Ask An Expert

I’m a business owner and I’d like to set up a retirement plan. What are my options?

Joann North

Answered By

Alicyn McLeod

CFO at Agate

Alicyn@agatecpa.com

Question:

I’m a business owner and I’d like to set up a retirement plan. What are my options?

Answer:

You have several!

Some may obviously not work for your situation. Some can be used alongside other plans. A suitable plan for you one year may not work for you the next. Here’s a quick overview of retirement plans most commonly used by small businesses.

 

  • Solo 401ks and SEP IRAs are an easy go-to if you don’t anticipate employees and you want to put as much away as you can.
  • Traditional IRAs work well if you’re short on free cash. If you can’t put much in, there’s no need in establishing a more robust retirement plan that requires more administrative hassle and higher costs.
  • Roth IRAs could be a good fit if your overall income will be low enough to allow for the contribution. These are sometimes used in conjunction with a SEP/Solo401k which are used to bring income down low enough to allow for the Roth.
  • Traditional & Roth 401ks are a typical choice for growing businesses that want to allow employees to maximize their own contributions.
  •  SIMPLE IRAs are an option but not widely used. Most clients with employees generally gravitate to a Traditional 401k for the additional bump in contributions levels over a SIMPLE IRA.
  • Defined benefit plans are used infrequently, but a potential option for a small business with HUGE profits also meeting other criteria. Use these when you have the right fact pattern, want a current tax benefit, and have so much free cash you don’t know what to do with it!