Women Business Owner Retirement Plan Guide

How can your retirement plan save taxes and boost your retirement?

As a business owner or executive, your retirement plan choice can make a large impact on your finances. Many business owners are busy managing their company’s day-to-day activities and haven’t taken the time to plan for their future. There are a wide range of retirement plans designed to meet your business’ needs. All of these retirement plans can help you save money for retirement while potentially providing tax advantages along the way. Here is an overview of retirement plan types, their features, and their benefits. 

SEP IRA

SEP IRAs are an option for self-employed individual or small business owner, including those with employees. These plans are funded solely by the employer. So, if you want your employees to be able to also contribute to the plan, this would not be an optimal choice for you. These plans are easy to set up but you will probably be unable to contribute as much money to a SEP IRA compared to a Solo 401(k). One big advantage of the SEP IRA is that you can still set it up and fund it for the prior tax year. And if you had a large bill come in, you could make a large SEP IRA contribution to attempt to minimize the tax hit. And contributions are treated as a business expense which can reduce your taxable income. The employer must contribute the same % to employee accounts in years they contribute to their own account

Available to:Sole proprietors, partnerships, C corporations, S corporations

Pros: 

• Easy to set up and maintain
• Flexible annual funding requirements
• Wide range of investment choices
• Employer contributions are tax-deductible.
• Assets in the plan grow tax-free. 

2020 Contribution Limits:Up to 25% of compensation[1] up to a maximum of $57,000

SIMPLE IRA

This is a great option for small businesses who want their employees to also participate in funding their retirement plans. SIMPLE IRAs are funded by employee deferrals and employer contributions. SIMPLE IRAs are an option for businesses with 100 or fewer employees and self-employed individuals. Contributions are treated as a business expense which can reduce your taxable income. But contributions for all employees are mandatory with this plan type. You can choose each year to match a percentage of the employee’s contribution or contribute a set amount. 
Available to:Sole proprietors, partnerships, C corporations, S corporations

Pros: 

• Salary deferral plan with less administration
• Electronic funding with customized contribution allocation for each participant
• Wide range of investment choice
• Employer contributions are tax-deductible.
• Assets in the plan grow tax-free.

2020 Contribution Limits: 

An employee can contribute up to $13,500 in salary deferrals; $16,500 if age 50 or older

An employer can either match employee contributions up to 3% of compensation; can be reduced to 1% in any two out of five years, or contribute 2% of each employee's compensation,¹ up to $5,700. 

Self-Employed 401(k)/ Solo 401(k)

This plan type is for self-employed individual or a business owner with no employees other than a spouse. This plan can allow for higher retirement savings than the SIMPLE IRA or SEP IRA accounts so this can be a good option for high-earners who don’t have any employees.

Available to:Sole proprietors, partnerships, C corporations, S corporations

Pros:

• A 401(k) with potentially higher contribution limits than SEP IRA
• Wide range of investment choice
• Employer contributions are tax-deductible.
• Assets in the plan grow tax-free.

2020 Contribution Limits: 

• Employees can contribute up to $19,500 in salary deferrals; $26,000 if age 50 or older
• Employers may contribute up to 25% of compensation¹ up to a maximum of $57,000.
  Total employer/employee contributions cannot exceed $57,000.

401(k)

401(k) plans are available to public or private companies but are usually appropriate for companies with more than 20 employees. Traditional 401(k) plans can have more plan administration and fees than other plan options we have discussed. However, this is a great option for larger companies and for greater flexibility in the plan design. Matching contributions are not a requirement because employers can choose different matching or profit sharing guidelines when setting up a plan. Businesses can also make profit sharing contributions into a 401(k) as a way to incentivize performance or reward behavior. Businesses can deduct any 401(k) contributions; unlike cash bonuses, profit sharing contributions are not subject to payroll tax. A 401(k) plan is therefore professionally managed and administered because the plan has to follow strict IRS guidelines and undergo annual compliance testing.
Pros:

• Flexibility in plan design
• Plan administrative services, investment management, and participant education programs
• Wide range of mutual fund options
• Employer contributions are tax-deductible.
• Assets in the plan grow tax-free.

 2020 Contribution Limits:

Up to $19,500 in salary deferrals, or $26,000 if age 50 or older (limits may vary by plan

Employers may make a matching contribution or profit sharing contribution up to 25% of compensation up to a maximum of $57,000.
Total employer/employee contributions cannot exceed $57,000.

PLAN ADMINISTRATION

Each plan has different administration requirements, plan set up deadlines, as well as access to funds. Deb Sims can help guide you through setting up your plan and answer any questions you may have about the process. 

CALL DEB