Top Alternative Retirement Plans for Small Business Owners

Self-employment provides a certain level of freedom. However, you should still pay attention to retirement savings. This makes keeping money away more critical because, unlike an employee, you need access to a 401(k). Consider a retirement account a cushion and a tax advantage for income reduction in high-earning years. Below are some retirement plans you can consider:

Roth or Traditional  IRA

One of the most challenging decisions you can make is to choose the type of IRA to open. Experts at Oxford Gold Group suggest a self-directed IRA that gives you control over your retirement plan. Under this plan, you can choose between a traditional IRA and a Roth IRA.

There are several differences between Roth and traditional IRAs. However, the Roth IRA has a tax treatment that may be ideal if your business is in its early days. In such an instance, your tax rate might likely be higher during retirement. Roth IRAs also don’t have a required minimum distribution, and you can transfer your Roth IRAs to your heirs without tax. 

SEP IRA

You can more easily maintain a SEP IRA than a solo 401(k) since you don’t need to report to the IRS and other advantages annually. SEP IRAs are also flexible, as you don’t need to contribute yearly. However, the downside is that you, as the business owner, must contribute to your employees and equal what you make for yourself. However, you must note that it can be costly if you have more employees. You can’t use a SEP to save for only yourself. You must make contributions for all your eligible employees. 

Solo 401(K)

The IRS calls this plan the “one-participant 401(k),” which is pretty attractive for individuals who can and wish to save more money for retirement. However, you must note that this contribution has a limit of only one person, not per plan.

Another thing worthy of note is that you can also opt for a solo Roth 401(k), which resembles the tax treatment of a Roth IRA. Additionally, you may want to choose this option if your income and tax rate are lower than you expect when you retire.

Defined Benefit Plan

The defined benefit plan is a way of setting up your pension plan in retirement. However, they are pretty expensive, with high annual and setup fees. If you have employees, this fee goes up since you will have to contribute on your staff’s behalf. Additionally, defined benefit plans have a high administrative burden every year and need a commitment to fund the plan with a specific amount every year.

You can change that amount if you pay the additional fee involved. An upside is that you can keep more money while deferring taxes until retirement. When you are close to retirement and earning a high income that you can sustain and save a considerable part every year, you can consider this plan for supercharging your savings efforts. 

Summary

Irrespective of how you steer your business savings and retirement plan, you must get an expert’s view on your finances. There are several things you should consider; this is why you must discuss your options with a professional knowledgeable about the rules of each plan and how they can align with your objectives.