Small-Business Owners: 3 Retirement Plan Options For You

Susan Powers |
Categories
retirement planning
small business
tax savings

There are many rewards to running your own successful business.  The flexibility to customize a retirement plan tailored to your goals is just one of those rewards.  You need a plan that works well today - and in the future as your business grows.  Whether you’re a sole proprietor, LLC or S Corp, there’s an option for you.  

All of the options we lay out reduce your current taxes while your assets grow tax-deferred.  You’ll begin paying taxes when you take money out later in retirement, but only on the actual dollars withdrawn.  

Which best describes you or how much you can save?

I run my own business and it’s just myself (and my spouse):

  • Don’t plan on hiring employees in the near future  
  • Have the ability to save as much as $50,000+ annually

A solo 401(k) may be right for you.  These are easy to set up and inexpensive to maintain.  Despite the name, you can include your spouse as an employee, potentially doubling the amount you can save to more than $100,000.  These plans are attractive, cost-effective options for self-employed folks.

 

My business is growing and we’re starting to hire:

  • Have a relatively small number of employees
  • Have the ability to save as much as $50,000+ 
  • Willing to contribute the same amount (% of compensation) to employees
  • Want flexibility in annual funding given needs of growing business and number of employees

Consider an SEP IRA.  These too are easy to set up and inexpensive to maintain as long as the number of employees remains small. While you have the flexibility to determine how much to contribute each year, costs will rise quickly as the number of employees grows. 

 

My business and my income have grown substantially:

  • Zero or few employees
  • Have the ability to save as much as $200,000+ annually
  • Business is stable and I can commit to ongoing funding
  • Current tax saving is becoming increasingly important

Traditional defined-benefit plans and cash balance plans offer the highest annual contributions limits.  These are typically combined with a 401(k) plan for maximum benefit.  You will need to make contributions for employees and administrative costs are higher.  But the ability to save more than $200,000 per year while saving more than $80,000 in current taxes (assuming a 40% marginal rate) make these plans very attractive.

Get started now.  There's no need to wait.  Monthly contributions allow you to fund your plan throughout the year, dollar cost averaging in to your investments.  Call us today to find the plan that’s right for you.