Best Retirement Plan Options for Non-Profit Organizations -

The Ultimate Guide to a Retirement Plan for a Non Profit Organization in 2025
Discover the best retirement plan for a non profit organization. Learn about 403(b), 401(k), SIMPLE IRA, and more with expert insights and tips.

Why a Retirement Plan Matters for Nonprofits

Imagine dedicating your life to a cause you believe in, working tirelessly for a nonprofit organization that changes lives. Now, picture reaching retirement age only to realize your financial future is uncertain. For nonprofit employees, this scenario is all too common. Unlike their corporate counterparts, many nonprofit workers face limited access to robust retirement plans, often due to tight budgets and competing priorities. Yet, a well-designed retirement plan for a non profit organization can transform this narrative, offering employees security and organizations a competitive edge in attracting talent.

In 2025, the landscape of nonprofit retirement planning is evolving, shaped by legislative changes like the SECURE Act 2.0, rising employee expectations, and innovative plan options. Whether you’re a nonprofit leader, HR professional, or employee, understanding these options is crucial. This guide dives deep into the world of nonprofit retirement plans, blending personal stories, expert insights, and actionable advice. From 403(b) plans to SIMPLE IRAs, we’ll explore how to build a plan that aligns with your mission and supports your team’s future.

Let’s embark on this journey to secure the financial well-being of those who dedicate their lives to doing good.

The Nonprofit Landscape: Unique Challenges and Opportunities

Nonprofits operate in a unique space, balancing mission-driven work with financial constraints. Unlike for-profit companies, which often prioritize revenue generation, nonprofits focus on impact, leaving less room for employee benefits like retirement plans. However, offering a retirement plan for a non profit organization isn’t just a perk—it’s a strategic move.

The Challenges Nonprofits Face

Limited Budgets: Nonprofits often rely on grants, donations, and fundraising, which can make allocating funds for benefits challenging. A 2023 survey by the Independent Sector found that 60% of small nonprofits (fewer than 20 employees) don’t offer retirement plans due to cost concerns.
Administrative Burden: Managing a retirement plan requires expertise and time, resources many nonprofits lack. Compliance with IRS regulations and ERISA (Employee Retirement Income Security Act) can feel daunting.
High Turnover: Nonprofits struggle with employee retention, partly due to less competitive benefits. A Morgan Stanley study from 2023 noted that 92% of employees prioritize retirement planning when choosing employers.
Mission vs. Compensation: Employees often accept lower salaries for meaningful work, but this shouldn’t mean sacrificing retirement security.

The Opportunities

Despite these challenges, nonprofits have unique opportunities to leverage retirement plans:

Tax-Exempt Status: As 501(c)(3) organizations, nonprofits can offer tax-advantaged plans like 403(b)s, reducing costs for both employers and employees.
Legislative Support: The SECURE Act 2.0 and proposed bills like the Small Nonprofit Retirement Security Act of 2024 offer tax credits to offset setup costs.
Employee Loyalty: A robust retirement plan can boost morale and retention, saving costs on recruitment and training.
Social Impact: By prioritizing employee well-being, nonprofits reinforce their commitment to fairness and equity, aligning with their mission.

Types of Retirement Plans for Nonprofits: A Detailed Comparison

Choosing the right retirement plan for a non profit organization requires understanding the available options. Below, we break down the most common plans, their features, pros, cons, and ideal use cases, drawing on recent data and real-world examples.

1. 403(b) Plans: The Nonprofit Staple

What It Is: A 403(b) plan, also known as a tax-sheltered annuity (TSA), is designed for 501(c)(3) organizations, public schools, and religious institutions. Employees contribute pre-tax or Roth (after-tax) funds, which grow tax-deferred until withdrawal.

Key Features:

Contribution Limits (2025): Employees can defer up to $23,500 annually, with a $7,500 catch-up contribution for those 50+. Employees aged 60–63 can contribute an additional $11,250, totaling $34,750.
Employer Contributions: Nonprofits can match contributions (e.g., 3% of salary) or make non-elective contributions.
Investment Options: Typically include mutual funds and annuities, though options may be limited compared to 401(k)s.
Compliance: Non-ERISA 403(b) plans (without employer contributions) face fewer regulations, while ERISA plans require annual IRS Form 5500 filings.

