributions are meant to help employees build financial security for the future, providing income after they leave the workforce.

For small business owners, offering retirement plan options and facilitating contributions can strengthen your benefits package, help attract and retain talent, and sometimes provide tax advantages for your business. If you’re looking for an easier way to handle HR and compliance tasks like retirement plan management, check out Homebase HR and compliance tools.

How retirement contributions work

Retirement contributions typically involve setting aside a portion of an employee’s wages—before or after taxes—into an approved retirement account. Contributions can be made by:

Employees – Through payroll deductions
Employers – Via matching contributions or profit-sharing
Both – Many plans include a combination of employee contributions and employer matches

There are often annual contribution limits set by the IRS, and certain plans allow for "catch-up" contributions for employees over age 50.

Common types of retirement plans

Some of the most common retirement plans that involve contributions include:

401(k) – Employer-sponsored plan where employees can defer part of their paycheck into retirement savings, often with employer matching.
Roth 401(k) – Similar to a traditional 401(k), but contributions are made after-tax, allowing for tax-free withdrawals later.
Simple IRA – Designed for small businesses with fewer than 100 employees; includes mandatory employer contributions.
SEP IRA – Simplified Employee Pension IRA, typically funded by employer contributions only.
Traditional IRA / Roth IRA – Individual retirement accounts set up by employees on their own (not employer-sponsored).

The right plan for your business depends on factors like company size, budget, and whether you want to make employer contributions.

Employee vs. employer contributions

Employee contributions: Employees decide how much of their paycheck they want to contribute, often through payroll deductions.
Employer contributions: Employers may choose to match a percentage of employee contributions or offer profit-sharing contributions.

For example, a common employer match might be "100% of the first 3% of employee contributions." This means if the employee contributes 3% of their wages, the employer contributes an equal 3%.

IRS contribution limits for 2025

Here are the current contribution limits:

Always check the latest IRS guidelines, as limits are subject to annual adjustments.

Why offering retirement contributions is good for your business

Attracts top talent – Many candidates look for employers who offer retirement benefits.
Boosts retention – Employees are more likely to stay when they see long-term investment in their future.
Potential tax benefits – Employer contributions may be tax-deductible.
Supports financial wellness – Helps your team plan for a secure future.
Demonstrates care and commitment – Shows employees you’re invested in their long-term well-being, not just their current work.

Even small contributions can go a long way toward helping your team build financial stability.

Compliance considerations for retirement contributions

If your business offers retirement plans, you may have certain compliance responsibilities, including:

Ensuring timely deposits of employee contributions
Providing required disclosures and notices (such as Safe Harbor notices)
Completing annual reporting (such as Form 5500 for 401(k) plans)
Maintaining plan documentation and following nondiscrimination testing rules (for some plan types)

Non-compliance can result in penalties, so it’s important to stay informed about your obligations.

How Homebase helps you stay compliant with payroll and HR tasks

Managing retirement contributions, benefits, and compliance can feel overwhelming—especially for small business owners juggling multiple responsibilities. Homebase offers HR and compliance tools to help you:

Keep accurate payroll records, including deductions for retirement plans
Manage employee benefits securely and efficiently
Stay compliant with labor laws and benefits reporting requirements
Simplify onboarding and documentation for new hires

Explore Homebase HR and compliance solutions to make managing benefits like retirement contributions easier—so you can stay focused on running your business while supporting your team’s financial well-being.

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