Own a Small Business? These Retirement Plans Can Add Up to Savings Now and Later

Running a small business comes with many responsibilities, and planning for retirement often takes a back seat to daily operations. However, setting up the right retirement plan can offer significant financial benefits—both immediate tax savings and long-term security. Fortunately, several retirement plans are tailored to small business owners, whether you’re a sole proprietor or managing a team of employees. Let’s explore the best options and how they can help you save now and in the future.

Why Small Business Owners Need a Retirement Plan

Unlike traditional employees who often have access to 401(k) plans through their employers, small business owners must take initiative to secure their financial future. Without a structured plan, you could find yourself relying solely on Social Security, which is unlikely to provide the comfort and security you desire in retirement.

Beyond long-term security, contributing to a retirement plan offers immediate tax advantages. Many small business retirement plans allow you to deduct contributions from taxable income, lowering your tax burden today while building a nest egg for the future.

Best Retirement Plans for Small Business Owners

1. SEP IRA (Simplified Employee Pension IRA)

A SEP IRA is an excellent choice for sole proprietors, freelancers, and small business owners with a few employees.

• Pros:

  • Easy to set up and maintain

  • High contribution limits (up to 25% of compensation, or $69,000 in 2024)

  • Contributions are tax-deductible

  • No requirement to contribute every year

• Cons:

  • Only the employer can contribute (employees cannot make contributions)

  • Must contribute the same percentage for all eligible employees

2. Solo 401(k) (One-Participant 401(k))

A Solo 401(k) is ideal for self-employed business owners with no employees (except possibly a spouse).

• Pros:

  • High contribution limits (up to $69,000 in 2024, plus a $7,500 catch-up if over 50)

  • Allows both employee and employer contributions for increased savings

  • Roth option available for after-tax contributions

  • Loan options may be available

• Cons:

  • More paperwork than an IRA

  • Must file IRS Form 5500-EZ once assets exceed $250,000

3. SIMPLE IRA (Savings Incentive Match Plan for Employees)

A SIMPLE IRA is a great choice for small businesses with up to 100 employees who want an easy, cost-effective way to offer retirement benefits.

• Pros:

  • Lower administrative costs than a 401(k)

  • Employers can choose to match up to 3% of employees’ salaries or contribute 2% to all employees

  • Employees can contribute up to $16,000 in 2024, plus a $3,500 catch-up if over 50

• Cons:

  • Employer contributions are mandatory

  • Lower contribution limits than a 401(k)

4. Traditional and Roth IRAs

For small business owners who are just starting out or prefer a simple, flexible option, a Traditional or Roth IRA can be a great supplement to other retirement plans.

• Pros:

  • Easy to set up and manage

  • Tax benefits: Traditional IRAs offer tax-deductible contributions, while Roth IRAs allow tax-free withdrawals in retirement

  • Great option for those with limited funds to contribute initially

• Cons:

  • Low contribution limits ($7,000 in 2024, with a $1,000 catch-up for those over 50)

  • Income limits apply for Roth IRA eligibility

Maximizing Tax Savings and Benefits

One of the biggest advantages of having a retirement plan as a small business owner is the tax savings. Contributions to SEP IRAs, Solo 401(k)s, and SIMPLE IRAs are tax-deductible, reducing your taxable income. If your business is structured as an LLC, S Corp, or sole proprietorship, these deductions can significantly lower your tax bill.

Additionally, the SECURE Act and SECURE 2.0 Act have introduced tax credits for small businesses that set up retirement plans. Businesses with fewer than 50 employees can qualify for a tax credit of up to $5,000 per year for the first three years to cover startup costs.

For those looking to boost retirement savings, a Roth option (available in Solo 401(k)s and IRAs) provides tax-free growth, which can be a smart long-term strategy.

Choosing the Right Plan for Your Business

The best retirement plan for your small business depends on factors like the number of employees, how much you can contribute, and how much administrative work you want to manage.

• If you’re self-employed with no employees, a Solo 401(k) or SEP IRA is a great option.

• If you have a few employees, a SIMPLE IRA might be the easiest and most affordable solution.

• If you want flexibility with after-tax contributions, a Roth IRA or Solo 401(k) with a Roth option can be beneficial.

Regardless of the plan you choose, the most important step is to start now. The earlier you begin contributing to a retirement plan, the more time your money has to grow through compounding.

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Owning a small business doesn’t mean sacrificing your financial future. With the right retirement plan, you can take advantage of tax savings today while building long-term wealth for tomorrow. Whether you’re just starting or have been in business for years, setting up a retirement plan is one of the smartest financial moves you can make.

If you’re unsure which plan is best for you, consider consulting a financial advisor or tax professional to tailor a strategy that aligns with your business and retirement goals. Your future self will thank you!

Schedule your appontment with me by clicking here. Together we will evaluate your personal circumstances.

Warm regards,

Sharon, Your Safe Money Lady™

Sharon Ben-David

Phone: (954) 261-5200
Licensed Mortgage Broker, Certified Professional Retirement Planning Adviser, and Financial Advocate

Protecting Your Nest Egg, Inc.

NMLS #2308601