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Retirement Savings for Small Business Owners: Not as Scary as You Think

Retirement Savings for Small Business Owners: Not as Scary as You Think

October 12, 2023

If you're a small business owner, retirement savings is probably not at the top of your to-do list. You're busy running your business, putting out fires, and trying to keep your head above water. But it's important to remember that retirement won't happen on its own. You need to start saving now, or you'll be working until you're old and gray. Now, that's scary!

There are a number of retirement savings options available to small business owners, and the best option for you will depend on your individual circumstances. Some of the most popular options include:

  • SEP IRA: A Simplified Employee Pension (SEP) IRA is a retirement savings plan that can be established by small businesses with up to 25 employees. SEP IRAs are relatively easy to set up and administer, and they offer high contribution limits. A business owner can contribute up to 25% of their net earnings from self-employment to a SEP IRA in 2023, up to a maximum of $66,000. This includes the business owner's share of self-employment taxes.
  • SIMPLE IRA: A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another retirement savings plan that is designed for small businesses. SIMPLE IRAs are similar to SEP IRAs, but they have lower contribution limits and different eligibility requirements. A business owner can contribute up to $15,500 to their SIMPLE IRA in 2023, plus an additional $3,500 catch-up contribution if they are age 50 or older. However, the total amount they can contribute cannot exceed their net earnings from self-employment. There are also requirements the employers have on behalf of the employees.
  • 401(k) plan: A 401(k) plan is a retirement savings plan that can be sponsored by employers of all sizes. 401(k) plans offer high contribution limits and a variety of investment options. The maximum amount that a business owner can contribute to a 401(k) plan in 2023 is $66,000 if they are under age 50, or $73,500 if they are age 50 or older. This is the sum of the employee contribution limit ($22,500) and the employer contribution limit ($40,500).

All of these retirement savings plans offer tax advantages. Contributions to SEP IRAs, SIMPLE IRAs, and 401(k) plans are made on a pre-tax basis, which means that they reduce your taxable income for the year. Earnings on your investments in these plans also grow tax-deferred, so you don't have to pay taxes on them until you withdraw the money in retirement.

In addition to the tax advantages of these retirement savings plans, small business owners may also be able to deduct their contributions to these plans as a business expense. This can further reduce your taxable income for the year.

If you're not sure how much you need to save for retirement, give us a call and we can help you figure it out. We can help you create a budget through a thorough financial plan, and we’ll help you determine how much you need to save.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.