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Retirement Saving Tips for Small Business Owners

Published by Adam Hale on 29 Dec 2020

Starting a new business can be tough and a lot of hard work. You probably had to spend all or most of your savings and still had to borrow money to keep things going. But you did it! You started a business.

Just as you put all those great skills into getting your business up and running, now is the time to start thinking about saving for you and your employees future retirement. Offering competitive retirement benefits for your employees will help you attract and retain a workforce.

Below are some popular tax-advantaged retirement plans for small business owners, as well as a few tips that can help you and your employees further save for retirement.

Popular options for small business owners who are not currently enrolled in a retirement plan:Retirements savings for Small Business

A 401(k) Plan

One of the main benefits of investing in a 401(k) plan is that it allows retirement savings to grow tax deferred. Additionally there are other advantages, especially in comparison to individual retirement accounts (IRAs). Consider contributing up to $57,000 of your salary and/or your business’s net profit to 4 401(k) plan. This will help build up your cash in the long run.

Savings Incentive Match Plan for Employees (SIMPLE) IRA Account

As stated by the Internal Revenue Services a SIMPLE IRA allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan. You can put all your business’ net profit in the plan, up to $13,500, plus an additional $3,000 if you’re 50 or older to grow your retirement savings.

Simplified Employee Pension (SEP) IRA Account

A SEP plan allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees. Contribute as much as 25% of your business’ net profit up to $57,000 for 2020.

Which one should I pick? Choosing a plan.

The SEP and SIMPLE IRAs are great for either sole proprietors or small businesses that have no more than 1 or 2 dozen employees. Usually, 401(k) plans are better suited for small businesses with more than 1or 2 dozen employees. Do your research to weigh the pros and cons of each before choosing a plan.

Currently enrolled in a retirement plan? For small business owners that are currently enrolled in a retirement plan, here are 3 tips to maximize your retirement contributions.

First, pay yourself.

Decide at the beginning of each month the amount you want to set aside to fund your retirement rather than funding your account with the left over cash after the monthly bills are paid. Make funding your retirement equally as important as your other bills. If you don’t think you can meet your savings goal and pay your bills too, take a look at your bills and see if there is somewhere you can cut back so that you can meet your monthly savings goal.

Record your contributions on your income statement.

When you’re busy running the daily business operations, it’s easy to forget about your retirement planning. So that you don’t forget, list your contributions as a separate line item on your business income statement.

Review taxes 2 times a year.

With the pandemic at hand, it’s more important than ever to keep up with your tax planning. It’s important that you review you tax planning twice a year to maximize your retirement plan contributions.

It’s more important than ever to have a realistic retirement savings goal and a solid plan for achieving it. But keep in mind: slow and steady wins this race. Even modest monthly contributions to a retirement account for 20 to 30 years can easily lead to an accumulation of several hundred thousand dollars. 

Summit CPA Group is a distributed virtual CFO firm with a non-traditional approach to accounting. Their amazing team of CPAs and accountants provide professional Virtual CFO Services and 401(k) Audits for companies all over the United States—many of which are remote companies as well. Contact our office at 866-497-9761 to schedule a consultation today!



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