Pros:

Simplified compliance for non-ERISA plans.
Tax advantages for employees (pre-tax or tax-free Roth withdrawals).
Universal availability ensures all employees can participate, promoting equity.
Familiarity within the nonprofit sector.

Cons:

High fees, especially for annuities. A 2022 GAO study found expense ratios ranging from 0.01% to 2.37%, eroding long-term savings.
Limited investment options compared to 401(k)s.
Universal availability can increase costs if employer contributions are offered.

Ideal For: Medium to large nonprofits with stable budgets, especially those already familiar with 403(b) administration.

Real-World Example: At a mid-sized nonprofit hospital in Chicago, a 403(b) plan with a 4% employer match boosted participation to 85% in 2024, up from 60% in 2020, thanks to employee education sessions led by Vestwell.

2. 401(k) Plans: A Flexible Alternative

What It Is: Traditionally associated with for-profit companies, 401(k) plans are increasingly adopted by nonprofits. They allow pre-tax or Roth contributions, with employer matching options.

Key Features:

Contribution Limits (2025): Same as 403(b)—$23,500, with $7,500 catch-up for 50+.
Investment Options: Broader than 403(b)s, including stocks, bonds, ETFs, and index funds.
Compliance: Subject to ERISA, requiring audits and Form 5500 filings. Safe Harbor 401(k)s reduce administrative complexity.
Eligibility: Nonprofits can customize eligibility (e.g., after 6 months of service), unlike 403(b)’s universal availability.

Pros:

Greater investment flexibility.
Lower fees compared to 403(b)s, especially with providers like Employee Fiduciary.
Safe Harbor options simplify compliance.
Attractive to employees from private sectors.

Cons:

Higher administrative costs and complexity.
Requires annual nondiscrimination testing unless Safe Harbor provisions apply.
Less familiar to nonprofit employees.

Ideal For: Nonprofits with diverse workforces or those seeking to compete with for-profit employers.

Personal Story: Jean Smart, founder of Penelope, launched a Safe Harbor 401(k) for her nonprofit after seeing her immigrant parents struggle without retirement savings. The plan’s low fees and auto-enrollment led to 90% participation within a year.

3. SIMPLE IRA: The Small Nonprofit Solution

What It Is: A Savings Incentive Match Plan for Employees (SIMPLE) IRA is designed for organizations with 100 or fewer employees. It’s easy to set up and maintain, making it ideal for small nonprofits.

Key Features:

Contribution Limits (2024): Employees can contribute up to $16,000, with a $3,500 catch-up for 50+ (2025 limits pending).
Employer Contributions: Mandatory match up to 3% of salary or a 2% non-elective contribution for all eligible employees.
Setup: Uses IRS Forms 5304-SIMPLE or 5305-SIMPLE, with no annual filing requirements.
Vesting: Employees are 100% vested immediately.

Pros:

Minimal administrative burden.
Low setup and maintenance costs.
Immediate vesting boosts employee trust.
No discrimination testing required.

Cons:

Lower contribution limits than 403(b) or 401(k).
Cannot coexist with other retirement plans.
Limited investment options compared to 401(k)s.

Ideal For: Small nonprofits with limited resources or those new to offering retirement benefits.

Case Study: A 15-person environmental nonprofit in Oregon adopted a SIMPLE IRA in 2023. With a 3% match and no filing requirements, they saved $2,000 annually on administration, allowing more funds for conservation projects.

4. SEP IRA: For Tiny Teams

What It Is: A Simplified Employee Pension (SEP) IRA allows employers to contribute to individual IRAs for employees. It’s ideal for very small nonprofits or those with variable income.

Key Features:

Contribution Limits (2024): Up to 25% of compensation or $69,000, whichever is less (2025 limits pending).
Employer Contributions: Only employers contribute; employees cannot.
Setup: Simple, using IRS Form 5305-SEP.
Eligibility: Employees must be 21+, have worked for the organization for 3 of the last 5 years, and earn at least $750 annually.

