Attention Small Businesses and those that are Self-Employed

Are you self employed or run a small business?

Do you work at a company that doesn’t offer a company-sponsored retirement plan?

Have you wondered how you will be able to save for retirement?

Fortunately, there are effective and efficient tools that even the smallest business owners can use to create company-sponsored retirement plans that help their employees—and themselves—as they prepare for retirement.

If you are a small business owner, this also serves as a great way to demonstrate your support for existing employees, which can help you retain and also attract new employees. 

Let’s explore some of your options:

SEP IRA (Simplified Employee Pension)

• Used mostly by sole proprietors, partnerships, and corporations (C-Corps & S-Corps)

• Easy to set up and are funded solely by employer, employees can’t contribute to the account

• Usually for no or few employees

• If you have employees, you need to set up accounts for them as well

• Can contribute up to 25% of net earnings, max contribution amount for 2022 is $61,000

  • Need to generate earnings in order to contribute to a SEP IRA.

• Can contribute to SEP and a Roth IRA in same year

• Contributions are tax deductible

• Can claim a tax credit for the ordinary and necessary costs of starting a SEP IRA.

• Company must contribute the same % for every eligible employee

• If business/sales are down, employers are allowed to skip contributions

Simple IRA (Savings Incentive Month Plan for Employees)

• For companies with 100 or fewer employees

• Contribution Limits (employees): Can put in $14K annually or 100% of salary (whichever is less)

• Employer can contribute 2% of employees salary or match the employees contributions $ for $ up to 3% of the employee’s compensation.

• Can claim a tax credit for the ordinary and necessary costs of starting a Simple IRA.

• Pros: minimal paperwork, tax deduction contributions made for employees

• Cons: No Roth Version, simple IRA may require an employer to make contributions even if the business doesn’t make a profit

Solo 401K (401k for self-employed)

• Full time, self-employed position with no employees.

• If your spouse works in the business, he/she can also contribute

• Contributions are made pre-tax, reducing taxable income for the year

• If assets exceed $250k, company must file a report with IRS (Form 5500)

• Contribution Limits: Can contribute up to $61k in 2022 (as both employer and employee)

• You can contribute as both the employer and employee

• Employee can deduct up to their income amount, with a maximum of $20,500 ($27,000 if over 50), similar to a regular 401k

• Employers can contribute up to 25% of company’s earnings

Individual Retirement Account

• Need earned income in order to contribute to an IRA

• Contributions to a Roth IRA are not tax deductible

• If you are single, and do not have access to a retirement account at your work, you can make a deductible IRA contribution in your Traditional IRA ($6k if under 50, $7k for individuals 50+)

• If you are married, and your spouse has access to a retirement account, there are income limits to see if you are eligible to deduct your IRA contribution

  • Single: If you make less than $129,000, you can deduct your IRA contribution

  • Married filing Jointly: If your combined income is less than $204,000, you can deduct your IRA contribution

Even if you aren’t sure how these types of accounts relate to you, just know this: Whether you are self employed, run a small business, or work for a company that doesn’t offer a retirement plan, there are plenty of options out there for you to explore.

Not sure where to start? Reach out!

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.