There comes a point in one’s career where they begin to think about retirement. At ORNL Federal Credit Union, we believe that it is never too early to start saving for retirement. However, for small business owners, the idea of retirement can be frightening and challenging. While most employed professionals are offered some type of established retirement plan, for small business owners — it’s not always that simple. So how can you as a small business owner save for retirement? There are options and here is how!
Set up an IRA Account
An Individual Retirement Account is a tax-advantaged savings plan where contributions may be tax deductible. This long term savings plan is perfect for self-employed individuals who do not have the option of a 401(k). There are different types of IRAs that one can get, each with their own benefits: traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs. At ORNL FCU, our Wealth Management Team can help find the IRA plan that works best for you or your business.
Savings Incentive Match Plan for Employees
If your small business has employees, you can set up a Savings Incentive Match Plan for Employees otherwise known as a SIMPLE IRA. This type of savings plan is available to businesses with 100 employees or fewer. With a SIMPLE IRA, small business employers offer this plan to employees and are required to contribute every year. They can contribute by matching employees’ contributions up to 3% of the compensation or by a 2% non-elective contribution for each eligible staff member. This option is typically cheaper for small business owners to offer to employees.
401(k) Plans for Small Business Owners
As a small business owner or sole proprietor, you have the option to set up an independent 401(k) plan. With this type of retirement plan, you are the employee and employer. The only eligible participants for this type of plan are the business owners and their spouse if they are employed with the business.
If you are a sole proprietor and self employed, this might be a great option for you. A fixed annuity is a type of insurance contract that allows you to contribute a certain amount, while the insurance company agrees to pay you a fixed interest rate over a specific amount of time. With this option, self-employed individuals are able to build up and then convert their savings into a reliable stream of payments during retirement.
With most retirement plans, individuals can pay a penalty or tax for early withdrawal of funds before retirement. Planning for your future retirement can be complicated, but it doesn’t have to be. At ORNL FCU, we are happy to assist any small business owners with setting up their retirement options. Contact us today to get started on your wealth management.