How to Plan for Retirement as a Business Owner

401k business

When you’re a small business owner, you must not only think about your profit and payroll. You must always keep your eye on the longer term game, which is providing a comfortable retirement for the future. These are not competing interests, but instead, work together to provide for all of your business needs. Business owners can choose from a number of convenient methods for sheltering money for retirement.

Simple IRA

The Simple IRA can be a good choice for business owners, because it allows the business to provide retirement savings for both the owners and employees in a simplified manner that minimizes administration time and costs. Employees can use paycheck deductions for their retirement, and the owner can either match the funds or not. The tax on the money is deferred until it is distributed at retirement, at generally a lower tax rate. Start-up costs for the Simple IRA are low, and maintenance costs are generally more reasonable than qualified retirement plans. Simplified IRA plans are available to companies with 100 employers or under. Contributions are immediately vested, and any type of employer, such as sole proprietorships, S-corporations, partnerships or non-profits.


The SEP IRA, or Simplified Employee Pension IRA, is structured in a slightly different manner. In this plan, the employer provides contributions for both employees and business owners that are tax deductible for the business. The contributions and the money they earn are not taxed until they are distributed. Each employee or owner must set up his or her own traditional IRA into which the SEP IRA funds are deposited. Employees must be at least 21 years old and must earn at least $550 for the year. The employee must also have worked three out of the last five years for the company. SEP IRAs are immediately 100% vested, and employees may contribute other money to the SEP account. Administration of the plan is simple and inexpensive. Larger contributions are possible for the business owner under the SEP IRA plan.


The 401K is one of the best known of retirement methods. It can often be used to attract and keep good talent for a business, but it can also be the best method for the owner to save for retirement. In this system, the business owner cannot only make contributions as the employee of the company, but also as the owners of the business. If you want to maximize the amount of money you take from the business for your retirement, the 401K may be right for you. However, the 401K method involves greater costs for setup. You will also have to pay a plan administrator to maintain the 401k, and other SDIRA services. Employees can decide how much to contribute to the fund and can take the fund with them when they leave the company. It allows participants to invest in stocks, bonds, funds, savings accounts and other vehicles. Employers can match funds to whatever extent they wish or not match them at all. Contributions are 100% vested. The hiring of a plan administrator helps to limit liability for management of the plan.

The type of retirement plan you choose can depend on a number of factors that can be determined with the help of your accountant or financial planner. Each plan has its own advantages and disadvantages, depending on your business and your individual needs.