Retirement Savings For Small Business Owners

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Reason : Youre Too Busy To Think About It

Solo 401(k) & Solo Roth 401(k): Self-Employed Small Business Owners Retirement Savings YMYW podcast

Running a small business, even if its just you on the payroll, can be a 24/7 job. You may have been so caught up in the everyday flurry of keeping things humming while you put out fires that you havent had a moment to think about retirement. Also, its complicated. Tax implications and advantages, 401s, IRAs, and more. Its hard to know which option is right for you, your business, and if applicable, your employees.

Reality: Its easier than you think. With a good financial advisor to explain the ins and outs of different retirement account options, you can find the plan thats best for you and your employees in no time. After that, its not exactly set-it-and-forget-it, but the administration time wont eat into your day.

The best course of action is to invest a little in yourself now to see dividends down the road. But how do you know which retirement account to choose? Thats where we can help. At Equity Trust, we specialize in helping people who are self-employed small business owners lay a solid foundation for their retirement amid the chaos that can come with running a business.

How Does 401 Business Financing Work

401 business financing allows you to tap into your retirement account and use that money to start or buy a business or franchise. To access your money without triggering an early withdrawal fee or tax penalty, a ROBS structure must first be put in place. The structure has multiple moving parts, each of which must meet specific requirements to stay compliant with the IRS.

Consider A Financial Advisor

Sometimes asking for a little help goes a long way. If youre looking for financial advice, a financial advisor or planner can help you strategize the best way to save, unique to your small business and personal goals.

We spoke to Jack Ablin, Cresset Capital Wealth Management Chief Investment Officer, Partner, and author of Reading Minds and Markets: Minimizing Risk and Maximizing Returns in a Volatile Global Marketplace. He shared a few tips for small business owners planning for retirement.

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How To Prepare For Retirement As A Small Business Owner

Don’t forget to plan for the future. Here are some simple steps to prepare for retirement as a small business owner.

Many small business owners are so busy growing their businesses that they put off planning for retirement. The SBA reports that small business owners over the age of 50 are far less likely to have concrete retirement plans than employees working for larger companies. The same report also found that small business owners were later to retire, while some might not retire at all. Here are simple steps all small business owners can take right now to prepare for retirement in the future.

Traditional Simple And Solo 401 Plans

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401s are a popular retirement account option that comes in three general varieties:

  • Traditional 401

  • Most businesses are eligible for 401 plans, but administrative fees and stringent requirements can make it difficult for small businesses to manage them alone. However, with the right plan provider, small businesses can offer 401 plans to their employees.

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    Seek A Professional Partner For Your Personal Wealth

    Running a successful small business is a challenging and time-consuming endeavor that requires many skills.

    Just as you may work with an accountant to help understand your business finances, file tax returns, and more, working with a Wealth Advisor can help you do the same for your personal wealth.

    A Wealth Advisor can help you with investment management, such as choosing the best small business retirement account for your business. In addition, one can help you minimize risk and take advantage of opportunities. We know balancing your professional, and personal priorities is difficult. That’s why it makes sense to seek a partner to help you meet your financial goals.

    Retirement Plans For Small Business Owners To Consider

    Choosing the best retirement plan for your small business is important to hiring and keeping the right associates.

    Offering a retirement plan is a great way for small businesses to attract and retain employees. Retirement plan options also help both employee and small business owner shelter income from taxes while promoting saving for retirement. To accommodate the varied needs of individual small businesses, the tax code offers several types of small business retirement plans. As such, it’s important to compare them against each other to find the best retirement plan for everyone involved.

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    Need A Retirement Plan For Your Small Business

    Dear Carrie,

    My wife started a business 10 years ago and contributed to a regular IRA in the beginning. Three years ago, she incorporated the company and they don’t have a 401 yet. What’s her best option for retirement savings right now?

    A Reader

    Dear Reader,

    This is an excellent question for every small business ownerwhether firmly established or just starting out. That’s because, although contributing to an IRA is definitely a good idea, small business owners have several other options that can significantly increase the amount they can save in a tax-effective way.

    Here are some small business retirement plans for your wife to explore. Incorporation isn’t the key factor here, but rather whether your wife has employees and, if so, how many. All provide tax advantages without the paperwork, cost, and administration required by a 401, but do have different characteristics that might make one plan better than another for her needs.

    Contribution Limits And Deadlines

    Pensions and Retirement Plans for Small Business Owners

    For 2022, participant contributions are limited to the lesser of 100% of compensation, or $20,500 for those under 50 and $27,000 for those 50 or older. Employers can contribute an additional $40,500, via matching or profit share contributions, regardless of the age of the employee contributing. Total contributions, including both employee and employer, are limited to $61,000 for those under 50 and $67,500 for workers 50 or older. Employee contributions must be made by the end of the tax year . Employer contributions can be made up to the business tax filing deadline, with extensions.

