Once your business is up and running, you most likely will start thinking about your future retirement plans. Some small business owners think that they will just sell their business when it comes time to retire and live off the proceeds of the sale. This is not always the best approach. While a business can certainly run without a retirement plan in place, a retirement plan is useful for both the business owner and to provide a key benefit in recruiting and retaining employees. It provides tax deductions and tax-deferred income for the future. Many small businesses operate without this valuable option. Some retirement plans can be structured in such a manner as to reward key employees and executives.

   There are several different options that are appropriate for small business owners. There are options that can include employees, or if your business is just a one-person business, there are still retirement plans for you. Some options include a SEP plan, a SIMPLE IRA or a 401(k) plan. All of these options can be used for the small business owner. A small business accountant can evaluate your business situation and help you decide which plan is right for you.

    SEP stands for Simplified Employee Pension. A SEP plan can be used for businesses of any size, even ones that are one-person businesses. It is designed for self-employed individuals and their employees. Administrative costs are lower than traditional IRA plans because it is simplified. However, employees do not contribute funds to the plan; all contributions are done by the employer. The contribution limit for a SEP is much higher than a regular IRA plan. A SEP plan cannot be set up as a Roth IRA.

    SIMPLE stands for Savings Incentive Match Plan for Employees. This plan is for self-employed individuals or small businesses with 100 or less employees. This plan allows for employee contributions to the plan and requires a dollar-for-dollar matching by the employer up to 3% of the employee’s income. This plan has lower contribution limits than the SEP plan, even for owner-employees. Therefore, it may not be the best plan for small businesses that only have a few employees.

      Contributions made to a retirement plan are tax-deductible by the small business owner. This alone is a compelling reason to start a retirement plan. All of these choices might seem confusing at first, but accountants can help explain your options in depth and help you choose the right retirement plan from the start. Choosing the right retirement plan can save you additional hassle in the future since you won’t have to close down one plan and start another. In this way, you can have the peace of mind of knowing that your retirement needs are well taken care of in the best possible way. 

    Don’t wait to start a retirement plan. Every day wasted is time that you could be getting valuable tax deductions for your business and adding value to your retirement portfolio. Also, you could be recruiting higher quality employees by having a retirement plan benefit in place. Talk to one of PASBA’s small business accountants today to see what great retirement options could be in your future.  

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants,  Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations. To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice.  Any information contained in this article does not fall under the guidelines of IRS Circular 230.

Copyright Information 2011 Professional Association of Small Business Accountants