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LAST UPDATED: June 11, 2022

5 Retirement Plans Every Small Business Owner Must Know

Having a retirement plan allows you to secure your financial future and enjoy the money you worked so hard for. If you have employees, they can benefit from a retirement plan as well.

But what exactly are the retirement plans available for small business owners? If you’ve been wondering about this, you’re in the right place.

Here are the retirement plans suited for small business owners and their employees.

Retirement Plans for Small Businesses

1. SEP IRA

A SEP IRA (Self-Employed Individual Retirement Account) is the easiest to set up and maintain. It is suitable for small business owners and those with one or two employees.

As the business owner, you alone can contribute to this plan, and can allocate up to 25% of your net earnings (your annual profit minus half of your self-employment taxes). In particular, one can contribute up to $58,000 in 2021.

Moreover, a SEP IRA offers flexible annual requirements. You can contribute once at the end of the year or not contribute for a year. It’s up to you.

If you decide to contribute, this plan requires you to do so for all of your eligible employees. Contributions can be up to 25% of their compensation. Contributions for employees are limited to $290,000 per year.

2. SIMPLE IRA

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is ideal for small businesses with 100 or fewer employees.

Individuals can put their net earnings from self-employment into a SIMPLE IRA with an upward contribution of up to $13,500 in 2021. Additionally, you can put $3,000 more if you’re at least 50 years old.

Your employees can contribute as well. However, as the employer, your contribution must equal your employees’.

In particular, you can allocate a fixed 2% of each eligible employee’s income, whether they participate or not. As an alternative, you can allocate up to 3% of each contributing employee’s income per year.

3. SIMPLE 401(k)

A SIMPLE 401(k) combines the characteristics of a SIMPLE IRA and a traditional 401(k) plan. Like a SIMPLE IRA, a SIMPLE 401(k) is excellent for businesses with 100 or fewer employees.

A SIMPLE 401(k) plan is only available for employees with no other retirement plans. These employees must be at least 21 years old, completed at least 1 year of service, and received at least $5,000 during the preceding year.

As the employer, you can either make a matching contribution of up to 3% or a non-elective contribution of up to 2% of each eligible employee’s income.

In 2021, an employee can contribute to a SIMPLE 401(k) for up to $13,500. Those over 50 can contribute an additional $3,000.

4. Self-Employed 401(k)

Also known as a solo 401(k) or an individual 401(k), a self-employed 401(k) is for small business owners who have no other employees aside from their spouses.

Just like a standard 401(k), participants can contribute from pre-tax earnings. The savings are then invested to become tax-deferred until withdrawn during retirement.

Because contributors act as both employees and employers, they can contribute more money per year than they can using a traditional 401(k) or IRA.

In 2021, you can make salary deferral contributions as an employee equal to 100% of your compensation, up to $19,500 each year. It can go up to $26,000 if you’re at least 50 years old. Combined contributions cannot exceed $58,000 or $64,000 for people aged 50 and up.

5. Traditional or Roth IRA

Traditional and Roth IRAs are suitable for anyone with employment income, including freelancers.

Traditional IRAs let you make pre- and after-tax contributions. Your money can grow tax-deferred. Your withdrawals will then be taxed as current income after 59½.

On the other hand, Roth IRAs let you make after-tax contributions. Your money grows tax-free. You can then make tax- and penalty-free withdrawals after 59½.

Both retirement plans allow you to make annual contributions up to $6,000 in 2021. The amount can go up to $7,000 if you’re at least 50 years old.

Companies Specializing in Retirement Plans & IRA

Now that you know the different retirement plans suited for you and your employees, it’s time to know the best companies to help you get off on the right foot.

1. Fidelity

Fidelity is one of the biggest asset managers in the globe. The company offers a simple process to determine your eligibility for certain retirement plans. The process includes identifying your retirement score and pension goals.

In particular, Fidelity offers SEP IRA, SIMPLE IRA, self-employed 401(k), 401(k), and investment-only retirement accounts.

2. Charles Schwab

Charles Schwab is the third-largest asset managers in the world. The company offers pre-retirement advice and a mobile app to keep track of your savings.

The company offers the following small business retirement plans: SEP IRA, SIMPLE IRA, individual 401(k), company retirement, business 401(k), and personal defined benefit.

3. Vanguard

Vanguard is the second-largest asset manager in the globe. The company offers various tools such as market insights and advice to help you prepare for retirement.

In particular, the company offers various plans for small businesses including SEP IRA, SIMPLE IRA, and individual 401(k).

4. TD Ameritrade

TD Ameritrade is another reputable asset-managing company. The company offers an electronic platform through which clients can track their finances.

TD Ameritrade offers the following retirement plans: traditional IRA, SEP IRA, SIMPLE IRA, Roth IRA, Roll-over IRA, solo 401(k), and pension or profit.

We’re ready to help!

Having a retirement plan is crucial to having a comfortable and happy retirement. Starting a retirement plan for yourself and your employees leads to a secure financial future. If you don’t have a retirement plan yet, we suggest you get one as soon as possible.

Remember, a retirement plan can determine whether you’ll enjoy Piña coladas by the beach during retirement or not.

Zeffry Payroll Services help you make automatic contributions easily. Our online platform is ready to take the hassles associated with your retirement plans away from you.

If you want an easy & efficient way of making contributions, contact us today and look forward to your happy retirement. Cheers!

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