Small businesses and self-employed individuals have several options for creating retirement savings vehicles. At Accuplan Benefits Services, we can help you establish any of these as self-directed business accounts to take advantage of favorable tax treatments for long-term savings. Because our accounts are self-directed, you and your employees have more flexibility in investment types than with conventional options.
Each plan has distinct benefits, rules, eligibility requirements and features. Exploring these details can help you make the right choice for yourself or your employees.
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Individual 401(k)
A self-employed 401(k) — also called a solo 401(k) — is a retirement savings plan for self-employed business owners. A self-employed 401(k) is designed for only the business owner and their spouse to make contributions. This account type is similar to a traditional employer-sponsored 401(k) but allows investments in alternative assets.
Consider the following features and benefits when deciding if this is the best option for you:
- These accounts offer high total contribution limits plus tax-deferred growth.
- Small business owners and their spouses are the only allowable contributors — those with other employees aren’t eligible.
- You must earn a taxable salary from the business.
SEP Individual Retirement Accounts
Simplified Employee Pension plans (SEP or SEP IRA) are for self-employed individuals or small businesses that employ less than 25 people. They differ from solo 401(k) plans for the business owner and may be a viable savings solution for companies that are comfortable contributing the same amount for each participant.
Other SEP IRA features and benefits include:
- SEP IRAs allow for tax-deductible contributions of up to 25% of each individual’s compensation.
- If the account holder is self-employed, they are considered an employee and receive the same benefits.
- They’re generally more affordable to set up and operate than a self-directed 401(k).
- Employees have immediate 100% vesting.
- They offer generous contribution maximums and higher compensation limits for tax deductibility of contributions.
- Growth within the account is tax-deferred.
SIMPLE IRA
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a small business retirement account for organizations employing 100 people or less. Neither the business nor the business owner can have other retirement plan options available, so the SIMPLE IRA is the sole savings plan for all involved.
Additional advantages and features of SIMPLE IRAs include:
- Contributions into a SIMPLE IRA are tax-deductible and compound tax-deferred until retirement distributions are taken.
- Employees are 100% vested in all SIMPLE IRA funds.
- Higher contribution limits are available to savers than in individual retirement accounts.
- They offer tax-deferred growth without capital gains or income tax.
Employee Stock Ownership Plan
Employee Stock Ownership Plans (ESOPs) are tax-advantaged vehicles similar to a 401(k). The employer sets up a trust fund to share their private stock or designate cash to buy existing shares within a tax-advantaged IRA. These shares are issued to select employees as defined by the plan.
Like other employer-sponsored benefits, employees who have shares within the company are not considered fully vested until they attain seniority with the company. If a vested employee leaves the organization, the employer must buy back the vested stock at a fair market price.
Other features and advantages of ESOPs include:
- These plans allow employees to share in ownership while providing the company with usable capital.
- The IRS sets contribution limits and makes cost-of-living adjustments.
- Stock contributions are tax-deductible, and employees pay no extra taxes on employer contributions to the ESOP.
Open Your Small Business Retirement Accounts With Accuplan
We’ve been specializing in helping businesses and investors with retirement savings accounts since 2007. Our team members bring extensive industry experience, expertise and knowledge of the complex IRS rules. When you choose Accuplan as your trusted partners for self-directed accounts, you and your employees can access alternative investments to unlock your savings’ full potential.
Create your account online now, or connect with our specialists to learn more.