Running a small business is not an easy task, it is at par with challenges faced in a big business. Obviously, you have worked tirelessly through multiple sleepless nights to take your business where it is now. Having a small business takes more than just your investment of money, it requires passion, dedication, and all the energy you have, David Snavely says.
While you are running your business to take it to new success heights, the last thing you want to stress about is retirement planning. Everybody thinks they will have enough time to think and plan for their after-work retirement. But that is a mistake that may ruin your retirement.
When you own a small business, you are not only responsible for your retirement planning but must take responsibility for your employee’s retirement planning too. Various studies conclude that most self-employed persons do not have a retirement plan in place. As per David Snavely, when you have a small business, you have time and flexibility to choose the most suitable environment to plan your after-retirement life.
You must be wondering about why small business owners do not invest their time in retirement planning. The simple answer to this crucial question is because they have different roles to play in managing their business.
All the departments like sales, marketing, HR, and finance, are managed by owners most of the time, So retirement planning becomes the last thing they want to worry about.
Contribute to a Solo 401(k) account:
If you are working on your business alone without any employees, then contributing to a Solo 401(k) will be the best bet for you. Because you do not have to pay any salary to your employees that makes you eligible to contribute 25% more in your retirement amount.
This flexibility is only available for people who own and run a small business alone. A person with a fixed monthly income or a business owner who pays a salary to his employee can not contribute this additional money. Every self-employed person eligible for this who works only with their sponsor on the business.
Open a traditional IRA:
An IRA is an individual retirement account that does not need contributions from your employers. You can open and manage it yourself for your retirement life. Setting up a traditional IRA is the best option for every self-employed person who wants to save enough money for retirement. You add your pre-tax income to a traditional IRA. There is no tax imposed on this account, and it continues growing till you make your withdrawals after retirement.
However, you need to pay taxes on withdrawals during retirement. The Roth IRA is completely opposite to the traditional IRA. In a Roth IRA, you deposit the amount after paying taxes, but there will be no taxes when you withdraw money after retirement.
Consider a SEP IRA:
David Snavely explains SEP IRA is known as a Simplified Employee Pension (SEP) IRA. It is one of the few options in the market that are beneficial for both big and small size business owners. If a business has some employees working in the operations, The SEP IRA is also beneficial for them. In this type of retirement plan, a small business owner not only contributes money to their own retirement plan but they also need to put the amount into their employee’s account for retirement.
However, there are some guidelines that must be followed, like the employee needs to be more than 21 and working at the firm for 3 to 5 years. David Snavely, If the employees meet these criteria, then only an employer is liable to contribute to the retirement account of their employees.
Most small business owners do not cease working after a certain age. They want to keep working till they can. And they can work as long as they want but those folks also need to think about their retirement plan for a better life. Having options for continuous income only contributes to the betterment of life.