Retirement Savings Strategies for Small Business Owners

Running a small business means myriad responsibilities: not only for the day-to-day company management, but also for the future security of your employees and yourself. Luckily, there are a number of retirement accounts that make it simpler for business owners to offer retirement benefits to employees, and to ensure their own financial future. Read on for the key retirement savings strategies for small business owners.

For Employees…

Business owners aren’t required to provide retirement benefits to employees. However, offering a robust retirement plan to workers may help your business attract a higher caliber of talent.

Many small businesses opt for the SIMPLE IRA, which is an individual retirement account that comes with a savings incentive match plan. Employees can contribute a certain amount of money into their SIMPLE IRA every year. In 2024, the annual limit is $16,000. Employers pay funds into the retirement account as well, usually amounting to 2-3% of the employee’s contribution. Because the SIMPLE IRA is tax-deferred and easy to set up, this account type is a popular choice for small business owners.

On the other hand, some employers will set up a simplified employee pension, or SEP. This is another type of individual retirement account, the different being that SEPs allow employers to contribute more funds: up to 25% of the employee’s contribution. Employers can also determine their contribution amount on a yearly basis, allowing for more flexibility.

While any business—including a small business with just one employee—is eligible to manage 401(k) accounts for workers, many small employers don’t take this retirement savings option. Setting up a 401(k) for employees is more complex to set up and may require more administration to maintain. At the same time, a 401(k) allows for higher contribution limits from employers.

For Yourself…

If you work for yourself or run your own business, don’t overlook your own retirement savings strategy.

Freelancers and solo contractors are eligible to set up a solo 401(k), which offers the same advantages as a traditional workplace 401(k) account: relatively high contribution limits, plus tax advantages either before or after retirement. The maximum contribution for a solo 401(k) account in 2024 is $69,000 per year, while people aged 50 and older can contribute $76,500.

The solo 401(k) account offers a standard and a Roth option. With a standard solo 401(k) account, your contributions to the account aren’t taxed. With the Roth option, your up-front contributions are taxes—but later on, you can make tax-free withdrawals. Many people who expect to be in a higher tax bracket later on choose the Roth option, to take advantage of a lower tax bracket now.

On the other hand, business owners could opt to start an IRA or Roth IRA account for themselves. This type of retirement savings account requires less administration and management than a 401(k), but the contribution limits are far lower: $7,000 in 2024, or $8,000 if you are 50 or older. Again, there is a standard and a Roth IRA option, depending on your current and anticipated future tax bracket.

Whatever retirement account you choose, be sure to develop a plan to keep the account funded. Automating contributions and setting a profit percentage aside can assist in this effort.

Final Thoughts…

Whether you’re running a small business with one hundred employees or just managing a company of one, it’s critical to prioritize retirement savings for long-term security. Research the current options on the market to determine what’s the best fit for your business, your employees, and yourself.