Best Retirement Plans for Small Business Owners (

This is Jeff Rose from
Are you a business owner that is finally starting to see some profits? You have been slugging
away for several years and now you are finally in the black and you want to start thinking
about retirement. You know that you need to save, but as a business owner you have a plethora
of different retirement plan options that as an individual you didn’t. If you are confused
and bewildered and not sure what direction to go, I completely understand. I was in the exact same situation as you.
I was a W2 employee, and then when I became a small business owner I now had many different
options that I could choose from and initially it was overwhelming. It was easier doing it
for the client, but now that I was actually on the business owner’s side of things, the
1099 independent contractor side of things, I now wanted to make sure that I was doing
the best retirement plan for me. If you are looking to see what retirement plan is best
for you, here are a few options to consider: 1. A traditional or Roth IRA. Now I am sure
you are probably wondering, “Well Jeff, I could do that when I was an individual. What
is the benefit for me doing it as a business owner?” Well here’s the thing; the beauty
of doing a traditional or Roth IRA, if you are not putting money in those plans at all,
and maybe you are profitable but you are not as profitable as you would like to be, under
the age of 50 and under you can still put in $5,000 on either the traditional or Roth
IRA. At least that is a good starting point. Now, if you can put in more than that 5,000
then we’ll start looking at the other options coming up. 2. A simple IRA. The name is a little bit
misleading because to me it is not quite that simple. Here is the general gist: You’re able
to put in up to $11,500 per year into the simple IRA. Over the age of 50 is allowed
a $2,500 catch up. But if you have employees, here is where it gets a little bit trickier.
To make it simple, just know that you’re going to have to put in about 3% of your employees’
wages as an employer contribution. That is how much, as a business owner, you’re going
to be out for each employee. There are certain rules that say you can dip below that 3% over
a 2-out-of-the-5-year period, but I don’t want to muddy the waters too much. Just know
that for the most part you’re going to have to put in about 3% of your employees’ salary
to be able to contribute the 3% for yourself as well. Now that might sound a little bit
confusing and it kind of is, but if you go to the blog and do a Google search for “simple
IRA rules”, you’ll find out more about the simple IRA and see if that applies to you. If you have more than $11,500 to put in, the
next option you might want to consider is what is called the SEP IRA. Now SEP IRA stands
for Simplified Employee Pension Plan. A SEP IRA allows you to put in either 25% if you’re
a C corporation, or 20% if you’re self employed of your gross annual income. Now that is a
pretty good net clip that you can put away. You’re going to cap out at $49,000 to put
in the SEP. For me, as a business owner, that is the actual direction that I went. The one
thing I like about the SEP, especially for a business owner when you compare it to the
simple and the traditional, is that they are very cheap to set up. To set up any of those
plans you’re going to pay your annual IRA custodial fee, which is going to be somewhere
in the neighborhood of $25-50 per year and that is it. You will have to pay the cost
associated with the investments inside that plan, but to actually get that set up it is
very cheap. There is no IRS filing documents. There are no annual filing fees that you have
to do with those plans, so that is why it is very popular. Just so you know SEP IRA
is the direction I went with my business and have done so for the last two and going on
three years. The only downfall with the SEP is that you
can only do a percentage of your income, so you can’t just put in some arbitrary amount.
The other downside is if you have employees. If, say, you’re going to do 20% of your income,
then you have to do 20% of all your employees’ incomes that qualify for that plan. There
are certain discriminating rules that you can do that can leave certain employees out,
but if they qualify then know whatever you do for yourself you’re going to be doing for
them as well. That can get fairly expensive for a business owner. If you have several employees and you’re looking
to put more in and you don’t want to be held to that 20% standard, then the next step is
looking at a traditional 401K. The traditional 401K allows you to put in up to $16,500 and
you can just put that in. It doesn’t have to be a percentage of your income. The basic
401K plan you don’t have to match for your employees. If you want to do the $16,500 and
that is all you want to put in and you don’t want to match for your employees, then that’s
fine, you can do that. If you want to start matching for yourself,
then that is where it can get a little bit more complicated. You can have what is called
a profit sharing plan or a safe harbor 401K. Basically what that means is if you want to
be able to put more than that $16,500 per year doing employer contribution, then you
have to follow certain testing rules to where what you put in for yourself has to be some
type of prorated portion for your employees too. If you want more information on that,
you can also head to the blog and type in “traditional 401K rules” to see how that works. If you are an owner-only business, an individual
that is just self employed, you have another option that is called the solo 401K. What
makes this neat as opposed to the SEP IRA is this: You get to put in the $15,500 immediately,
so right off the bat you’re not held to that percentage of income that you are with the
SEP. Furthermore, not only can you do the $16,500 in the 401K, but you can also do it
in employer matching contribution, which then falls under that same 25% and 20% whether
you are a C corporation or self-employed self proprietor of the net income. So immediately
you do the $16,500 in the owner only 401K, the solo 401K, and then you can add a matching
contribution based off your net income. All of the sudden, Bam! You are putting that much
more away in that solo 401K. If there are any down sides to the traditional
401K or the safe harbor 401K or the solo 401K that I have mentioned, the one thing that
I would say is probably cost. With those you will have to file some type of IRS filing
fee. With the traditional 401K you have the form 5500 because it is an ERISA-powered plan,
so therefore you will be held to different standards. The cost will vary. I have seen
anywhere from $250 on up to $1500 depending on how big the plan is, how many different
options you want to have and all that sort. If that is something you are considering,
I definitely encourage you to sit down with a financial advisor or a CPA that is skilled
at setting up business retirement plans for you because you just want to make sure that
you get it set up right. If you are a business owner and you are looking
to adopt some type of business retirement plan, those are a few of the options that
you have and those are probably the most popular options that you are going to see. If you
have any more questions, feel free to come by the site, I
have tons of information there, more on all those different type of retirement accounts
for you. I hope you enjoyed the video, and I look forward to seeing you again. The opinions voiced in this material are for
general information only and are not intended to provide specific advice or recommendations
for any individual. To determine which investment(s) may be appropriate for you, consult your financial
advisor prior to investing.

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4 thoughts on “Best Retirement Plans for Small Business Owners (

  1. hi well  why make an account on any firms who asks fees to run your money instead of doing things by yourself.
    open a broker account and buy each month or whenever you want any stock that you want to invest in. now you are. no one will ask you to limit what you invest in. it is total freedom. if your stocks go well you can cash in or stay investing or buy other companies. never let anyone manage your money. 

    if someone asks you to manage your paycheck  would you accept? i am sure you will never accept. so why you accept to give your future investment to people who dont know what is going in the market.

    these bankers and what we call financial advisors. they dont invest and they dont trade. so no idea of how the stock market works.

    hope that helps to know what you are doing.


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