Small Business 401(k): Helping You and Your Employees Save More For the Future

Small business owners and self-employed workers concerned about retirement investing should consider specialized IRA plans. Business - Hands preparing dough
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Key Takeaways

  • It’s never too late to start saving for retirement
  • Small business retirement plans are simple, hassle free, and affordable
  • There’s a variety of account types to meet a variety of business needs

Imagine no longer popping awake in the middle of the night worried about how (or if) retirement will become a reality. Imagine skilled workers joining your small business—and staying. It all starts with a smart retirement plan for small business owners.

Bakery owners up to their elbows in cake batter probably don’t have a lot of time on their hands for small business retirement plans. And freelance journalists scrambling to string together writing contracts might assign a higher priority to cash flow, living in the present at the expense of a secure future.

Those are just examples. The broader point is, enterprising operators of companies that employ one to 100 might be so intent on keeping the lights on or funneling any extra cash into growing the business that building a retirement plan for their small business might get buried under a pile of obligations. In fact, a TD Ameritrade Holding Corporation poll revealed that 55 percent of self-employed small business owners say they’re behind in their retirement savings.

FIGURE 1: Income volatility is a primary reason that small business owners and the self-employed put off saving for retirement. Other demands are ever-present. Source: TD Ameritrade Holding Corporation Self-Employment and Retirement Survey by Head Research (a separate and unaffiliated firm).

Living longer is generally a good thing, of course. However, there are many modern-day complications for retirement planning, including a threatened Social Security program, volatile financial markets, and a real risk that college tuition and help for elderly parents could be needed at the same time. But small business owners and their employees seem to shoulder a greater burden (see figure 1).

“Many of the self-employed recognize how important retirement savings is, but they’re more likely to be living in the here-and-now and they have unpredictable income that can make saving a challenge,” says Dara Luber, Senior Manager, Retirement Product, at TD Ameritrade. “Business owners are sometimes put off by what they perceive as the hassle and costs of plan administration, but choosing a small business retirement plan may be easier and more affordable than many believe—and includes tax benefits.” If you think you will sell your business to fund retirement, what is your Plan B?  Often life intervenes and due to the economy or personal health issues you might not be able to sell your business when you need to.  Doesn’t it make sense to have some money set aside just in case?

Proprietors may not realize that there are specialized types of individual retirement accounts (IRAs) and select 401(k)s designed for small businesses and solo shops, each with pros and cons. For starters, make sure all the principals in a small business are on the same page (this includes your significant other). And get your tax advisor involved early on.

IRA Comparison Chart

You have vision. Use it.

Think of the intimidating first step you took when you decided to start your own business. Now admit that your business can only be truly successful if you and your staff feel some degree of security.

Of course, keeping that stash under lock and key may pay off in the long run, but the beauty of small business retirement plans is their flexibility to help account for the unexpected. In other words, what are you waiting for?


Key Takeaways

  • It’s never too late to start saving for retirement
  • Small business retirement plans are simple, hassle free, and affordable
  • There’s a variety of account types to meet a variety of business needs

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