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10 Retirement Account Options for Small Business Owners

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As a small business owner you have more than enough responsibilities. But, one of the more responsibilities is setting up a retirement plan for both you and your employees. While that may seem like a priority, it’s been estimated that “Americans will need 70 to 90 percent of their preretirement income to maintain their current standard of living when they stop working.”

To help get you started on the path of creating a retirement account for your employees, are here ten of the best options for small business owners.

Retirement Account Options for Small Business Owners


The Simplified Employee Pension is one of the easiest plans to establish and maintain for businesses that are structured as either a sole proprietorship, partnership, corporation, or nonprofit. Just fill out the IRS Form 5305-SEP and inform your employees.

Besides being easy to set-up, contributions can be high. As of 2015, employees can make pretax contributions of up to 25% of income or $53,000. The SEP IRA is also a flexible option for business owners since you can decide whether or not to make contributions year-to-year.

2. Individual 401 (k)

For those who are self-employed or the owner of a small business, the solo, or individual, 401 (k) plan is arguably the best decision in regards to retirement thanks to the high contributions. In 2015, 25% contributions of net self-employment income for the business owner, plus an additional $18,000 in salary deferrals. You’re also not required to have a set amount, so you can contribute more or less to the plan depending on how your business is doing.

One of the most intriguing features that individual 401 (k) plans offer is that if your spouse if also an employee, you can match that contribution up to 25% of salary.

The main drawback with these plans is that they can be complex, so you should consult an account or financial adviser.

3. Simple IRA

If you have up to 100 employees and want them to contribute into their own retirement plan, then SIMPLE-IRA (or Savings Incentive Match for Employees) may be your leading option. They are easy to set-up and manage and allow you to defer up to $12,500 of their salary, as of 2015. Some business owners may even be eligible “for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting a SIMPLE IRA plan.”

The business owner must either contribute a 2% nonelective employer contribution or a dollar-for-dollar match up to 3 percent of compensation.

4. Payroll Deduction IRA

If you want to provide your employees a retirement plan option, but don’t want to take on the responsibilities, then you should consider a Payroll Deduction IRA. As the business owner, you simply establish the deduction plan with a bank, insurance company, or financial institution of your choice and then give your employees the option to participate.

For employees, they can contribute a smaller amount of money into their IRAs each period instead of coming up with a large amount up front. For business owners, this plan cuts down on administration costs and frees you from making employer contributions.

5. Roth IRA

You can contribute to both your business retirement plan and a traditional IRA.

However, a Roth IRA could be a more favorable option, especially if you are younger and make a median household income of $50,000, since it provides generous tax incentives and doesn’t include penalties if you withdraw before the age of 59.

You can continue to contribute to a Roth even after you retire as long as you continue to work and stay within the income limits.

6. Simple 401 (k)

A Simple 401 (k) plan is a subset of the traditional 401 (k) and is similar to the Simple IRA in that you must have under 100 employees and either contribute a 2% nonelective employer contribution or a dollar-for-dollar match up to 3 percent of compensation.

The biggest difference between the two simple plans is that you can maintain a second retirement account for employees who are not eligible for a Simple 401 (k).

You’ll be responsible for filling a Form 5500 annually.

7. Defined-Benefit Plan

If you want to contribute more money towards retirement, and have the income to do so, then a Defined-Benefit Plan may be your best bet.

These fixed and pre-established benefits could allow you to save as much as $100,000 per year. You can also combine this plan with your Solo 401(k) or a SEP IRA and even write it off as a tax expense. You will have to file a Form 5500 with a Schedule B.

Keep in mind, that Defined-Benefit Plans are expensive since you’ll have to offer it to all of your employees and you will have to make the minimum funding.

8. Employee Stock Ownership Plan

An Employee Stock Ownership Plan, or ESOP, is a retirement program where you offer employees shares of the business instead of stocks.

ESOP can be beneficial for employers since there are hefty tax breaks and it could improve employee loyalty since they have stack in the company. Be cautious when considering an ESOP since they are better suited for C Corporations.

9. Money Purchase Plan

If you select a Money Purchase Plan, you’ll be required to make the settled upon contribution regardless if your business is profitable or not. For example, if that contribution is 5%, then you are responsible for making that contribution into the separate account of each eligible employee’s account.

You can combine this with other retirement plans, but administrative costs may be higher. Try an annuity or pension plan.

10. Profit Sharing

A Profit Sharing Plan allows you to give your employees a share of the company’s profits. One of the advantages of a Profit Sharing Plan is that it’s incredibly flexible in that you can alter the contributions yearly. So, if cash flow is an issue, this could be a favorable option. You’re also allowed to have other retirement plans.

If you have any questions regarding a retirement account for your small business, make sure that you seek professional advice from your accountant or financial adviser.

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Freelance Writer at Due
Albert Costill graduated from Rowan University with a History degree. He has been a senior finance writer for Due since 2015. His financial advice has been featured in Money Magazine, Fool, The Street, Forbes, CNBC and MarketWatch. He loves to give personal finance advice to millennials.

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