7 Keys to Small Business Retirement Planning
- Troné Fossum
- 3 hours ago
- 5 min read
Planning for retirement as a small business owner or entrepreneur isn't always easy.
You're busy running your company, managing employees, and making sure your business stays profitable.
But what happens when it's time to step away? How will you support yourself without a steady pay check? Small business retirement planning is all about making sure you have a solid strategy in place for the future.
1. Know Your Retirement Plan Options
There are plenty of retirement plans for small businesses, but not all fit every business owner.
Some work better for self-employed individuals, while others are ideal for small companies with fewer employees. Understanding your options helps you decide what works best for your business retirement plan.
SIMPLE IRA
A SIMPLE IRA is a Savings Incentive Match Plan for businesses with 100 or fewer employees. Both employers and employees contribute, making it a great tool to retain talent. Employers must either match up to 3% of an employee's salary or contribute a fixed 2% for all eligible employees.
Individual 401(k) – Traditional and Roth
An Individual 401(k), or Solo 401(k), is for self-employed individuals and business owners with no employees. It allows higher total contributions since you contribute as both an employee and an employer.
A Traditional 401(k) offers tax-deductible contributions, while a Roth 401(k) provides tax-free withdrawals in retirement.
SEP IRA
A SEP IRA (Simplified Employee Pension) is ideal for self-employed individuals and businesses with fewer employees. Only employers contribute, and they must do so at the same percentage of salary for all eligible employees. Contributions are tax-deductible, making this a tax-efficient business retirement plan.
Self-Employed 401(k)
A Self-Employed 401(k) is similar to an Individual 401(k) but offers greater flexibility. It allows high contributions through salary deferrals and profit-sharing. This plan is ideal for maximizing savings while lowering taxes. If you’re self-employed, then it may be wise to check out this plan.
Personal Defined Benefit Plan
A Personal Defined Benefit Plan functions like a pension, offering guaranteed retirement benefits based on salary and years of service. Contributions are tax-deductible, making it a strong choice for high-earning, self-employed individuals who want to save a large amount annually.
Business 401(k)
A Business 401(k) helps small businesses offer retirement plans with employee contributions, employer matching, and various investment products like mutual funds. It provides tax benefits while helping business owners attract and retain talent.
Employer-Sponsored Retirement Plans
Employer-sponsored retirement plans, such as Traditional and Roth 401(k)s, offer matching contributions and tax benefits. These plans are managed by plan sponsors, and some require discrimination testing to provide fair employer contributions and employee eligibility.
2. Build & Maintain a Diversified Investment Portfolio
Putting all your money in one place is risky. Stocks, bonds, and mutual funds will likely all play a role in your investment strategy.
If you don't diversify, you could see dramatic swings when the market drops. A smart mix of investment products seeks to safeguard your assets while still growing your wealth.
3. Get a Good Financial Advisor or Wealth Advisor
Do you know if your retirement plan is tax-deductible? Are you sure you're getting all the tax benefits available to small businesses?
A good financial advisor or wealth advisor will help with tax planning, investment products, and legal considerations. They also provide guidance on plan sponsors, discrimination testing, and eligibility criteria for different plans.
4. Maximize Business Value Before Retirement
Your business is one of your biggest assets. When planning for retirement, consider how to increase its value.
Can you streamline operations? Attract more buyers? Whether you sell or pass it down, your business retirement plan should include a strategy for getting the most out of what you've built.
Yet, many small business owners lack a structured plan.
Based on our research, we found that only 46% of small businesses offer a retirement plan, leaving over half without a clear financial strategy for the future. By maximizing your business's value, you create more options when it's time to retire.
5. Make Sure You're Not Overpaying Your Taxes
The right business retirement strategy helps you take advantage of tax benefits, deductions, and deferrals.
Some retirement plans let you make tax-deductible contributions on an annual basis. Others lower your company's taxable income.
6. Have an Exit Plan or Succession Plan That's Tax Optimized
Are you selling your business? Transferring ownership to family? Handing it over to employees?
A good exit plan keeps everything smooth while lowering tax burdens. A poorly planned exit can cost you money.
Working with qualified professionals helps with your financial planning, empowering you to find the best deal when selling your business or transitioning ownership, all while staying legally compliant.
7. Preserve Your Wealth with Insurance & Risk Management
Your wealth needs safeguarding for long-term stability.
Life insurance, disability insurance, business partner insurance, and liability coverage may safeguard what you've built, providing a financial safety net in case of unexpected events.
If something happens to you, your family, employees, and company won't be left struggling to cover expenses, manage operations, or stay afloat.
A good wealth management team will help you make key decisions around insurance so you can have the right amount of risk protection.
Final Thoughts
Small business retirement planning isn’t just about saving for retirement.
It's also about making smart choices and planning your exit. The right retirement plan safeguards your future, reduces your tax burden, and helps you prepare for when the time comes to step away from your business.
Start now, plan wisely, and get dedicated guidance from financial professionals. Your future depends on it.
Common Questions about Small Business Retirement Planning
What is a savings incentive match plan?
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a retirement plan for small businesses. Employers contribute to employees' accounts, and employees can also save through payroll deductions.
Can a financial advisor help me set up 401(k) plans for my employees?
Yes, a financial advisor can help you choose, set up, and manage a 401(k) plan. They guide you on investment options, compliance rules, and employee education to seek to ensure your plan meets your business’s and employees’ needs.
What is a simplified employee pension plan?
A Simplified Employee Pension (SEP) IRA is a retirement plan for small business owners and self-employed people. Employers contribute to employees' accounts, but employees can’t contribute. It’s easy to set up, has high contribution limits, and offers tax benefits.
What’s the best retirement plan for a solo business owner?
A Solo 401(k) is a great option for a business owner with no employees. It allows high contributions, tax benefits, and flexible investment choices. SEP IRAs and SIMPLE IRAs are also good, depending on income and goals.
How can I reduce taxes on my retirement savings?
You can lower taxes by contributing to tax-deferred accounts like a 401(k) or SEP IRA, using Roth accounts for tax-free withdrawals, and taking advantage of deductions for retirement contributions. A financial advisor can help with tax-efficient strategies.
How much should I save for retirement as a small business owner?
Aim to save 15–25% of your income, depending on your retirement goals and expenses. Use tax-advantaged accounts and invest wisely. A financial advisor can help create a plan that fits your business and lifestyle.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
Investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