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    Planning For Retirement With Zoe

    A comfortable retirement should be a goal for all business owners, whether youre just getting started or quickly approaching retirement. Zoe empowers all their clients to build a large enough nest egg so that they can save and retire comfortably, in line with their financial goals.

    Zoe helps small business owners plan for retirement by connecting them with top financial advisors. Since every situation is different, we take the entirety of a business owners financial life into account during the matching process. Financial advisors in the Zoe Network are adept at helping clients choose retirement accounts that are ideal for their specific situation.

    Develop An Exit Strategy For Your Business

    It might seem strange that developing a business exit strategy should be one of your first considerations when planning for retirement. But consider this: the small business you spend your life building might become your largest asset. If you want it to fund your retirement and to stop working youll need to liquidate your investment. To prepare to sell your small business one day, it needs to be able to operate without you. Its never too early to start thinking about how to accomplish that goal and about how to find the best buyer for your small business.

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    Determine What You Want Your Life To Look Like During Retirement

    Business owners who are looking to retire should consider details like where they want to live in the future, how much that will cost, what other expenses they may have and where they will get their retirement income. Creating a plan can ensure that all of these important details are arranged and nothing is missed along the way.

    Tips To Maximize Your Retirement Contributions

    Retirement Planning for Business Owners

    For small business owners who are currently enrolled in a retirement plan, here are some suggestions for maximizing your annual contributions into your retirement accounts:

    • Pay yourself first.

    Instead of funding your retirement account with whatever is left over after paying your monthly bills, decide at the beginning of each month how much you want to set aside to fund your retirement. Make funding your retirement each month as important as your other bills. Then assume that you pay your retirement bill first. If you run out of money before paying all your bills, decide if there are any expenses that can be pared back for subsequent months so you can meet your monthly retirement savings goal.

    • List your retirement contributions on your income statement.

    It is easy to forget about retirement planning when running the day-to-day operations of your business. To keep retirement contributions top-of-mind, record these as a separate line item on your businesss income statement.

    • Review your tax situation at least twice a year.

    Tax planning is now more important than ever with the uncertainty caused by the recent pandemic. So review your tax situation at least twice every 12 months to see how to maximize each years retirement contributions.

    As always, should you have any questions or concerns regarding your tax situation please feel free to call.

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    Employee Productivity Retention And Acquisition

    The benefits package you offer may make or break your company when it comes to hiring and retaining employees, so another reason to seriously consider establishing a 401 plan for your small business this year is employee attraction and retention. Offering a retirement savings plan can help small- to mid-size businesses stand apart from other optionswhich may make applicants more likely to accept a job offer and current employees less likely to look elsewhere.

    In fact, MetLife found in its 2021 study on employee benefits that financial health is the top concern among employees today and is also a top contributor to poor mental healthwhich frequently causes decreased employee productivity . Even further, the study revealed that the top two financial concerns among workers are directly related to their future retirement:

    • 48% are concerned about their ability to retire as planned or on schedule

    • 48% are concerned about long-term savings such as 401 accounts, IRAs, or other retirement savings vehicles

    Offering a retirement savings vehicle for current and future employees to save in could go a long way in easing their financial anxietieswhich, in turn, may make them more productive and boost your bottom line.

    How To Set Up A Sep For Your Business

    Establishing a SEP for your business involves maintaining a plan document. The IRS provides a prototype document called the 5305-SEP, Simplified Employee Pension. That is a matter that you may choose to handle through your tax advisor or on your own.

    Once your business has completed the required IRS form, you and your employees would be able to open SEP IRA accounts with a qualified financial institution to receive the contributions and enable participants to invest their funds. While contributions come from the employer, each employee owns and controls their own SEP IRA account.

    Thrivent Mutual Funds offers a SEP IRA that enables you to choose from all-in-one investments or build your own allocations according to your specific objectives. Whether your goal is accumulation or distribution, Thrivent Mutual Funds offers simple solutions to diversify investments based on your risk tolerance. If you are offering or part of a SEP Plan, consider opening a SEP IRA through Thrivent Mutual Funds to save for your retirement.

    1 Self Employed owners who file Schedule C are limited to 20% of net earned income

    2 For Schedule C filer, it would be net earned income for Schedule C or Sub S Corporation filer, it would be W-2 income.

    The information provided is not intended as a source for tax, legal or accounting advice. Please consult with a legal and/or tax professional for specific information regarding your individual situation.

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    Retirement Accounts For Small Business Owners: How To Get Started

    You own a small business. Maybe youre self-employed, a sole proprietor with just yourself and perhaps your spouse on the payroll, or a company with a handful of employees. Congratulations! Even in trying economic times like the ones were in now, businesses like yours are the backbone of this countrys economy.

