While being a successful entrepreneur affords you the freedom of doing everything your way, it doesn’t provide valuable employee benefits, such as a workplace retirement or savings plan. Fortunately, there are many retirement savings plans developed for people like you.
The Simplified Employee Pension or SEP IRA
This will enable you to save 20% of your net annual income, which is subject to a limit. It’s easily set up and you could even wait until your next tax return’s due date to make contributions to it. In addition, the IRS reporting requirements are minimal. However, this could get costly if you hire employees since you have to contribute the same percentage of the salary of your employees.
The Savings Incentive Match Plan for Employees of SIMPLE IRA
This is specially developed for small businesses that only have less than a hundred employees. The catch: regardless of the state of your business, flourishing or not, you’re required to contribute a predetermined percentage on your employees’ plans. This would still be a great alternative, as opposed to a 401(k), since there’s no testing and administration fees involved, says tax accountants in Utah and other nearby states.
The Solo 401(k)
If you have money to spare for your retirement, this could be the best plan for you. It features the same max contribution as SEP IRAs, but comes with a specific formula. You could contribute as much as 100% of your income up to a yearly cap and put in 20% of your self-employment earnings. If you base your calculations using this formula, you overall contribution might be significantly higher than with a SEP IRA, based on your total income.
It doesn’t matter if you plan to keep on working as long as possible or retire early, establishing a retirement savings plan for yourself and your employees is great step because of the options it offers. Do note however that rules for these plans could be quite complex, plus contribution caps and related terms often change. To that end, consult a professional to help you out.