Retirement Plan Options for Small Business Owners
Published: May 12, 2021
Providing for your own financial future as well as that of your employees can not only make a difference in your retirement lifestyle but also help you attract and retain talented employees.
With a retirement plan, you and your employees can begin to build retirement income. Plus, many employer-sponsored plans can offer significant tax advantages to the company.
There are numerous choices when selecting the best retirement plan for your business. Here's an overview of the four most frequently used plans.
SEP IRA
A simple and relatively inexpensive way for sole proprietors and smaller businesses to offer a retirement plan. There are no mandatory or minimum contributions, and funding is provided by the employer only. If you have employees, you may be required to contribute for them as well. As the business owner you can deduct contributions from your company’s federal taxable income.
SIMPLE IRA
This plan offers minimal costs and administration. SIMPLE IRAs are funded by employee and mandatory employer contributions. Employers have a choice of matching dollar-for-dollar up to the first 3% of employee pre-tax contributions or matching 2% of compensation to all eligible employees. Simple IRAs work well for companies with 25 or fewer employees. As the business owner you can deduct employer contributions from your company’s federal taxable income.
Solo 401(k)
The Solo 401(k) may be a good option for the small business owner, with no employees, who is looking for an inexpensive way to save more money than most other retirement plans allow. You can contribute using a combination of salary deferrals and profit sharing with no mandatory or minimum contributions. Spouses and equal business partners are also eligible to participate. You may choose to allow a Roth 401(k) salary deferral within the plan. As a business owner you can deduct contributions for yourself and your partner from your company’s federal taxable income.
401(k)
The 401(k) is the most commonly used employer-sponsored retirement plan, becoming increasingly affordable and more widely used by businesses of all sizes. It’s a flexible plan offering the highest level of employee pre-tax contributions, a wide range of employer contribution options, and an optional loan provision. It works well for companies with 10 or more employees who want to start a new plan or transfer an existing plan. Employers may choose to allow Roth 401(k) salary deferrals within their plan. As the business owner you can deduct employer contributions from your company’s federal taxable income.
This is by no means an exhaustive list. Fellows Financial Group offers a broad array of options, and if one of the above is not right for you, they will work with you to find the one that is.
In helping you select from a broad range of plans, a Fellows Financial Group Business Advisor will tailor a strategy that matches your company size, compensation structures, and culture, reinforcing recruitment efforts and helping boost the overall satisfaction of talented employees.
Contact a Fellows Financial Group Business Advisor to learn more about the personal and business advantages retirement plans can provide.
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This material was prepared by LPL Financial. Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity. Fellows Financial Group LLC is a separate entity from LPL Financial. LPL Financial and Fellows Financial Group LLC do not offer tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Investments are not NCUA insured. No credit union guarantee. Investments may lose value. Fellows Financial Group LLC and LPL Financial are third party partnerships and are not affiliated with United States Senate Federal Credit Union.