Retirement Vehicles for Entrepreneurs
by Julie Waters, PHR

Retirement Vehicles for Entrepreneurs

As an entrepreneur you are one of the 28 million small businesses in the United States.  Whether you are in business for yourself or you have a staff working for you, there are important reasons and really good options for starting a retirement plan for your business. 

Saving for retirement can be hard for business owners as you frequently want to invest any revenue back into the business. It is a mistake to assume that you don't need to save, that your spouse's retirement will be enough, or that you can live off the revenue or sale proceeds from your business. 

There are retirement plans available for all business sizes, including sole proprietorships. 

Thinking about the potential costs and difficulties in implementing a plan may paralyze you, but you have options and it's worth exploring which would be a good fit for your business. There are plans can be funded wholly from employee deductions. There are also some plans that do not have any IRS reporting requirements, so they are not hard to set up and operate. Let's go through your options.

If You Have Employees

You want to give your employees the option to save through an employer sponsored retirement plan, but your company can't afford to or doesn't want to contribute, you can have a Payroll Deduction IRA or a 401(K) plan.

If you want to contribute but not allow the employee to put money into the account, you can set up a SEP IRA.  Advantages of a SEP IRA plan are: low cost, flexible contribution limits, and that it is easily set up and administered.

If you want to contribute and you want your employees to be able to contribute as well, you can do a Simple IRA, which has low plan costs and ease of administration.  You can also set up a 401(k) plan for the company.  The advantage to a 401(k) is the higher contribution limits and flexible plan designs. 

If You Don't Have Employees

You still have a couple of really good options even if you don't have any employees. You can establish a SEP IRA, which is a flexible, low cost option.  You may also consider a Solo 401(k), which allows for high contribution limits and typically has a loan option.  

What Are the Differences?

Here is a quick run-down of the types of plans for small business owners:

• 401(k) - including Solo 401(k) - Employee and employer contributions, high limits, loans available, some administrative maintenance, can establish a vesting schedule to encourage retention.
• Simple IRA - Employee and employer contributions, higher limit than personal IRA, easy administration and low cost, immediate vesting.
• SEP IRA - Employer contributions, flexible contributions, easy administration and low cost, immediate vesting.
• Payroll Deduction IRA - Employee contributions, easy administration and low cost, employee choice (Roth or traditional IRA, when to contribute), immediate vesting, can fund an account for a non-working spouse. 

The information stated here is only intended to give you the broadest overview of your options. Tax issues and administrative costs can be complex, so seek out an expert. Consult your financial or tax advisor; these trained professionals will guide you to the right choice for your situation.  

Suggestions for starting your online research: www.vanguard.com, www.americanfunds.com  and www.broadfinancial.com.

Julie was born and raised in Washington State.  She graduated from the University of Washington with a BA in English and earned an MS in Human Resources Management from Troy University.  She is also a certified Professional in Human Resources. 

Over the last 13 years, Julie has held various Human Resource positions starting her career at FHC Health Systems in Norfolk, Virginia, then moving to Landrum Professional Services in Pensacola, Florida, Cambridge Health Alliance Physicians Organization in Cambridge, Massachusetts, and the Military Officers Association of America in Alexandria, Virginia where she served as the Director of Human Resources.  Julie currently resides in Spokane, Washington where she is the Human Resources and Operations Manager for a law firm.

 

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