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Editorial


Front Page - Friday, August 16, 2019

Business owners: You need your own retirement plan




As a business owner, you can’t afford to ignore your competition. You can’t afford to miss out on the trends affecting your industry. You can’t afford to alienate customers. And here’s one more item to add to the list: You can’t afford not to create a retirement plan for yourself.

Of course, you might think that, one day, you’ll simply sell your business and live off the proceeds. But selling a business isn’t always simple, and there’s no guarantee you’ll receive enough to pay for a comfortable retirement – which is why you should strongly consider creating a retirement plan now. 

Here are some of the most widely used plans:

SEP-IRA

You can contribute up to 25% of your compensation — as much as $56,000 in 2019 — to a SEP-IRA. Your contributions are tax deductible and your earnings grow tax-deferred until withdrawn. This plan offers you significant flexibility in making contributions for yourself and your employees. Plus, as an employer, you can generally deduct, as business expenses, any contributions you make on behalf of your plan participants.

SIMPLE IRA

In 2019, you can put in up to $13,000 — or $16,000 if you’re 50 or older — to a SIMPLE IRA. As is the case with the SEP-IRA, your earnings grow tax deferred. You can match your employees’ contributions dollar for dollar, up to 3% of compensation. If you work for yourself, you can combine employee and employer contributions, so if you use the 3% matching rule, and you earn enough to fully match employee contributions, you can put in up to $26,000 per year (or $32,000 if you’re 50 or older). Alternatively, you could contribute 2% of each eligible employee’s compensation each year, up to a maximum of $5,600, regardless of whether the employee contributes. Contributions to your employees are tax deductible.

“Owner-only” 401(k) plan

If you have no employees other than your spouse, you can establish an “owner-only” 401(k) plan, which functions similarly to a 401(k) plan offered by a large employer. Between salary deferral and profit sharing, you can contribute up to $56,000, in pre-tax dollars, to your owner-only 401(k), or $62,000 if you’re 50 or older. Like a SEP-IRA and SIMPLE IRA, a 401(k) provides the potential to accumulate tax-deferred earnings. However, you could choose to open a Roth 401(k), which can be funded with after-tax dollars. With a Roth 401(k), your earnings can grow tax-free, provided you’ve had your account at least five years and you don’t start taking withdrawals until you’re at least 59-1/2.

Which plan is right for you? The answer depends on several factors, such as whether you have any employees and how much money you can contribute each year. But all the plans mentioned above are generally easy to establish, and the administrative costs are usually minimal. Most important, any one of them can help you build some of the resources you’ll need to enjoy the retirement lifestyle you’ve envisioned. To select an appropriate plan, you may want to consult with your tax and financial advisors.

In any case, don’t wait too long. Time goes by quickly, and when you reach that day when you’re a “former” business owner, you’ll want to be prepared.