5 Retirement Plan Options for Entrepreneurs

calculator, bookGiven that nearly half of all Americans, regardless of their employment status, have less than $1,000 saved for retirement, it’s even harder if you’re an entrepreneur. Small business owners pour their heart, soul, and every spare penny into their work and their businesses, often overlooking retirement. However, there are some retirement plan options available for you if you’re a small business owner.

Here are 5 options you should consider for your future.

1. Simplified Employee Pension IRA

If you own a company and are the sole proprietor, this type of IRA might be perfect for you. Most financial institutions, maybe even the bank you use for business, could help you open this account with very little effort.

You can invest up to 25% of your annual net earnings, up to a certain cap for high earners. The cap is a little over $50,000 and changes periodically to keep up with inflation. While you save, the money in your account is tax exempt.

You can file your taxes before you find the account to ensure that if your income is higher than you had thought it would be, you can adjust accordingly. You can lower your tax bill by making a larger contribution to your SEP account.

If your small business has employees, unfortunately, they don’t qualify for a SEP IRA. However, they can open a personal 401(k) and save for retirement that way.

2. Try a SIMPLE IRA

A Savings Incentive Match Plan for Employees is a fantastic IRA option for anyone running a small business that’s about to expand. With a SIMPLE IRA, you can invest even after hiring an employee, helping them to save by matching their contributions of up to 3% of their earnings.

Let them know about the contribution limits they have, however. If they plan to save more than about $12,500 a year, they might not be able to make this plan work for them. If they make a withdrawal from their account shortly after opening it, they could face a penalty of nearly 25%.

If your employees are 50 or over, their cap will be higher. Talk to your employees about what kind of plan they want and see if you can find one that’s perfect for everyone.

3. An Individual 401(k)

To build retirement quickly, especially if you have a lot of money to contribute, the Individual 401(k) could be the option you’re looking for. It’s much like a Traditional 401(k) except that your spouse can become part of the account.

When you act as your own employee, you can put as much as $18,000 a year into your plan. This goes up to $24,000 if you’re over 50 years old.

If you run a company with employees, you can put in an additional 25% of compensation on top of what your employees contribute. Be a little more liberal with your savings during good years to make up for the years when you’re not making quite as much.

For couples on the plan, that’s a combined $106,000 you could be saving each year.

If you think you’re going to need a loan for your business, Individual 401(k)s have a built-in mechanism allowing you to take one out. You can get a loan that totals a large portion of the account’s balance so long as you pay it back in 5 years.

4. Self-Directed IRA

A self-directed IRA puts you in the driver’s seat when it comes to managing your portfolio. If you get great joy from watching markets and moving your money around, this could be the option for you.

A self-directed IRA also gives you the option to get access to alternative asset classes that aren’t normally offered. If you want to trade stocks, bonds, or mutual funds, you’ll be able to increase your returns via these channels. If you’re not bothered by risks and want to get your hands dirty, this is the option for you.

Self-directed IRAs require some financial sophistication to understand and get the most out of them. When you take them out of the hands of a money manager, your investments are up to you. Just because it’s self-directed doesn’t mean you can’t get the assistance of a mutual fund manager or a stockbroker to guide your decisionmaking.

5. Passive Income Channels

When it comes to funding your retirement, an IRA account or a standard retirement account might not be for you. If you’ve kept your money moving throughout your career, you might have lots of active investments that have grown with little sitting in accounts.

That’s not necessarily a bad thing. If you’ve got passive income coming from investments you made in the past, you could be just as comfortable if not more so, than someone with an IRA.

Buying houses or property and renting it out could keep you comfortable for years to come. Just a few properties could provide enough to keep your bills paid while giving you extra income to enjoy your retirement.

If you’re an artist, designer, or entertainer, make sure that your contracts continue to pay you residuals for the rest of your life. While you may not have become rich and famous, a few good works that continue to circulate could pay for your grandkids to go to college.

Retirement Plan Options Can Fit Your Lifestyle

If you’re trying to comb through the retirement plan options available to you and are starting to stress out, take a step back and call a friend or colleague. If they’ve been able to start building their retirement, ask what worked for them and how they’ve been able to save. With a little bit of advice or guidance, you should be able to see a clear path toward building for your future.

If you want to cut costs so that you can put more of your money into your future, check out our guide to cutting business costs.

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