Retirement Plan Options for Business Owners

Retirement planning is an important part of wealth accumulation, many business owners are aware of the Traditional 401(K), but are unable to meet the requirements of administering the retirement plan. Here is a list of six of the most widely used retirement plan options for business owners to consider.

 1. SEP-IRA. A retirement plan where the business owner makes contributions on behalf of the employee and his/or herself. The tax advantage of having a SEP-IRA is the contributions made for both the business owner and employee are tax deductible on the business owner’s personal tax return. The contribution limit for the business owner is either $49,000 or 25% of compensation.

 2. SIMPLE IRA. A small business with 100 or fewer employees can offer a retirement plan to the business. The employer (business owner) can get a tax deduction on his or her personal return. Employers share the cost of the contributions with employees. The match is 3% of annual compensation.

3. SOLO (K). Also referred to as a Single (K), Unit (K) or Personal (K), this retirement plan is best suited for business owners with no employees. If the business owner has family members who are employee’s contributions can be made by them as well.

4. Profit Sharing Plan. This plan allows the employer each year to determine how much to contribute to the plan, which is based on the company’s profit. The employer contributions are tax deductible, and the employee contributions are immediately vested.

5. Safe Harbor 401(K). Similar to a Traditional 401(k), employer (business owner) is required to make contributions on behalf the employees. The match is 100% of the first 3%.

 6. Employee Stock Ownership plan (ESOP). A deferred contribution plan that is invested primarily in employer’s company stock.