In a recent past blog, we listed out some retirement planning tips for young entrepreneurs and small business owners. While many in the professional world are offered matching contribution plans for retirement by their employer, those who choose to start their own business at a young age don’t have access to the retirement savings options that those in the corporate world do. So what can small business owners do to financially prepare for their retirement? To summarize the past blog, young entrepreneurs can do the following:
- Figure Out How Much They’ll Need For Retirement – Before anything else, it’s important to work the numbers and the business strategy to learn how much you’ll need to live comfortably during your retirement years without relying on your business to provide you with retirement income. Not everything always goes as planned, and you’ll need to take into account your financial health if your business doesn’t take off as you were strategizing. First and foremost, knowing what you’re working with and where you want your personal finances to be in the later years will give you a solid working ground to continue with your retirement plan.
- Purchase A Retirement Plan – There are companies out there that sells retirement plans to small business owners. Today’s blog post is going to list out the four plan options small business owners have.
- Meet With A Financial Advisor – Hiring a financial advisor to help with the finances of your business in the beginning phases is essential, but their advice and expertise can go beyond your business’ finances. Ask them to help you with retirement savings and planning. They will have the knowledge and experience necessary to help you pick a plan that’s ideal for you, your business, and your future financial health.
Continue reading this blog to learn more about the retirement plan options small business owners have. If you have any questions and/or want to meet with a financial advisor, contact Kennedy Wealth Management today.
Retirement Planning Options
There are four main retirement plans that are ideal for small business owners: SEP-IRA, Simple IRA, Solo 401K, and a Simple 401K.
This option is ideal for small business owners who are the only employee of their company. A SEP-IRA is similar to a traditional IRA, and is tax-deductible. For the year of 2018, you can contribute up for 25 percent of your compensation, or $55,000. The only downfall of this plan is that if you hire on more employees, you will have to fund one for each, as well.
A simple IRA is a good plan for businesses with less than 100 employees and is fairly similar to a 401K plan. Employee contributions are pre-tax, taken directly from their paycheck. Employers are required to offer matching contributions up to three percent of the employee’s pay. However, if the employee makes nonelective contributions, they don’t need to make a matching contribution. A nonelective contribution is the option for employers to contribute two percent of each employee’s compensation. Employees cannot contribute more than $12,500 from their salary to a simple IRA.
This plan is for small business owners who are self-employed and don’t have any employees. It is the same as a traditional 401K. With this plan, individuals can contribute 25 percent of their pay. The total contribution cannot exceed $55,000.
A simple 401K is a retirement plan for businesses with less than 100 employees. This plan allows for a two-year grace period allowing for a growing business with over 100 employees. With a matching contribution requirement of up to three percent of an employee’s compensation or a nonelective compensation, you and your employees cannot exceed $12,500 in contributions.
Work With An Advisor From Kennedy Wealth Management
While forging a new business venture is exciting, there is a lot on your plate as the owner. But don’t let your retirement planning take the backseat. It’s critical that you begin thinking and setting aside money for your retirement years now. Take advantage of any financial advising to help you move forward with your business, personal, and retirement finances. Contact a financial advisor at Kennedy Wealth Management in Woodland Hills today. We’re here to help you.