Running A Business

Retirement Benefits Solutions for Small Business Owners

Apr 30, 2019 • 7 min read
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      As a small business owner, you care about the financial wellness of your employees — but you also have to think about your bottom line.

      As it turns out, offering small business retirement options is also in your best interest. In a recent survey of small business owners who offer 401(k) plans, 94% said that doing so helps them attract and keep talented employees.

      Despite this information, plenty of small business owners aren’t investing in retirement plans. Many think their business is still too small, while others worry about the cost. Here’s why you should consider setting up a retirement plan for your small business, along with some of the best options.

      The benefits of offering retirement options as a small business owner

      Giving your employees retirement options isn’t charity, it’s smart business. Below are just some of the advantages of doing so.

      • You’ll attract better talent. According to a Glassdoor employment confidence survey, nearly 80% of employees would prefer more benefits to a pay raise. A 401(k) or retirement plan is Among the top 5 benefits preferred by these employees.
      • You’ll reduce turnover. According to a report from PlanAdvisor, almost 40% of small business employees state that they’d quit their current job to work for an employer that offers a 401(k).
      • You’ll receive tax credits. Thanks to the Retirement Enhancement and Savings Act of 2018, small business owners now receive an even larger tax credit for the start-up costs associated with offering a pension plan. If you offer retirement plans with automatic enrollment, you’ll receive another tax credit of up to $500.
      • You’ll be funding your retirement too. Small business owners aren’t saving enough for retirement. Research from Manta shows that a third of small business owners don’t have a retirement savings plan. By setting up a retirement plan for your company, you’re also planning for your future.

      Common retirement options for small business owners

      Any size business can participate in a retirement plan — even sole proprietors. Here are some alternatives to traditional 401(k) plans that are popular with small business owners.


      A Simplified Employee Pension Individual Retirement Account, or SEP-IRA, is an IRA designed for self-employed individuals and small business owners. Contributions are made strictly by you, the employer, and they’re tax-deductible. Funds are taxed as income upon withdrawal.

      Your contributions are also flexible, meaning you can adjust how much you contribute from year-to-year. You must offer the same benefits to all of your employees with a SEP-IRA, meaning whatever you contribute to your account, you’ll have to contribute to your eligible employees as well.

      • Contribution limits for 2019: Up to $56,000 or 25% of eligible employee compensation, whichever is greater
      • Best for: Small businesses that don’t expect rapid growth and are looking for a simple, flexible plan

      Solo 401(k)

      Solo 401(k) plans, also referred to as individual or self-employed 401(k) plans, are designed for business owners with no employees other than the owner and the owner’s spouse. These plans allow both the employer and employee, (in the case of self-employment, you are both), to contribute. This dual role allows you to save more in a shorter period.

      Contributions are also flexible, so you can contribute nothing 1 year and then contribute the maximum amount the following year without penalty. You’ll be contributing pre-tax dollars that are taxed upon withdrawal, but you can opt for a Roth Solo 401(k) instead, which allows you to make after-tax contributions that you can withdraw tax-free in retirement.

      • Contribution limits for 2019: As an employer, up to $56,000 or 25% of eligible compensation, whichever is greater; as an employee, up to $19,000 ($24,500 if you’re age 50 or older)
      • Best for: Business owners who want to make large contributions and have no employees other than a spouse


      A Savings Incentive Match Plan for Employees Individual Retirement Account, or SIMPLE IRA, allows you to make tax-deductible contributions and your employees to make tax-deferred contributions.

      Employer contributions are mandatory for this plan, which offers employers less flexibility than a SEP-IRA. However, it’s for that same reason that a SIMPLE IRA is usually more attractive to employees.

      • Contribution limits for 2019: For employers, 100% match on the employees first 3% of deferred compensation, or a non-elective 2% contribution to every eligible employee; as an employee, up to $13,000 or 100% of eligible compensation, whichever is lower
      • Best for: Companies with 100 employees or fewer who have achieved some financial stability and want to attract the best candidates

      Robo-advisors may streamline retirement options for small business owners

      Thanks to the growth of the financial technology (fintech) industry, robo-advisors have simplified investing, making it more accessible to a wider range of consumers. Now, 1 robo-advisor wants to disrupt retirement savings plans to make them more accessible for small business owners.

      Start-up Guideline offers 401(k) plans geared toward small businesses and come with extremely low fees. As a tech company, Guideline creates and owns their technology stack, so they don’t have to use a go-between as traditional financial services companies do. This streamlining saves them, and you, money.

      Between the tax credits, flexible retirement plans, and start-ups offering affordable 401(k) plans for small businesses, there are no excuses for not offering retirement options to your employees. After all, what’s good for them is usually good for business too.

      About the author
      Elizabeth Aldrich

      Elizabeth is a freelance writer covering personal finance, business, and travel. Her writing has appeared in The Motley Fool, Business Insider, Yahoo! Finance, LendingTree, Student Loan Hero, FOX Business, and more.

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