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Retirement Planning for Small Businesses

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Retirement Planning for Small Businesses
July 17, 2018

If you are a small business owner, typically you’re running around trying to keep up with all the other things, and not thinking about retirement. That’s why it’s no surprise that over a third of entrepreneurs have no retirement savings plan in place. This is understandable because entrepreneurs pour their heart and soul into their business, often reinvesting their profits back into the business because they believe in it so much. It’s a gamble they’re willing to take and sometimes it pays off greatly, but other times it may not.

When you’re constantly pouring everything in the business the day may come where you’re ready to take a break and if you haven’t taken care of your personal finances, you may find that you’re stuck in the business that you once loved! Retirement plans can range from a variety of very simple options to the most complex and it all depends on what your objectives are. Here are some available options:


The acronym SEP means Simplified Employee Pension, and true to its name, it is simple to set up and manage for you and your employees. Contribution limits are higher than a typical retirement plan allowing participants to contribute the lesser of $55,000 or 25% of their compensation in 2018. The great thing about a SEP is that contributions are not mandatory. If your business did not do well in a certain year, then you are not required to contribute, making this a great plan to help manage cash flow.

Keep in mind, however, if you have several employees this plan can become quite costly. The plan has to include all eligible employees who have worked for you in 3 of the last 5 years, who is over the age of 21 and received at least $600 in compensation. So if you’re making a contribution to the plan, you’re doing so for all eligible employees.


A Savings Incentive Match Plan for Employees, or SIMPLE, is another great option for small businesses that have 100 or fewer employees. Contributions are not as high as the SEP allows but are still quite significant allowing contributions up to $12,500 in 2018. Another difference between the SIMPLE and the SEP is that once you put a SIMPLE IRA in place, you are required to make contributions to it every year for you and your employees.

If you do have employees, employees are able to contribute to the SIMPLE at which point you are required to make a 3% matching contribution or you can choose a non-elective 2% contribution to each eligible employee regardless of whether or not they contribute to the plan. Like a SEP, a SIMPLE IRA is easy to set up and maintain once in place.

401(k) Plans

Regardless of whether you have a team of employees or you’re a solopreneur, a 401(k) comes with many great benefits but is typically more costly to set up. They have high contribution limits allowing participants to contribute up to $18,500 in 2018 and they have the ability to make pre-tax contributions or after-tax Roth contributions. If you’re worried about employee retention, a 401(k) plan can be a great benefit for employees and an incentive for employees to stick around longer with the many different vesting and distribution options.

Which One Is Right For Your Business?

When choosing the right type of retirement plan for your business, a variety of different factors come into the picture to determine which one is right for you. Consider questions like:

  • Do you have employees? If no, a SEP or SIMPLE IRA may be a better option.
  • How much do you want to be able to contribute? Contribution limits vary from plan to plan based on compensation and age.
  • How consistent is your cash flow? If you’re not confident you can make a contribution every year, perhaps the SEP IRA is the best option.
  • Do you need a lot of flexibility in the plan design? If this is the case, a 401(k) may be the best option.

Because there are so many factors that go into deciding on a certain retirement plan, a financial planner or another experienced advisor can evaluate the options and weigh the pros and cons to each plan. If you would like to discuss these options more thoroughly, schedule a 30-minute complimentary consultation with me.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Beyond Balanced Financial Planning LLC (referred to as “BBFP”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. BBFP does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or nonsecurities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall BBFP be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if BBFP or a BBFP authorized representative has been advised of the possibility of such damages. In no event shall Beyond Balanced Financial Planning LLC have any liability to you for damages, losses, and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

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