Business Retirement Plans

Business Retirement Plans

Understanding Small Business Retirement Plans

When considering the various retirement plan options available for small businesses, it’s crucial to understand the fundamental aspects that can impact your financial planning. These plans not only provide a means for business owners and self-employed individuals to secure their financial future but also offer substantial tax benefits.

Before diving into specifics, here are some key points to remember:

Contribution Limits

Each plan has annual contribution limits, similar to employer-sponsored plans. The amount you can contribute varies by plan and whether you're considered self-employed or a business owner.

Tax Implications

Each plan has its own tax rules regarding distributions, tax treatment, and early withdrawal penalties. Some plans also have rules specific to businesses with employees.

Tax Advantages

Small business retirement plans offer tax-deferred savings. Your retirement contributions grow on a tax-deferred basis, and some or all of your contributions may be tax-deductible, reducing your tax bill.

Popular Small Business Retirement Plan Options

Simplified Employee Pension (SEP) IRA

    • Eligibility: Available to any size business, including sole proprietorships, partnerships, and corporations. You can establish one for yourself or your employees. (If for employees, you make contributions on their behalf.)
    • Contribution Limits: 25% of employee’s compensation or $69,000 in 2024 (whichever is less). No catch-up contributions are allowed.
    • Pros: Easy and inexpensive to set up, high contribution limits, tax-deductible contributions, traditional IRA tax treatment on distributions.
    • Cons: You’re not obligated to contribute each year, but if you do, you must contribute for all eligible employees.

Savings Incentive Match Plan for Employees (SIMPLE IRA)

  • Eligibility: Generally suited for businesses with 100 or fewer employees. Employer contributions are mandatory.
  • Contribution Limits: Employee contributions: $16,000 in 2024 ($19,500 for age 50 or older). Employer contributions: Must match employee contributions up to 3% or make a 2% nonelective contribution (employees don’t have to contribute to receive this).
  • Pros: Easy to set up and maintain, tax-deductible contributions, traditional IRA tax treatment on distributions.
  • Cons: Lower contribution limits than SEP IRAs or solo 401(k)s. Employer matching contributions are mandatory.
  • Good for: Small businesses with a regular cash flow that want to offer a retirement savings option for employees without the complexities of a 401(k) plan.

Solo 401(k)

  • Eligibility: Designed for sole proprietors (or businesses with only a spouse as an employee). You contribute as both employer and employee.
  • Contribution Limits: As an employee: $23,000 in 2024 ($30,500 for age 50 or older). As an employer: Up to 25% of compensation, with a special formula for self-employed individuals.
  • Pros: Highest contribution limits, tax-deductible contributions, generous annual employer contributions.
  • Cons: Most difficult and expensive plan to set up and maintain.
  • Good for: Self-employed individuals with high-earned income seeking to develop their retirement savings.

401(k)

  • Eligibility: Available for businesses of any size and provides the option to add requirements for eligibility, vesting and match contributions.
  • Contribution Limits: As an employee: $23,000 in 2024 ($30,500 for age 50 or older). Total contribution limit, including employer contributions, employee contributions (both tax deferred and after tax) is $69,000
  • Pros: Highest contribution limits, tax-deductible contributions, can be a traditional 401(k) or Roth 401(k), and can allow for employee loans.
  • Cons: Can be a burden to manage without the help of a Fiduciary and Third party administrator (TPA) 
  • Good for: Companies with more than 2 employees and wanting to grow. Also for those wanting to save the most into a retirement plan.

Still Unsure? We Can Help

Choosing a retirement plan requires careful consideration of your business structure, employee count, and budget. Springbok Wealth Partners can guide you through the process and help you select the plan that suits your needs. Our team of financial advisors can answer your questions about:

Types of retirement plans

SEP-IRA, SIMPLE IRA, Solo 401(k), traditional IRA, Roth IRA, 401(k)

Investment choices

Mutual funds, stocks, bonds

Tax implications

Tax-deductible contributions, tax-deferred growth, minimum distributions, tax credits

Administrative burdens

Plan documents, management fees, recordkeeping

Financial goals

Retirement income, estate planning

We can also help you with:

Tax planning

Developing tax-efficient strategies to cultivate your retirement savings.

Investment management

Creating a diversified investment portfolio aligned with your risk tolerance and retirement goals.

Hardship withdrawals

Understanding the rules and implications of taking money out of your retirement account before retirement.

There’s no one-size-fits-all solution for small business retirement plans. By understanding your options and consulting with a financial advisor at Springbok Wealth Partners, you can make an informed decision that benefits your business and your future.

Ready to take control of your business’s retirement plan and gain your financial future? Contact Springbok Wealth Partners today for a free consultation. Our team of experienced advisors can help you choose the right plan, navigate the complexities of retirement savings, and develop a personalized investment strategy to help you reach your financial goals.

Don't wait! Let's talk about retirement plan options.