Retirement basics for small business owners (2024)

FAQs

What is the best retirement plan for a small business owner? ›

SEP IRA. Easy-to-maintain plan for a self-employed individual or small-business owner, with fewer than 5 employees¹.

Though ideally, a small business owner can sell their business before retirement for a tidy profit, this is not always guaranteed nor is the sale amount. Some ways small business owners can ensure retirement savings are by establishing a SIMPLE IRA, a SEP IRA, a traditional or Roth IRA, and a Solo 401(k).

The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule). However, 3% is now considered a better target due to inflation, lower portfolio yields, and longer lifespans.

A one-participant 401(k) plan is sometimes referred to as a “solo-401(k),” “individual 401(k)” or “uni-401(k).” It is generally the same as other 401(k) plans, but because there are no employees other than your spouse who work for the business, it is exempt from discrimination testing.

An LLC is eligible to set up a SEP IRA for retirement savings. As of 2024, SEP contributions cannot exceed $69,000 per year. Rules regarding contributions can vary depending on whether the LLC is for a sole proprietor, a corporation, or has employees.

401(k)s are far more customizable than their SIMPLE IRA cousins. This flexibility can make them far more effective at accomplishing their goals, whether that's to help small business owners maximize their contributions, help the business attract & retain key talent, or simply help employees save for retirement.

Eligibility. To be eligible to establish a Solo 401k, you need to be self-employed with no full-time employees. Single-member LLCs, being structured with one owner, typically qualify for this. However, if you have a spouse who works for your business, they can also participate in the plan.

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

What is the golden rule for retirement? ›

The golden rule of saving 15% of your pre-tax income for retirement serves as a starting point, but individual circ*mstances and factors must also be considered.

AlphaCore Wealth Planner Troy Owens was recently featured in U.S. News & World Report's latest article on retirement planning and the concept of the 25x rule, which involves saving an amount equal to 25 times your projected annual retirement expenses.

Most Common Retirement Plans for Small Business Owners

The most common retirement plans for the self-employed are IRA, SIMPLE IRA, SEP IRA, individual 401(k), and defined-benefit plans. These small business retirement plans permit contributions ranging from $6,000 to nearly $300,000, per year.

If you are at full retirement age or older, you can get all your Social Security benefits whether you retire from your business or not.

SEP IRA. The SEP IRA is easy to establish, making it an attractive option for S Corp owners. Unlike some other plans, the SEP IRA is accessible to businesses of any size, including those with employees.

There are several different types of retirement plans – Solo 401(k), SEP IRA, SIMPLE IRA and traditional 401(k) – that are available to self-employed individuals. The Solo 401(k), in particular, was designed specifically for entrepreneurs and their spouses.

The solo 401(k) is a retirement savings option for small businesses whose only eligible participants in the plan are the business owners (and their spouses, if they are also employed by the business).