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What Is the Best Retirement Plan for Your Small Business?

By December 9, 2019August 20th, 2021Business Advice
What Is the Best Retirement Plan for Your Small Business?

As the owner of a small business, you are solely responsible for preparing for your own retirement. And, if you have employees, you would probably like to assist them in planning for their retirements. Of course, you may think that you’ll just sell your business and retire on the proceeds. However, a better way to go is to set up retirement accounts for yourself and your employees. Here are some options.

SIMPLE (Savings Incentive Match Plan for Employees) IRA.

Under this plan, in 2020, employees can contribute a maximum annual amount of $13,500 pretax. Employers can opt to make tax-deductible contributions to employees of 2% or matching contributions of up to 3%. This plan is available to companies with 100 or fewer employees. 

SEP (Simplified Employee Pension) IRA. 

A SEP IRA is a traditional IRA that is allowed to receive tax-deductible employer contributions on a discretionary basis. This means that you aren’t locked into making contributions during a bad year. Almost any small business can establish a SEP, and it doesn’t matter how few employees there are. 

IRAs and SBO (Small Business Owner) 401(k): 

One way to save for your own retirement is via a Roth or traditional IRA. With a Roth IRA, you contribute after-tax dollars but take tax-free distributions when you retire. A traditional IRA allows you to contribute pretax dollars, but you will pay tax on distributions. You can also contribute to an IRA on behalf of your spouse. If your only employee is your spouse, you can choose to set up a solo SBO 401(k) – read A 401(k) Plan For The Small Business Owner.

The Bottom Line

If you’re competing for high-quality employee talent, you need to offer an attractive retirement plan. If your aim is to eventually sell your business, it’s a good idea to build flexibility into your retirement plan. This will give you choices – sell during a strong market or work longer if a downturn hits. Even if you aim to keep on working, setting up a retirement plan will provide you with options. If you’re not sure which retirement plan will work best for your business, talk to Orcutt & Co. We’ll take a look at your company and your plans for the future, and help you set up the best plan for you and your employees.