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Small Business, Big Savings: Retirement Plans Small Business Owners Should Be Thankful For

If you’re a small business owner, you probably have big dreams for your business to be successful, finances to grow, and employees to be happy, but in order to make these dreams come true, you need a retirement plan that fits your financial goals and lifestyle. Whether you just opened your business, are struggling due to the COVID-19 pandemic, or are looking to grow your business, there are plenty of retirement plan options (and benefits!) that you can be thankful for. Our financial planners here at Creative Financial Planning are here with four of their go-to retirement plan options for small business owners, so read on, stay positive, and get saving!


What it is: Simplified Employee Pension (SEP) IRA plans are a type of traditional IRA that can be utilized by those who are self-employed or own a small business. If you are an employer with or more employees, or you earn your income from freelance work, you are eligible to open a SEP IRA.

Pros: In contrast to a traditional IRA—which lets you put away $6,000 a year ($7,000 if you’re 50 years or older)—SEP IRAs let you put away almost 10 times that amount. For instance, in 2020, you could have invested up to $57,000 in your SEP IRA which can make a significant difference in your savings for your future.

Cons: Typically, employers require employees to work for a certain number of years before an employee is vested in employer contributions—this can help decrease turnover and lost costs of training new people. However, with an SEP IRA, contributions are 100% vested immediately, so employees are able to withdraw money immediately after they’ve deposited it into their SEP IRA.


What it is: This is a type of retirement plan that enables employers and employees to both contribute to the employee’s retirement account.

Pros: If you’re an employer with 100 employees or less, this retirement account may be the choice for you! Not only will you enjoy lower setup and maintenance costs with this type of account, but you also won’t have to worry about wasting too much time with administrative management of it.

Cons: As an employer, you must contribute to your employees’ SEP IRA. However, you do have the option to either make a flat 2% contribution to all employees or match your employees’ contributions up to 3%.


What it is: Because this is a tax-advantaged, defined-contribution retirement account, contributions are not taxed until money is withdrawn from it. As an employer, contributing to your employees’ 401(k) means tax-saving benefits come tax season.

Pros: Unlike with a SEP IRA, employer contributions are optional rather than mandatory. Plus, this account also provides you with higher contribution limits, the ability to set your own vesting schedule, and the option to utilize a Roth 401(k).

Cons: While there are many advantages to a 401(k), there are typically higher setup costs when compared to other retirement plan options, as well as higher plan fees. However, if the benefits outweigh these two disadvantages then it’s worth investing in!

Solo 401(k)

What it is: A retirement account that’s designed specifically for those who are self-employed or own a business that has no full-time employees.

Pros: Contribution limits for this retirement account are one of the highest. Plus, a Solo 401(k) gives you the ability to make contributions as both the employer AND employee, giving you more bang for your buck.

Cons: There are strict limitations as to who can qualify for a Solo plan are strictly limited. In fact, only those whose business consists of you (or you and your spouse) are eligible. While these limitations are hard to meet for many small business owners, if you’re just starting out, this retirement plan may be a smart one to begin with.

If you’re a small business owner, choosing a retirement plan that benefits you and your employees (if you have any) can be confusing and overwhelming—that’s where we come in! We’ve been helping business owners across all industries and sizes for over 3 decades, providing them guidance and advice on how to choose the right retirement plan for them. If you need help choosing a retirement plan for YOUR business, contact us today!

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