Author Topic: Small Business Owner Retirement Saving Options  (Read 2165 times)

MMMWannaBe

  • 5 O'Clock Shadow
  • *
  • Posts: 53
Small Business Owner Retirement Saving Options
« on: April 13, 2016, 07:47:49 AM »
Hello.  This forum has been such a great resource for me....and time has allowed me to see the power of compounding.

I know somebody who is a small business owner and for a variety of reasons is sitting on cash.  I am very unfamiliar with the guidelines for small businesses.  But I thought somebody in the forum probably has some experience/ expertise. 

I thought he could do a SEP IRA, but he said that since he has employees he could not do one for himself without doine one for his employees.  Is that true.  If he makes too much to do an IRA, there is a back-door method isn't there.  Any other suggestions.

It bothers me so much to see the opportunity he is missing....he is young, intelligent, and tends to use his money to fund entrepreneurial pursuits (which have done well).  But he is not putting money aside for his future retirement (and is too young to understand how much compounding can really do for your wealth).

Any advice for this young entrepreneur?

Thanks!

Fuzz

  • Bristles
  • ***
  • Posts: 421
Re: Small Business Owner Retirement Saving Options
« Reply #1 on: April 13, 2016, 05:20:50 PM »
Read, google, and search the forum. Encourage that guy to do the same. Hell, look at the Vanguard site. They have a nice chart that lays out his options.

BlueHouse

  • Magnum Stache
  • ******
  • Posts: 4136
  • Location: WDC
Re: Small Business Owner Retirement Saving Options
« Reply #2 on: April 13, 2016, 05:25:54 PM »
Start a 401k. Make it open to employees. He doesn't have to match if he doesn't want to, but if he's doing so well, perhaps he'll see the benefit in matching a portion of what the employees contribute. He can also put restrictions on length of service to give himself a few years head start

Retire in CO

  • 5 O'Clock Shadow
  • *
  • Posts: 19
Re: Small Business Owner Retirement Saving Options
« Reply #3 on: April 14, 2016, 10:56:33 AM »
Biggest mistake I can pinpoint in my 30 years as a small business owner is not setting up a retirement plan earlier and it appears to be quite common among entrepreneurs. Not only will it help to reduce the tax burden but, retirement assets are protected in bankruptcy/lawsuits, depending on the state/plan type.

I started a SEP Ira in 2010....switched over to a Simple IRA in 2011. Simple IRA is a very cost efficient plan and very simple to run as far as paper work/requirements. $12,500/year contribution limit for 2016. Employer contribution requirement is 2-3% match or just a straight 2% non-elective contribution. We match 3% (wish we could match more). I've been considering the Safe Harbor 401K option for next year (no nondiscrimination test for highly compensated employees). But it is more expensive to run/more paper work. If the owner doesn't want to contribute more than $12,500/year, the Simple Ira is a great option. Contributions can be rolled out after 2 years to a traditional IRA or a Roth if he wants to do a backdoor Roth.