Retirement Options for Small Business Owners and their Employees
By James Pruitt, Senior Staff Writer
Entrepreneurship entails bravery. New business owners give their time and resources for an idea. In some cases, entrepreneurs put their own retirement plans on hold, at least while building their new business. In other cases, an expanding business may need to consider the best options for retirement practices for employees. In all cases, careful research about retirement options should precede the development and expansion of any business.
Several options exist for both owners and employees. These options include the Self-Employed 401(k), the Simple 401(k), the Simple IRA, the Roth IRA, and the SEP-IRA. Each has different applications for both owners and employees.
Features of various retirement options include the “employer contribution,” the “employee contribution,” and differing administrative methods based on factors such as size and contribution amounts.
Setting up a Retirement Plan
The type of retirement plan depends on the nature of the business. The business may be a sole proprietorship, a family business, or may depend upon skilled employees.
Ideally, of course, a successful business should pay into the futures of their employees or the business owner at the very least. When businesses don’t account for retirement plans, they generally have a lack of incoming funds to blame.
Some businesses only have the owner to account for. Others need to attract valuable employees, which factors into the need to undertake the complex process of determining the correct retirement package for the onboarding process.
The following website provides a starting list of financial companies that may provide retirement options, as well as advice for further research:
Options for Business Owners
Veteran Business Owners come from a variety of circumstances and walks of life. Some may have a vested pension from a previous employment situation. Others may be taking a full plunge before they’ve planned for retirement.
At times, a sale of the entire business offers the only retirement option for a small business owner. Remember that a full sale is viable only in cases where the business can continue to operate.
The self-employed 401(k), or the “solo 401(k),” provides the best options for business owners without employees. Other plans treat employers differently from employees. This plan offers flexibility to tailor the contributions to the interests exclusively of the owner. For example, the proprietor has the option to set the “employee contribution” up to 100% of the compensation up to a limit of $19,500 for those under 50. Older business owners can contribute up to $26,000. An “employer contribution” can reach 25% for a total of $54,000.
Options for Employees
In order to attract the best talent, Veteran Business Owners should research their benefits packages. Many businesses need healthy relationships with employees to function. In light of the current labor shortage, some businesses need tradespeople with or without college degrees.
Varieties of benefits options may attract these valuable employees. Among these are a traditional 401(k), a “Savings Incentive Match Plan for Employees,” and a “Safe Harbor 401(k), which reduces administrative costs while reducing flexibility. Finally, the “Individual 401(k)” is a special option for couples who jointly operate businesses.
IRAS versus 401(k)s
“IRA” stands for “Individual Retirement Account.” An employer does not pay into such an account but may provide eligibility to a certain IRA fund through a deal with the financial institution. On the other hand, a 401(k) offers joint contributions between employee and employer.
One difference between an IRA and a 401(k) lies in the relationship with the employer. However, a second difference lies in taxation. Generally, with Roth IRAs, contributions to the account are subject to taxes, but contributions withdrawn in retirement are exempt. Withdrawals from 401(k) accounts, however, are indeed taxed.
VAMBOA, the Veterans and Military Business Owners Association hopes that this article has not only been valuable but provided some unique perspective. We work hard to bring you important, positive, helpful, and timely information and are the “go to” online venue for Veteran and Military Business Owners. VAMBOA is a non-profit trade association. We do not charge members any dues or fees and members can also use our seal on their collateral and website. If you are not yet a member, you can register here: https://vamboa.org/member-registration/
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