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Investor Insights Blog|Retirement Plans for Small Business Owners: How to Get Started

Small Business Plans

Retirement Plans for Small Business Owners: How to Get Started

Small business owner working on a laptop.

You own a small business. Maybe you’re self-employed, a sole proprietor with just yourself and perhaps your spouse on the payroll, or a company with a handful of employees. Congratulations! Even in trying economic times like the ones we’re in now, businesses like yours are the backbone of this country’s economy.

The positives about starting and owning your own business are many — being your own boss, creating a product or service your way and seeing it to fruition, building something to pass on, and more. But one disadvantage for small business owners that doesn’t bedevil larger companies is not having the funds to offer perks and benefits like gym memberships, health insurance, HSAs, and the increasingly popular unlimited PTO.

The same goes for retirement savings accounts like 401(k)s, IRAs, and other savings vehicles that larger companies can and do offer employees. If you have employees, are you offering them retirement savings accounts? If you’re self-employed, have you started one for yourself?

The answer to that last question is likely “no.” Why? Let us count the reasons many small business owners don’t have retirement accounts, and offer reasons why you should.

3 common reasons small business owners don’t have retirement accounts … and the reality behind them

Reason 1: You’re investing in your own business

You’ve probably been pumping every last dollar back in your own business in an effort to get yourself on a solid foundation. Many self-employed people do the same. It’s a mistake. You’re prioritizing your present over your future. Balance is the key here.

Reality: Is that still necessary? It’s great to pump every last nickel into your business when you’re a startup, but is it really necessary now? Can’t you take some money off the top and sink it into a retirement account each month? Your future self will thank you
when you’re living the good life in your golden years.

Reason 2: You anticipate selling your business when it’s time to retire

Dreaming of that golden parachute when just the right investor comes along at just the right time? That’s a gamble. When the day comes, there’s no guarantee you’ll find someone to carry on your legacy.

Reality: Will it sell for what you need? Hoping to sell your business down the road? We hate to raise this specter, but technology is evolving faster than Alexa can tell you what the weather is like outside. What if technology makes your product or service obsolete tomorrow? We’re pretty sure the person who invented Wite-Out or the business model for Blockbuster or the BlackBerry didn’t anticipate the tech evolution that would put those products on the “Remember When” shelf.

Reason 3: You’re too busy to think about it

Running a small business, even if it’s just you on the payroll, can be a 24/7 job. You may have been so caught up in the everyday flurry of keeping things humming while you put out fires that you haven’t had a moment to think about retirement. Also, it’s complicated. Tax implications and advantages, 401(k)s, IRAs, and more. It’s hard to know which option is right for you, your business, and if applicable, your employees.

Reality: It’s easier than you think. With a good financial advisor to explain the ins and outs of different retirement account options, you can find the plan that’s best for you and your employees in no time. After that, it’s not exactly set-it-and-forget-it, but the administration time won’t eat into your day.

The best course of action is to invest a little in yourself now to see dividends down the road. But how do you know which retirement account to choose? That’s where we can help. At Equity Trust, we specialize in helping people who are self-employed small business owners lay a solid foundation for their retirement amid the chaos that can come with running a business.

Guide to retirement plans for small business owners

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
  • Cryptocurrency like Bitcoin

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.



What types of accounts does Equity Trust hold?

Equity Trust holds a variety of IRAs, as well as other self-directed accounts, including:

  • Traditional IRA
  • Roth IRA
  • Solo 401(k)
  • Roth Solo 401(k)
  • Health Savings Account (HSA)
  • Coverdell Education Savings Account (CESA)

Am I eligible to make a contribution? How much can I contribute?

The IRS publishes maximum IRA contribution limits and catch up provisions each year. Summaries for each type of contribution can be found on Contribution Limits.

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