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Small Business Owner Retirement Savings Strategies

Written by Jeff Diamond, AIF® on .

We suggest incorporating these small business owner retirement savings strategies into your overall retirement plan.

Our Tips for Entrepreneurs to Build a Secure Financial Future

Developing the right savings strategies for retirement should be an important consideration for anyone, but it can be especially challenging for small business owners. Unlike employees of larger corporations, small business owners typically navigate the retirement savings landscape on their own. Fortunately, there are a number of small business owner retirement savings strategies that entrepreneurs can use to save for retirement and potentially build a more secure and comfortable future.

If you’re an entrepreneur, read on to find out more about small business owner retirement savings strategies and which of them may help you reach your goals.

Understanding Your Retirement Plan Options

Let’s start with the most basic knowledge we believe you’ll need to determine your small business owner retirement savings strategy and the different types of retirement plans that are available to small business owners. The most common options include:

  1. Simplified Employee Pension (SEP) IRA: This plan allows small business owners to contribute up to 25% of their net self-employment income to their own retirement account or the retirement accounts of their employees.
  2. Solo 401(k): This plan is similar to a traditional 401(k), but it’s designed specifically for self-employed individuals. For 2023, small business owners can contribute up to $66,000 (or $73,500 if over 50) per year to a Solo 401(k).
  3. SIMPLE IRA: This small business owner retirement savings plan is designed for small businesses with fewer than 100 employees. For 2023, small business owners can contribute up to $15,500 (or $19,000 if over 50) per year to a SIMPLE IRA, and they must match employee contributions up to 3% of their salary.
  4. Defined Benefit Plan: This plan is more complex and costly to administer but allows small business owners to contribute much more money annually than other retirement plans. You can learn more about this small business owner retirement savings option here.
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Maximizing Your Retirement Savings

With these options in mind, let’s take a closer look at some strategies small business owners can use to potentially maximize their retirement savings:

  1. Start early: One of the biggest advantages of being a small business owner is that you should have control over your retirement savings from the very beginning. This means you can start contributing to a retirement plan as soon as you start your business. By starting early, you should be able to give your savings more time to grow, which can make a big difference in the long run.
  2. Maximize your contributions: Small business owners should aim to contribute as much as possible to their retirement plans each year. With the Solo 401(k), for example, small business owners can contribute up to $66,000 per year, which is significantly more than other retirement plans. By contributing the maximum amount allowed each year, you can take full advantage of compound interest and maximize your retirement savings.
  3. Use catch-up contributions: If you’re over 50, you can make catch-up contributions to certain retirement plans, as noted in the options above. By taking advantage of catch-up contributions, you can make up for lost time and increase your savings – and your peace of mind.
  4. Consider a defined benefit plan: While a defined benefit plan is more complex and expensive to administer, it may be worth considering if you’re a small business owner who wants to contribute a significant amount to your retirement savings each year. This may be particularly advantageous if you got a late start on your retirement savings.
  5. Automate your contributions: When you’re busy running a business, one of the biggest challenges of saving for retirement may be remembering to make contributions each month. By automating your contributions, you can consistently save for retirement even when your focus is elsewhere.
  6. Invest your savings wisely: Investing your retirement savings in a diversified portfolio can potentially help you minimize risk and maximize returns. Diversification can potentially help protect your retirement savings from market fluctuations and economic downturns. One common mistake we see that small business owners make is investing all of their retirement savings in their business. While it may be natural to want to invest in your own business, we believe it’s important to remember that diversification is key and may help in protecting your retirement savings.
  7. Get professional advice: Retirement planning can be complex, particularly for small business owners who are juggling multiple priorities. We believe it is important to work with a financial advisor who can help you navigate the retirement savings landscape and develop a customized plan that meets your unique needs. We suggest finding an advisor with experience in small business owner retirement savings strategies.
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Are You Currently Working with a Financial Advisor?

Our last tip above is important because, while you may have built a successful business from the ground up, an experienced financial advisor may help you make the most of your financial success and help you achieve your long-term goals. A trusted advisor should be able to help you develop a small business owner retirement savings strategy that aligns with your goals, risk tolerance, and time horizon. As your business grows and evolves and your financial situation changes, your advisor should also be able to help you adjust your strategy to stay on track to meet your goals.

Make These Small Business Owner Retirement Savings Strategies Work for You

Retirement savings is an important consideration for small business owners, but it may be particularly challenging to DIY your financial plan while you’re also running a business. By understanding the different types of retirement plans available, maximizing your contributions, and working with a financial advisor, you can develop a customized retirement savings strategy that meets your unique needs and may help you achieve your retirement goals.

If you’re looking to develop your small business owner retirement savings strategy, we can help! At Paces Ferry Wealth Management, we work with many entrepreneurs to help them navigate the retirement savings landscape. Give us a call today to learn more about our services and how we can help you achieve your retirement goals. We look forward to hearing from you!

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.