Retirement Planning for Small Business Owners


Retirement Planning for Small Business Owners

Planning for retirement needs to be a priority for every small business owner. Here are three types of small business retirement plans that you can take advantage of to save for retirement that also provides tax advantages for your business.

It’s easy and far too common for small business owners to focus so much of their time and energy on running their business that they fail to plan for their personal financial future. But, when you own a small business, there’s no 401(k) employer match or other company-sponsored retirement programs to join. Your retirement fund rests solely on your shoulders and failing to prioritize retirement over the other areas of your business will harm you down the road.

Ensuring that your financial wellbeing is taken care of in the future is a part of ensuring the financial stability of your business.

Think of your retirement plan as a part of your overall business strategy. Some retirement plans have more small business tax advantages than others. Start here by taking a look at plans that include one or more of these major tax advantages.

Tax-deferred plans that grow your investment without taxes applied

•Employer contributions that can be deducted as business expenses

•Tax credits for expenses as you start and maintain the plan

There are three types of retirement plans that small business owners should consider that offer strong tax advantages and other benefits.

1. Simplified Employee Pension (SEP) IRA- A SEP

IRA is a basic retirement plan that allows self-employed people and small business owners to make contributions directly to their own accounts. These accounts have a limit as to how much you can contribute each year –in 2020 owners can save up to $57,000 toward retirement with a SEP IRA. This type of IRA offers tax advantages to business owners who put money away for retirement and contributions are tax-deductible.


The “SIMPLE” in SIMPLE IRA stands for a Savings Incentive Match Plan for Employees. This IRA is an employer-sponsored retirement plan for businesses with 100 employees or less and is funded by tax-deductible contributions and pretax employee contributions similar to the way a 401(k) works. Employees can contribute a portion of their paycheck pretax with taxes on the funds deferred until the money is withdrawn. SIMPLE IRAs are less expensive and easier to manage than other plans –a big benefit for busy small businesses.

3. Self-Employed 401(k)

A self-employed 401(k) is a plan for a self-employed business owner with no employees. It’s a tax-deferred retirement plan that works about the same way as a traditional 401(k). However, if you’re interested in putting a significant amount of retirement savings away each year, then a self-employed 401(k) has a big advantage. This plan looks at the participant as both the employer and the employee, allowing you to contribute more money each year than an individual could under most other traditional retirement accounts.

Each of these plans has its advantages. Picking the right one for you and your business often comes down to the tax advantages your business can benefit from now and how much you’re looking to save for the future.

Once you’ve selected your retirement account, come up with a contribution plan and stick with it

Plan to contribute to your retirement account regularly and factor that into your overall budget each year. You can decide to make ongoing contributions or make one larger contribution at the end of the tax year. However often you decide to contribute to your account, make sure the amount you contribute is directly tied to the amount of money you plan on needing throughout your retirement years. According to SCORE mentor Frank DeSantis, “With any retirement plan, you need to estimate how much money you will need to live on after you stop working in your business. For a small business owner, there may be new costs to consider as expenses—such as automobile payments, fuel, insurance, and some entertainment costs—transition from business tax deductions to personal expenses in retirement. Knowing what your needs are will help you plan to save enough to meet your goals.”

Saving for retirement as a small business owner is easier with guidance from a professional.

As a small business owner, saving for retirement can feel like an overwhelming task on an already long list of to-dos. The best way to make saving for retirement a priority and make intelligent planning decisions is with the help of professionals who understand your needs. If you haven’t already started working with a professional financial planner, this is a great time to start. And, if you’re looking for guidance in finding the right financial planner, choosing the best retirement savings plan, and planning for the future of your business, connect with a SCORE mentor. A SCORE mentor can help you develop and execute a smart retirement plan and get retirement savings checked off of your to-do list. Contact a SCORE mentor today.

Yusef Muhammad
Southwest Regional Vice President, SCORE

Since 1964, SCORE “Mentors to America’s Small Business” has helped more than 11 million aspiring entrepreneurs and small business owners through mentoring and business workshops. More than 10,000 volunteer business mentors in over 250 chapters serve their communities through entrepreneur education dedicated to the formation, growth, and success of small businesses. For more information about starting or operating a small business, call 1-800-634-0245 for the SCORE chapter nearest you. Visit SCORE Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.