If you’re a business owner, you’re always thinking about the days ahead: How can I boost sales in the next year? What trends should I be watching? But there’s another question to ask about your future: Do I have a good retirement plan in place?
Consider these advantages of establishing a retirement plan for your business:
First, of course, it can help you build resources you will need after you’ve left your business and retired. Second, a retirement plan can help you attract and retain good employees. And third, you’ll get tax benefits. Your contributions to a retirement plan – on behalf of yourself and your employees – can be tax deductible. Plus, you can get tax credits for starting a new plan.
Here are some retirement plans to consider:
• Owner-only 401(k) – This plan is available to self-employed individuals and business owners with no full-time employees other than themselves or a spouse. You may even be able to choose a Roth option for your 401(k), which allows you to make after-tax contributions that can grow tax free. In 2024, the combined employee and employer contribution limit was $69,000 or $76,500 for those 50 or older.
• Personal defined benefit plan – You can establish a pension plan, also known as a defined benefit plan, for yourself if you’re self-employed or own your own business. For 2024, the annual defined pension benefit for a business owner cannot exceed the lesser of $275,000 or 100 percent of their average compensation for the previous three highest consecutive calendar years.
• SEP IRA – If you have just a few employees or are self-employed with no employees, you may want to consider an SEP IRA. In 2024, your contribution limit was 25 percent of your salary or $69,000, whichever was less. The percentage of your salary you contribute to your SEP IRA is the same percentage of your eligible employees’ salaries you must contribute to their SEP IRAs.
• SIMPLE IRA – A SIMPLE IRA is easy to set up and maintain but, while it may be advantageous for your employees, it’s less generous to you, in terms of allowable contributions, than an owner-only 401(k) or a SEP IRA. In 2024, you could contribute up to $16,000 to a SIMPLE IRA, or $19,500 if you are 50 or older. You must put in 2 percent of your employees’ salaries, regardless of whether they contribute, or match their contributions dollar for dollar, up to 3 percent of their salaries.
And keep this in mind: The SECURE 2.0 legislation has made it possible for you to offer a Roth version of a SEP or SIMPLE IRA. Although contributions to either Roth account are not deductible, earnings and withdrawals are tax free, provided you (and your employees) are at least 59½ and have had your account at least five years.
To learn more about these and other business retirement plans, you might want to contact a financial professional. But don’t wait too long – the sooner you start preparing for your retirement and helping your employees plan for theirs, the better.
Jacob Anderson / Financial Advisor / 28200 Hwy 189 Suite 03-160, Lake Arrowhead, CA 92352 / (909) 337-8188. This content was provided by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, Member SIPC
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