Which retirement plan is right for you and your small business? Host Elizabeth Gore breaks down the SEP IRA, SIMPLE IRA, and Solo 401(k) options, and how saving for later can lower your taxable income now.
Welcome back to the Big Idea presented by Block Advisors built by H&R Block.
All right, y'all, let's take a quick tax break.
If you own a small business, you probably spent way more time thinking about cash flow in customers than about your own retirement.
I'm guilty as charge.
Luckily, there are a few retirement plans built specifically for small business owners and self-employed folks.
And today, we're going to talk about three of those big ones.
First up, the simplified employee pension or SEP IRA.
This one's about as easy as retirement plans get. Thank the Lord.
The SEP IRA works for businesses of any size, and it's especially popular with small employers and the self-employed.
The biggest perk is flexibility.
You can adjust how much you contribute each year based on how your business is doing.
So, if you want something simple and with minimal paperwork, this is a great place to start.
Another great retirement plan is the simple IRA or the savings incentive match plan for employees.
This one's for small employers, folks with around 100 employees or fewer.
Their employees can contribute it through payroll deductions and as an employer, you are required to either match their contributions or kick in a fixed amount.
The simple IRA is a nice middle ground. It provides a real benefit for your team without a ton of administrative headaches on your end.
And by the way, y'all, it's a great recruiting tool uh that we've used a lot.
Finally, there's the solo 401K, which is exactly what it sounds like.
If you're self-employed and don't have any employees other than maybe a spouse, this might be your most powerful option.
You can contribute as an employee based on your earned income and as the employer based on your business profits.
That can add up to serious retirement savings as you your business grows.
Now, the tradeoff, a little more paperwork, but don't let that get away from you.
So, how do you actually choose? So, here are some questions to ask yourself.
Do you have employees?
What's your budget and cash flow like?
How much administrative work are you willing to take on? What are your long-term goals?
Now, your answers to those will give you a right plan towards your future.
And I will tell y'all, I know we all wait to pay ourselves, we all wait to give ourselves retirement, but do this now, put a little bit away for a long-term future.
I want you drinking tequila on a beach someday.
So, one thing worth keeping in mind, these plans are just about your future. Retirement contributions can lower your taxable income right now.
And if you're setting up a new plan for your employees, you may even qualify for a startup tax credit.
So, big benefits here.
The bottom line here is whether it's a SEPRA, a simple IRA or a solo 401K.
Or is it something else entirely? Getting started is the most important step.
So, talk to your trusted tax or financial professional who can help you figure this out.
Y'all don't make this decision on your own. Talk to the experts cuz laws change quickly and what might have been good yesterday will be different tomorrow.
