Many business owners still determine how much they need to save for retirement. Working with a wealth advisor can help determine how much you should keep to retire comfortably. Small business retirement plans can provide you and your employees with various benefits. Here are just a few of them:
Increased Flexibility
Running a business involves putting out daily fires, and finding time for longer-term issues like saving for retirement can be challenging. However, setting up a plan now can help you get ahead of the curve as you prepare to sell your company or retire eventually.
Small business retirement plans can be flexible enough to accommodate your needs and your employees. For example, a Simplified Employee Pension (SEP) is suitable for sole proprietors and small businesses without employees who wish to save a significant amount of money each year. It offers higher employer contributions than a traditional IRA and requires no annual testing. However, it does have lower contribution limits than a SIMPLE IRA and may require you to start taking required minimum distributions by age 72.
Whether you choose to establish a SEP, 401(k), or other type of plan, it’s essential to select a provider that understands the needs and concerns of small businesses. You’ll want to ensure your provider has a strong track record of working with small companies and that they charge reasonable fees for setup, monthly maintenance, and investment services. Some providers even offer a small business startup credit to offset certain plan costs.
Increased Savings
Many small business owners prioritize the day-to-day operation of their company over their retirement savings. This can be a problem, as it can lead to large amounts of debt accumulation and may cause entrepreneurs to retire earlier than they would like.
However, establishing and administering a small business retirement plan can help to increase savings. This is because these accounts allow you to save on a tax-deferred basis and are typically designed for companies with fewer than 100 employees. Additionally, some of your contributions to your retirement account are often tax deductible and grow tax-deferred.
In addition, your plans can offer additional features, such as employer matching contributions, which can further increase your savings. You can also automate your donations, which can help ensure you save consistently, even when you’re busy running your business.
Additionally, you can consider a defined benefit plan, which is more complex and expensive to administer but allows you to contribute significantly more each year. Another option is a Simplified Employee Pension (SEP) IRA, which is available to all-sized businesses and is simple to set up. Its contribution limits are comparable to those of traditional IRAs. Alternatively, you can consider a Savings Incentive Match Plan for Employees (SIMPLE) IRA, which is explicitly designed for small businesses and offers higher contribution limits.
Increased Tax-Deductions
Whether you’re an employee or a small business owner, retirement savings plans can provide tax benefits that can save you money in the long run. Typically, these plans allow you to make contributions on a pre-tax basis, meaning you can deduct them from your annual tax bill. These deductions can help you save considerable money come tax season.
Depending on your unique needs, a variety of trim business retirement plan options are available, such as traditional IRAs, SIMPLE IRAs, and SEP IRAs (Simplified Employee Pension). An individual retirement account, or SEP IRA, can be set up by corporations, partnerships, and sole proprietorship, among other small business forms. Up to predetermined contribution caps, the employer may contribute a portion of each employee’s pay to their accounts.
This type of plan is simple to set up and has lower administrative costs than other retirement plans.
A SIMPLE IRA is similar to the SEP-IRA but is designed for businesses with 100 or fewer employees. Like the SEP IRA, it has higher contribution limits than other small business retirement plans. In addition to the contribution limits, it also requires yearly filings. A traditional IRA is another option, which offers immediate tax deductions on all contributions (up to the annual limit) and tax withdrawals in retirement at your income tax rate.
Increased Employee Engagement
As a small business owner, you are responsible for many things. In many cases, that includes your company’s financial future. Yet, it’s essential for you also to consider your finances. Fortunately, there are plenty of retirement savings options available to you.
One of the most common mistakes entrepreneurs make is not saving enough for retirement. This can be a problem for several reasons. First, it can result in a lack of financial security once you leave your business. Second, it can also affect your ability to sell the business you spent so much time building at an attractive valuation once you are ready to retire.
However, there are ways that you can improve your savings with a small business retirement plan for entrepreneurs. For example, you can open a self-employed retirement account (SEP IRA) or a SIMPLE IRA. These plans are simple and easy to set up, and they come with contribution limits comparable to those of traditional IRAs. Additionally, they can be funded with pre-tax money, and qualified distributions are taxed according to conventional IRA rules.
Another option is a solo 401(k). This type of small business retirement plan for entrepreneurs comes with contribution limits comparable to those of a traditional 401(k) and can be funded with post-tax dollars.