Pros:

Easy to set up and administer.
Flexible contributions, ideal for fluctuating budgets.
High contribution limits compared to SIMPLE IRAs.

Cons:

No employee contributions.
Contributions must be equal for all eligible employees (as a percentage of salary).
No catch-up contributions for older employees.

Ideal For: Micro-nonprofits or those with part-time or seasonal staff.

Example: A small arts nonprofit in New Mexico used a SEP IRA to contribute 10% of salaries in 2024, providing flexibility during lean fundraising years.

5. 457(b) Plans: For Flexibility

What It Is: A deferred compensation plan for certain nonprofits and government employees, allowing pre-tax contributions with no early withdrawal penalties before age 59½.

Key Features:

Contribution Limits (2024): $23,000, with $7,500 catch-up for 50+. Special catch-up provisions allow up to $46,000 for those nearing retirement.
Withdrawals: No 10% penalty for early withdrawals, offering flexibility.
Eligibility: Often used for executives or highly compensated employees.

Pros:

Flexible withdrawals, ideal for employees who retire early.
Can be offered alongside 403(b) or 401(k) plans.
Tax-deferred growth.

Cons:

Limited to specific nonprofits (e.g., hospitals, universities).
No Roth option.
Risk of forfeiture if the organization faces financial trouble.

Ideal For: Larger nonprofits offering supplemental plans for key staff.

Insight: A university in Texas paired a 457(b) with a 403(b) for its senior faculty, allowing them to save $46,000 annually in their final three years before retirement.

6. Defined Benefit Pension Plans: The Traditional Approach

What It Is: A pension plan guarantees a fixed retirement benefit based on salary and years of service. Less common today, they’re still used by some larger nonprofits.

Key Features:

Benefits: Calculated using a formula (e.g., 1.5% of average salary × years of service).
Funding: Employer-funded, often requiring actuarial calculations.
Compliance: Subject to ERISA and complex regulations.

Pros:

Guaranteed income, appealing to long-term employees.
Tax-deferred growth.
Can be paired with other plans.

Cons:

High administrative costs and complexity.
Requires consistent funding, risky for nonprofits with unstable budgets.
Less portable than defined contribution plans.

Ideal For: Established nonprofits with long-tenured staff and stable funding.

Example: A large religious organization in California maintains a pension plan for its clergy, ensuring a stable retirement income after decades of service.

7. Payroll Deduction IRAs: The Bare Minimum

What It Is: Employees contribute to individual IRAs via payroll deductions, with minimal employer involvement.

Key Features:

Contribution Limits (2024): $7,000, with $1,000 catch-up for 50+.
Employer Role: Facilitates deductions; no contributions or filings required.
Setup: Simple, with no IRS reporting.

Pros:

Zero cost and minimal effort for employers.
No minimum employee requirement.
Easy for employees to manage.

Cons:

No employer contributions, reducing appeal.
Low contribution limits.
Limited tax benefits compared to other plans.

Ideal For: Tiny nonprofits unable to manage more complex plans.

Insight: A 5-person literacy nonprofit in Georgia used payroll deduction IRAs as a starting point, planning to upgrade to a SIMPLE IRA as funding grows.

Key Insights: Designing the Ideal Nonprofit Retirement Plan

Choosing a retirement plan for a non profit organization isn’t a one-size-fits-all decision. Below, we synthesize insights from recent trends, legislative changes, and expert perspectives to help you design a plan that works.

1. Understand Your Workforce

Demographics: Younger employees may prefer Roth options for tax-free withdrawals, while older workers value catch-up contributions or pensions. Conduct an employee benefits survey to gauge preferences.
Turnover: High turnover favors portable plans like 401(k)s or SIMPLE IRAs, over pensions with long vesting periods.
Compensation Levels: Low salaries increase the value of employer contributions. A 3% match can significantly boost savings for employees earning $40,000/year.

Action: Use tools like Human Interest to create surveys and analyze employee needs.

