According to the Small Business Administration, there are nearly 26 million small businesses in America. Considered the backbone of our nation’s economy, they create between 60 to 80 percent of net new jobs. As many business owners can attest, such accomplishments don’t come without a large amount of risk and hard work.
Given all the responsibilities that go into running a successful small business, planning for retirement may be one of the last items on your list. Fortunately starting a retirement plan for your business may be easier than you think. There are a number of retirement plan options that can provide meaningful tax advantages to both you, as the owner, and your employees. Here are a few examples of the most common retirement plans available:
A SIMPLE IRA is a savings incentive match plan for business owners with fewer than 100 employees. This plan is well suited for employers who would like their employees to share responsibility for funding accounts by making their own contributions. Some of the key benefits of this type of plan are its simplicity, low cost and ease of administration. No discrimination testing or government reporting is required.
SEPs may be ideal for the self-employed person who wants a simple retirement plan that allows annual discretionary, tax-deductible contributions. With this type of plan, generally only the employer is allowed to make contributions. This type of plan may require top-heavy testing requirements.
401(k) PROFIT SHARING and INDIVIDUAL 401(k) PLANS
A small business can start a 401(k) plan for its employees that allows both employee and employer contributions. If a small business has no employees other than a husband and wife, it can sponsor a Solo 401(k), which is essentially a traditional 401(k), just smaller in size. A Solo 401(k) may allow the business owners to save more than is the case with either a SEP or a SIMPLE IRA because the Solo 401(k) contribution limits are the same as regular 401(k) plans, allowing both employee and employer contributions.
Don’t Go It Alone
As there often seems to be an unmanageable number of variables in navigating your retirement picture, the aid of an experienced financial professional can be a valuable resource.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Consumers Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. CFS and its Registered Representatives do not provide tax advice. For such advice, please consult a qualified tax advisor.