While you’re busy running your own business, you may push saving for retirement to the backburner. Regular full-time employees typically have employer-sponsored plans that they contribute to each paycheck. As the business owner, you are the employer so your form of saving for retirement is different. Continue reading to learn how your retirement plans differ as a small business owner.
The primary difference between retirement plans as a full-time employee and a small business owner is that as a small business owner, you can set up your own retirement plan. No matter was type of organization your business is (Limited Liability Company, sole proprietorship, etc.), you can choose a type of retirement plan that works best for you.
Below are several different retirement plan options for small business owners:
A Solo 401(k) is a retirement savings plan made specifically for people who are self-employed or small business owners. With this type of retirement account, a person can contribute to the account as an employee and as an employer to maximize both sets of contribution limits. The contribution limit for elective deferrals as an employee are up to 100% of earned income, with a limit of $22,500 in 2023, and a $7,500 catch-up contribution if you are 50 years old or older. Employer nonelective contributions are up to 25% of compensation. The total contributions, not including catch-up contributions, cannot go over $66,000 in 2023.
A SIMPLE IRA is another retirement plan designed for small business owners, but this is also designed for their employees. Employers can provide matching contributions to these types of accounts. The employee contribution limit for 2023 is $15,500, with a catch-up contribution of $3,500 for people age 50 and older. Generally, employers are required to match an employee’s elective contributions dollar for dollar up to 3% of the employee’s compensation.
A Simplified Employee Pension (SEP) IRA is a retirement savings plan meant for small business owners and people who are self-employed. The tax benefits are similar to a traditional IRA, but the contribution limits are higher. For contribution limits in 2023, the limit is the lesser of 25% of compensation or $66,000.
There isn’t one best option for a retirement plan as a small business owner. Ultimately, you must decide on what plan works best for you and your business.
Saving for retirement looks different for small business owners. By using a financial advisor, you can make sure you’re properly saving for retirement while operating your business. Our advisors at Plan A Wealth Management are here to make sure you are meeting your retirement planning goals. Schedule a consultation with Plan A Wealth today.