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Planning for Retirement as a Small Business Owner

Once you’ve left the comfort of employee-sponsored retirement plans, your retirement savings can go by the wayside. Here are some easy DIY retirement options for small business owners.

Without an employer guiding you to the appropriate retirement savings account, it can be difficult to navigate the world of retirement once you’re a business owner. Fewer and fewer people are starting their own retirement funds and contributing to them, and this incidence is even greater among small business owners.

It is possible to set up your own personal retirement fund. Here’s what you need to know.

Simple IRAs

While this IRA is pretty simple to understand, it’s actually an acronym for Savings Incentive Match Plan for Employees. And while you can match your employees with this type of IRA, you can also match your own personal contribution through your company for additional tax benefits.

With the Simple IRA, you can contribute up to $10,000 a year. If you’re over 50, you are allotted an additional $2,500 annually. Setting up a Simple IRA is more affordable than some of the other options.

SEP IRAs

The SEP, or Simplified Employee Pension IRA, is entirely funded by your business. The cap is $42,000 a year. The benefit to this is that it serves as an employee benefit and will reduce the amount of your company’s profits that are taxed.

Simple 401k Plans

The Simple 401k is very similar to the Simple IRA, with a few exceptions; the largest of which allows you as the account holder to take out loans against the amount in your account. If you choose to offer this to your employees, you can match up to 3% of your employee’s contribution.

Single Participant 401k

If you’re not quite ready to offer your employees retirement options, or don’t have any employees, consider the Single Participant 401k plan. You can save more than with a Simple 401k, with a maximum of $15,000 annually, and an additional $5,000 if you’re over 50. And your company can contribute to the 401k up to 25% of your compensation. Total contributions are capped at $44,000 each year.

To choose between IRAs versus 401ks, do your homework to understand the benefits and drawbacks to each, and make your decision based on your needs.

Once you choose your retirement plan type, find a company that specializes in small business retirement plans. Speak to a representative about whether you should offer the plans to all employees or just get one for yourself, and review your choice with your agent. Know that there are certain tax benefits to offering employee-sponsored retirement plans, and that they do draw more qualified candidates when you are hiring. But brand new businesses may not be stable enough to offer matching programs, so find out what the cost would be, and file the information away for when you are ready to take your benefits plan to the next level.

Building Your Nest Egg

Small businesses can be volatile in the best of economic conditions, but it’s key not to let your retirement contributions take backseat to other expenses. You’ve heard the saying, “Pay yourself first;” this is what it refers to. Make sure to put into your retirement fund regularly, and match it through your company if that is part of your plan type. Ask an accountant how your employee matching will affect your tax filing, as it’s a great benefit to lowering your taxable income.

If you’re close to retirement now, maximize your 401k or IRA, especially if you are over 50. Take advantage of higher limits on specific types of plans, and keep extra savings in other accounts so that when the day comes to retire, you have enough put away to easily leave your business or sell it.

 
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