A Guide to Retirement Planning for Small Business Owners
As a small business owner, you are responsible for your own retirement preparation. Since there is no large company to offer retirement benefits, you have to develop a plan that would benefit you. If you have employees, you might consider providing a plan that will enable them to save for the future as well. This article will discuss some of the options that are available and the importance of having a retirement plan.
Who Needs a Retirement Plan?
Any owner of a small business needs to have a retirement plan. Since there is no company-sponsored plan such as those of bigger companies, you have to save and plan for your future entirely on your own. For those with employees, providing for a retirement plan can also be a useful tool for attracting and retaining quality employees. In either case, retirement planning is a critical aspect of business financial planning.
What Retirement Plans Are Available?
The SIMPLE IRA allows your employees to deposit a part of their earnings into the fund before the employer’s contributions are made. In 2024, employees are allowed to contribute up to $16,000, and those 50 years or older are allowed to make an additional contribution of up to $3,500. You can also make similar contributions to the plan as an employer by depositing between 3% of an employee’s pay or contributing 2% of their salary. This plan is easy to establish, and any amounts that you make into the plan are deductible.
Another option is the SEP IRA, which is an acronym for Simplified Employee Pension. This plan enables you to make tax-deductible contributions for both the business owner and the workers. In 2024, you can contribute as much as 25% of an employee’s compensation or $69,000, whichever is lower. A SEP IRA offers you the choice of making contributions every year. This can be particularly useful in cases where the business income is not constant from one year to the next.
You should also look at Individual Retirement Accounts (IRAs) and Solo 401(k)s. You can save money by yourself in traditional or Roth IRAs without having to involve your employees. A traditional IRA permits pre-tax contributions to your account, which reduces your income that is subject to taxation, while a Roth IRA is funded with after-tax contributions, and the withdrawals in the future are tax-free. In 2024, you can save up to $7,000 with a limit of $8,000 for persons 50 years or older. A solo 401(k) is another option which is available for you if you have no employees besides your spouse. This plan provides for higher contribution levels and more management of your funds.
Where Can You Set Up a Retirement Plan?
You can put your retirement plan in a bank, credit union, or through an online brokerage firm. These accounts are available from many financial institutions, and their staff can assist with the forms. It is beneficial to find an advisor who is familiar with the requirements of small business persons. They can show you which type of plan is best and open your account so that your money works for you in the future.
When Should You Start?
Start saving for retirement early so you have more years to put away and take advantage of tax breaks. It is better to have a consistent plan in place, whatever the future of your business, to ensure that you keep saving. It also allows you to change your contributions based on your business’s evolution or changes over time.
Why Is a Retirement Plan Important?
A retirement plan is crucial because it assists you in creating a stable future. This is especially important for the small business owner since retirement savings can be the only way to ensure that they can support themselves after they cease working. Furthermore, providing a retirement plan for your employees will make your business more appealing to potential employees. Good retirement planning can also encompass the plans for the exit from the business. Given that your business may be your most valuable asset, it's crucial to strategize for its future sale or transfer to avoid a hasty sale at a low price.
Get Started Today
We believe that by starting to plan for retirement now, you will be able to control your business and personal finances better. At Falcon Wealth Planning, we know what it is like for small business owners when retirement planning is concerned. If you are eager to start the planning process, please do not hesitate to contact us in order to discuss your possibilities and develop an appropriate plan.
*The content in this blog is for general informational purposes only and does not constitute personalized financial, investment, tax, or legal advice. Falcon Wealth Planning, Inc., a fee-only, true fiduciary, registered investment advisor, provides this information to give a broad understanding of financial concepts and strategies.