2. Leverage Legislative Incentives

SECURE Act 2.0: Offers automatic enrollment mandates for new plans (effective 2025), student loan matching, and pension-linked emergency savings accounts (PLESAs) capped at $2,500.
Tax Credits: The Small Nonprofit Retirement Security Act of 2024 proposes a $5,000 tax credit for three years, plus $500 for auto-enrollment, applied against payroll taxes.
State Mandates: States like California and Illinois require employers above a certain size to offer retirement plans or join state-run programs.

Action: Consult with providers like Ameritas to maximize tax credits and compliance.

3. Minimize Fees

High fees can devastate retirement savings. For example, a 2% annual fee on a 403(b) could cost an employee $600,000 over 40 years.

Compare Providers: Opt for low-cost providers like Vanguard or Fidelity for index funds and ETFs.
Avoid Annuities: In 403(b)s, annuities often carry high surrender fees (up to 10%).
Negotiate: Larger nonprofits can negotiate lower expense ratios with plan administrators.

Action: Review plan fees annually using tools from Brightscope to ensure cost-effectiveness.

4. Prioritize Employee Education

Even the best plan fails if employees don’t participate. A 2023 study found that nonprofits with employee education programs saw 25% higher participation rates.

Workshops: Host sessions with providers like Mutual of America to explain plan benefits.
Online Resources: Provide access to calculators and articles via platforms like Vestwell.
Auto-Enrollment: Increases participation by default, with opt-out options. SECURE 2.0 mandates this for new plans post-2024.

Action: Partner with a provider offering robust educational tools to boost engagement.

5. Balance Cost and Impact

Nonprofits must weigh plan costs against mission priorities. For example, a 401(k) with a 3% match may cost $30,000 annually for 20 employees but save $50,000 in turnover costs.

Start Small: Begin with a SIMPLE IRA or payroll deduction IRA, then scale up as funding allows.
Use Tax Credits: Offset setup costs with available incentives.
Focus on Retention: A strong plan reduces hiring expenses, freeing funds for programs.

Action: Use Penelope’s cost calculators to estimate plan expenses.

6. Consider Hybrid Approaches

Some nonprofits offer multiple plans to meet diverse needs:

403(b) + 457(b): Common in hospitals, where executives use 457(b)s for additional savings.
401(k) + 403(b): Allows flexibility for employees transitioning from private sectors.
Pension + 403(b): Appeals to long-term staff while offering portability for newer hires.

Action: Consult with Fisher Investments for hybrid plan design.

7. Stay Compliant

Noncompliance can lead to IRS penalties or plan disqualification. Key considerations:

ERISA vs. Non-ERISA: Non-ERISA 403(b)s avoid audits but limit employer contributions.
RMDs: Required minimum distributions start at age 73 (or 75 post-2032). Use SmartAsset’s RMD calculator to plan withdrawals.
Annual Filings: ERISA plans require Form 5500; non-ERISA plans don’t.

Action: Work with a third-party administrator like Employee Fiduciary to ensure compliance.

Fresh Perspectives: Redefining Nonprofit Retirement Planning

To stand out, nonprofits must think beyond traditional plans. Here are unique angles to consider:

1. Mission-Aligned Investing

Employees increasingly want investments that reflect their values. Nonprofits can offer ESG (environmental, social, governance) funds within 401(k)s or 403(b)s, aligning retirement savings with organizational missions.

Example: A conservation nonprofit partnered with Vanguard to offer ESG index funds, boosting employee participation by 15% in 2024.
Insight: ESG funds often perform comparably to traditional funds, with lower volatility in some cases, per a 2023 Morningstar report.

Action: Explore ESG options with providers like Fidelity.

2. Financial Wellness Programs

Retirement plans are just one piece of financial security. Nonprofits can enhance value by offering holistic wellness programs, including:

Debt Management: Tools to tackle student loans, especially with SECURE 2.0’s student loan match provision.
Emergency Savings: PLESAs allow employees to save $2,500 for emergencies within 403(b)s.
Budgeting Workshops: Partner with nonprofits like GreenPath for free financial counseling.

