Running a business is hard work. In the early days, you don’t spend much time on anything else. By the time it is up and running or growing, all you know is business. This can put a real dent in your retirement savings.
Ignoring retirement is doing yourself a disservice, however. It really puts your financial future in jeopardy and it can hurt you tax-wise, as well.
There is really no reason to avoid setting up a tax advantaged retirement savings plan. In fact, there are quite a few reasons to do it now. It is a great recruiting feature for new talent, especially if you aren’t able to beat your competition on base salary alone. It’ll improve your personal finances. By saving for retirement early you benefit from the power of compounding over time. Don’t lose out on this opportunity by waiting until it is too late. Lastly, it’s actually quite simple.
Here are three different retirement savings options for your business:
- Profit Sharing Plan – This plan offers your business a lot of flexibility. You can determine your own contributions and the allocation of those contributions. If the company makes a low profit in a given year, contributions aren’t mandatory, however, they are not limited either. As the employer, you can make contributions even in years you aren’t profitable. There are three basic types of profit sharing plans, each with its own limit and formulas, but they are pretty simple to implement and are great for your business and its employees.
- Simplified Employee Pension – An SEP provides similar benefits to a profit sharing plan and is also a defined contribution plan. However, you can establish an SEP for 2017 and still make contributions in 2016. Much like the profit sharing plans, an SEP is pretty easy to setup and administer.
- Defined Benefit Plan – This plan works backwards. This plan determines a future pension benefit and then calculates the contributions needed to provide that benefit. Because the calculations to determine the contributions needed are actuarially driven, the needed contributions to attain the desired future annual benefit may exceed the maximum contributions allowed by other plans.
The number one reason that holds most entrepreneurs back from establishing a retirement savings plan is that they think it’s overly complex or hard. A CPA or financial professional can walk you through all the steps needed. You’ll see that it really isn’t that hard or complicated at all!