Most employers offer a 401(k) plan to incentivize eligible employees to save for retirement. Unfortunately, when you work for yourself, you’re responsible for setting up your own retirement plan. Even if you don’t plan on selling your business or stepping down any time soon, it’s a good idea to start planning for retirement now. In this post, we'll explain how you can successfully plan for retirement now, so you’re prepared for the future!
6 Ways That Business Owners Can Start Planning for Retirement:
1. Establish a Savings PlanIt’s not uncommon for small business owners to reinvest all profits into their business, especially in the early stages. Although this is an effective strategy for growing your business, it doesn’t leave you with much cushion if you need cash in the future. A standard rule of thumb is to set aside at least 10 to 15 percent of your income for retirement. However, this number can vary depending on how much you’ve saved already and the amount of money you expect to need when you retire.
2. Set up a Self-Employed Retirement PlanSole proprietors have several retirement savings options with similar tax benefits as traditional employer-sponsored retirement plan options.
- Simplified Employee Pension (SEP): An SEP allows you to contribute as much as 25 percent of your net earnings from self-employment (up to $56,000 in 2019). In most cases, you can open an SEP through your bank or other financial institution.
- Solo 401(k): In 2019, you can make annual salary deferrals up to $19,000 to a Solo 401(k) on a pre-tax basis. To open one, you’ll need to find a Solo 401(k) provider and complete the necessary paperwork.
- Savings Incentive Match Plan for Employees (SIMPLE IRA Plan): A SIMPLE IRA Plan can be an appealing option for small business owners with 100 employed individuals or fewer. They’re often less expensive to set up and administer than other retirement savings plans. However, SIMPLE IRAs are unique in that they require you to make contributions on your employees’ behalf — either dollar-for-dollar or on a percentage basis.