Retirement Plans for Small Business Owners: How to Get Started

Types of retirement accounts for self-employed small business owners

We have several options for plans that are designed to take the guesswork and hassle out of setting up retirement accounts for yourself and your loyal employees. All you need to do is focus on the growing peace of mind those accounts will give.

With all of these retirement plans, you’ll experience the power of self-directed investing, even if you work for yourself.

Here’s a rundown of several options for retirement accounts specifically designed for small business owners like you. To get more detailed information about these plans, visit Retirement Plans for Business Owners.

SEP (Simplified Employee Pension)

A SEP is designed for self-employed individuals or small businesses, ideally with fewer than 25 employees. If you earn a self-employment income, you are allowed to save more for retirement using a SEP plan than a traditional IRA or Roth allows. A SEP is less complex and costly than a 401(k), allows employers to contribute larger amounts than a traditional or Roth IRA, and may qualify for larger tax deductions.

SIMPLE IRA (Savings Incentive Match Plan for Employees)

A SIMPLE IRA is ideally suited as a start-up retirement savings plan for small employers who have 100 or fewer employees, and who are not sponsoring a retirement plan. Contributions are tax-deductible, and earnings within the account are tax-free until withdrawn.

Solo 401(k)

A Solo 401(k) is for those who are self-employed and offers the same benefits of a regular 401(k), but it is designated for a business in which only the owner (and their spouse) is an employee. You can choose to make after-tax salary deferrals (adding a Roth component), with the tax advantages of withdrawals being tax-free when the time comes.

Self-directed accounts

Any of the above options can be a self-directed account, which you can use to invest in areas outside of the traditional stocks and bonds. That’s the primary difference between a self-directed and traditional retirement account — where you put those investment dollars.

With a self-directed IRA or 401(k), you can invest in a variety of areas, including:

• Real estate
• Private debt like corporate debt offerings, notes secured by deeds of trust or mortgages
• Private equity-like stock of C-corporations, limited partnerships, LLCs and REITs
• Precious metals, including gold, silver, platinum, and palladium

It’s a great option for people in any economy, but especially in turbulent times like these, it can be invaluable.

But self-directed accounts aren’t only about diversifying beyond the stock market into other areas of investment. They’re also about following your passions, and in no small part, how you want to spend your time after retirement.

We’ve seen many clients use their knowledge of real estate to invest for their post-retirement years. We’ve also seen investors use their knowledge of medical technology sales to grow their account and we’ve seen those involved in the home restoration business tie their retirement accounts to the activity of their business. The list goes on.

If you have a passion or inherent knowledge base rooted in a particular industry, it’s worth researching to see if that skill set can be utilized in a self-directed account.

Next steps: Finding a custodian

So, you’ve identified the retirement solution that is right for you. Now, who do you contact?

According to the IRS, you need a qualified custodian for a self-directed IRA, but with a variety of custodians, administrators, and promoters offering self-directed investing options, how do you know which is best for your IRA? It’s important to consider a self-directed IRA custodian that has experience in the industry, knowledge, and a high level of service because your finances will be in their care.

Whether you’re investing in stocks, bonds, and mutual funds or real estate, notes, cryptocurrency, or another alternative investment, you’ll want to get some basic questions answered before you decide on a custodian for your self-directed IRA.

How much assistance does the custodian provide?

You should not be doing all the work. Be wary of firms set up to sell you on a solo 401(k), also referred to as a QRP, with full checkbook control. These companies are often structured to open the account, charge a fee, and then leave you on your own to process transactions, record and manage those transactions and educate yourself. It’s a daunting task and one you shouldn’t pay for.

Instead, look for a partnership and expect that your custodian will assist you with the transaction processing, record maintenance and processing, and provide you with ongoing education and training.

Who is their primary regulator?

In most cases, custodians are subject to regulation similar to banking institutions. Before choosing a custodian that will be responsible for transactions and funds within your IRA, make sure they are properly regulated by state and/or federal agencies.

What are their company’s core values?

You really want to know their guiding principles and core values before jumping into business with a custodian. This question addresses a custodian’s transparency and professionalism. Do they display their values and mission clearly? Do they confidently convey what they do for you and what they care about?

These values will set the foundation for your experience and will address how the custodian’s employees and staff will handle you as a client.

What fees are involved?

What will you be paying for all of this? All custodians will charge fees, but how transparent are they about those fees? You probably want to work with a custodian who will tell you exactly what you will be charged for and when that charge will take place. If the custodian seems to avoid the topic of fees, it might be a red flag.

Since each custodian is different, you’ll want to ask if you’re charged based on each transaction or based on the value of your account. Be sure to ask a potential custodian how you’re billed as well.

For more information about custodians, read Questions to Ask a Self-Directed IRA Custodian and Tips for Choosing the Right Custodian for Your Retirement Account.

Looking for more information about these plans to decide which is right for you? At Equity Trust, we can help. Read more here or watch this video, “Small Business Retirement Plans: Overview” by our educator, John Bowens.

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