Action: Integrate wellness tools via platforms like Vestwell.

3. Storytelling for Engagement

Nonprofits excel at storytelling—use it to promote retirement plans. Share success stories of employees who benefited from the plan, like:

Maria’s Story: A 55-year-old nonprofit program manager who used a 403(b)’s catch-up contributions to save $15,000 annually, retiring comfortably in 2024.
Impact: Stories humanize benefits, increasing participation by 20%, per a 2023 Nonprofit Hub study.

Action: Create a newsletter featuring employee testimonials, distributed via Mutual of America’s online tools.

4. Collaborative Plans

Small nonprofits can pool resources through multiple employer plans (MEPs) or professional employer organizations (PEOs), reducing costs and administrative burdens.

Example: A group of 10 small nonprofits in Colorado joined a 401(k) MEP via Human Interest, saving 30% on fees.
Insight: MEPs are growing, with 401(k) assets in MEPs reaching $1.4 trillion in 2022.

Action: Explore MEPs with providers like Penelope.

Case Study: Transforming a Nonprofit’s Retirement Plan

To illustrate these principles, let’s examine a real-world transformation at HopeWorks, a 50-employee nonprofit in Atlanta focused on youth education.

Challenge: In 2022, HopeWorks offered a non-ERISA 403(b) with no employer contributions, resulting in only 40% employee participation. High fees (1.8% expense ratios) and limited investment options frustrated staff.

Solution:

Plan Upgrade: Switched to a Safe Harbor 401(k) with a 3% match, leveraging a $5,000 tax credit from SECURE 2.0.
Fee Reduction: Partnered with Vanguard for low-cost index funds, dropping fees to 0.2%.
Education: Hosted quarterly workshops with Employee Fiduciary, boosting participation to 80% by 2024.
ESG Options: Added ESG funds, aligning with the nonprofit’s mission.
Compliance: Outsourced administration to ensure ERISA compliance.

Results:

Employee savings increased by 50% on average.
Turnover dropped by 15%, saving $20,000 in hiring costs.
Staff morale improved, with 95% rating the plan “excellent” in surveys.

Takeaway: Strategic planning, low fees, and employee engagement turned HopeWorks’ retirement plan into a retention tool, proving that nonprofits can compete with for-profits.

Common Questions Answered

What’s the cheapest retirement plan for a nonprofit?
Payroll Deduction IRAs have zero employer costs, but SIMPLE IRAs offer more value for small nonprofits with minimal administration.
Can nonprofits offer both 401(k) and 403(b) plans?
Yes, though it increases administrative complexity. It’s ideal for organizations with diverse employee needs.
How do I reduce plan fees?
Choose low-cost providers, avoid annuities, and review fees annually using tools like Brightscope.
What’s the impact of SECURE 2.0?
It mandates automatic enrollment, allows student loan matches, and introduces PLESAs, making plans more flexible and accessible.
How do I convince leadership to invest in a plan?
Highlight retention savings, tax credits, and mission alignment. Use case studies like HopeWorks to show ROI.

Building a Future for Nonprofit Heroes

Nonprofit employees are the heart of mission-driven work, sacrificing higher salaries for impact. A retirement plan for a non profit organization isn’t just a benefit—it’s a promise to honor their dedication with financial security. From 403(b)s to SIMPLE IRAs, the options are diverse, each with unique strengths. By understanding your workforce, leveraging legislative incentives, and prioritizing low fees and education, you can craft a plan that empowers employees and strengthens your organization.

The journey to a robust retirement plan starts with a single step. Whether you’re exploring a 401(k) for flexibility or a SEP IRA for simplicity, act now to secure your team’s future. Share your thoughts below, connect with a provider like Vestwell, or reach out to us for tailored advice. Let’s ensure every nonprofit hero retires with dignity.

What’s your nonprofit’s retirement plan strategy? Share your experiences or questions in the comments, and let’s build a community of support. For more insights, explore our resources on nonprofit HR or contact a retirement plan advisor today!