    The positives about starting and owning your own business are many being your own boss, creating a product or service your way and seeing it to fruition, building something to pass on, and more. But one disadvantage for small business owners that doesnt bedevil larger companies is not having the funds to offer perks and benefits like gym memberships, health insurance, HSAs, and the increasingly popular unlimited PTO.

    The same goes for retirement savings accounts like 401s, IRAs, and other savings vehicles that larger companies can and do offer employees. If you have employees, are you offering them retirement savings accounts? If youre self-employed, have you started one for yourself?

    The answer to that last question is likely no. Why? Let us count the reasons many small business owners dont have retirement accounts, and offer reasons why you should.

    Mistake : Not Having Enough Life Insurance Coverage

    Find the Best Retirement Plan for Your Small Business with the Retirement Savings Selector Tool

    Life insurance helps take care of your family and loved ones by providing financial security. Life insurance plays an even bigger role for small business owners. Small business owners have an extra liability from their businesses. Life insurance can help protect your estate from business creditors, especially if you take out business loans using personal assets as collateral.

    In addition, small business owners tend to be a key person to the business they own, and without you, that business may be adversely affected. So a key person insurance policy could give the company options to either find a replacement or pay off debts from the business .

    There are many uses of life insurance beyond the death benefits. For example, when a small business owner passes away, family members may be on the hook for business debts. Life insurance can be used to help pay off those debts and help ensure the business you worked so hard to build will continue. Life insurance is also a tax-effective way to help transfer a family business to the next generation.

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    Its Never Too Late To Start Saving

    Even if you havent funded a retirement savings account, its never too late to do so. Common wisdom says the earlier you open an account the better, but starting at any age can help you reap the benefits of compounding interest, tax-deferred investing and tax-advantaged withdrawals in retirements.

    Its advisable to fund a retirement account even if youre late to the game. Many retirement accounts allow you to make catch-up contributions, which can help make up for the lost time. IRAs and 401 all provide you with a window to increase your contributions beginning the year you turn 50. This can help you put away more money every year as you get closer to retirement.

    Compare Fidelity’s Small Business Plans

    We offer retirement plans for businesses of every shape and size. Visit the following product pages for more information. If you have a separate retirement plan established and would like to invest the assets in a Fidelity brokerage account, you may be interested in an Investment-Only Retirement account.1

    If you have an existing 401K plan for your employees under another provider, learn more about the support and value we can deliver with a Fidelity 401.

    no employeeswith only a few employees25 to 100 employees100 or fewer employeesWho contributesAccess to assets3Contribution featuresFees

    Interested in a Fidelity HSA® for your small business? Learn more

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    What Is A Retirement Savings Plan

    A retirement savings plan is a high-earning, long-term account designed to help you prepare for your later years. Even though you can open a retirement account any time, we suggest doing it today in order to maximize your earnings. Once opened, you can contribute a portion of your taxable salary up to the annual limit set by the IRS. With some plans, you can select to receive a tax break now or during retirement.

    Popular retirement savings plans for small business owners include:

    There are several retirement savings plans for the self-employed, all of which allow a heftier contribution than a traditional IRA. For example, the contribution limit for a traditional IRA in 2022 is $6,000 versus up to $61,000 for a solo 401. Some accounts even allow a “catch-up” option for those who are age 50 or older. We’ll go into detail below, but feel free to reach out to a retirement advisor for extra assistance.

    Options If Youre Not Currently Enrolled In A Plan

    Retiring Business Owners

    For small business owners not currently enrolled in a retirement plan, here are three of the most popular retirement account options:

    • Simplified Employee Pension IRA Account Contribute as much as 25% of your businesss net profit up to $57,000 for 2020.
    • 401 Plan Contribute up to $57,000 of your salary and/or your businesss net profit.
    • Savings Incentive Match Plan for Employees IRA Account You can put all your businesss net profit in the plan, up to $13,500 plus an additional $3,000 if youre 50 or older.

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    Claim Business Tax Credits While Supporting Your Employees With A 401

    If your small to medium business has 10 or more employees, a 401 may be a better fit than a SEP IRA. A 401 is a common employer-sponsored retirement plan that both employers and employees can contribute to, whereas a SEP IRA is an individual retirement account that is primarily used for employer contributions, and is best suited for smaller companies.

    If you set up a 401 program for employees you can claim a tax credit, and write off 401 employer fees as a business expense. A 401 match is also a more cost-efficient way to offer a financial incentive to your employees, as your business will be paying less in payroll taxes than if you offered a traditional raise or bonus, and the employee will also receive more of the money because they wont have to pay supplemental income tax.

    Retirement plan benefits are in high demand from employees, even among younger workers. A competitive benefits package with a thoughtful employer 401 can help you efficiently reward your existing employees and attract new hires by standing out as a small business who invests in its employees financial futures.

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