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Retirement ins and outs as a Small Business Owner (updated)

Retirement businessAs a small business owner, it’s pretty common that you’re going to be the one wearing many, many hats. While you’re busy running your business on one hand, and juggling everyday life on the other, your thoughts might rarely turn to your retirement. One thing that you might not be taking into consideration is the fact that there are people that heavily depend on you for their future financial health. Investing in small business retirement plans is not only an investment in your employees and business, but also yourself.

On the other side of the spectrum, there’s your financial wellness as a business owner. More and more small business owners plan to rely heavily on the success of their business to fund their retirement, which can be risky. Unfortunately nearly half of small business owners don’t feel well prepared for retirement. It has been found that those who do have a plan in place have larger and more successful businesses, and report higher revenues. Bottom line is that to truly succeed, you have to plan correctly.

First Thing’s First

There are a few initial steps that everyone should take to get going on the right path.

  • Find and work with a financial advisor
  • Read books and articles about saving for retirement, absorb all the information you can. Information is power
  • Shop around for an administrator that is best for you and your business

Let’s Talk About Options

Employer-sponsored IRAs work for small business owners who would like to offer retirement benefits to current employees, or to potentially attract new hires through benefits packages. There are two options for employer-sponsored IRAs:

  • Simplified Employee Pension IRAs (SEP IRAs)
  • Savings Incentive Match Plan IRAs (SIMPLE IRAs)

SEP IRAs allow employers to make contributions to their employees’ retirement accounts of up to 25 percent of the employee’s compensation, or a maximum of $52,000 (in 2014), whichever is less. They are also funded 100% by the employer; employees do not contribute. The employer is not required to make a contribution every year, but must contribute the same percentage for employees that they may contribute for themselves in a given year. SEPs are the easiest plans to set up, and offer business owners the greatest flexibility in when and how much they contribute.


Maybe the most well-known type of retirement plan, a traditional 401k allows employees to contribute a portion of their wages to individual accounts. Employers have the option to make and/or match contributions on behalf of plan participants, and have the right to reclaim those contributions if an employee leaves the company before a set time. Additionally, employers who sponsor traditional 401k plans are subject to an annual qualifying test by the IRS.
Unless employees contribute to a Roth 401k account, money is taken out of an employee’s wages pre-tax and therefore reduces the amount of income tax they have to pay. Because of this, the IRS places a cap on how much an employee can put into a 401k account each year.

Not only should you be taking precautions for your own retirement, but giving your employees the opportunity to invest in themselves is crucial, which is why looking into an affordable plan to offer your employees will not only benefit you, but also those that are so important to you.