At Montgomery Financial Partners, we understand you are busy running your company smoothly and efficiently. We realize you may not have had time to think about your personal retirement plan or what happens when you decide to step away from the day-to-day operations of your business.

Our team commits to helping small business owners achieve the unique financial goals they desire for themselves and their employees.

To help guide your company, we have compiled this brief introduction to different retirement options for small business owners.

Solo 401(k)

Small businesses can also offer retirement benefits, its not just a privilege reserved for mid-sized and large businesses. A variety of retirement plans are available to not only help small business owners secure their own personal financial future, but also attract and retain talented employees. When deciding which retirement plan solution is the right fit for your small business, it is important to consider the size of your organization.

Sole proprietors or small businesses with no employees other than an owner and spouse generally use a solo 401(k). Limited liability corporations or partnerships structured businesses can also participate in solo 401(k) plans if they meet all the eligibility requirements.

The main advantage of a solo 401(k) is that it allows self-employed individuals to contribute both as an employee and employer, thereby maximizing their retirement savings. Other benefits include the ability to borrow money from the plan. This is convenient if your business needs a cash injection to maintain or grow operations, or for personal reasons, such as paying for college or buying a house.

However, if your business strategy involves hiring non-owner staff in the near future, an alternative retirement plan might be more fitting.

SIMPLE IRA

Businesses with less than 100 employees might consider a SIMPLE IRA as their retirement solution. This option provides small business owners with a simplified method to contribute toward their employees’ and their own retirement savings. Employees may choose to put a percentage of salary aside each pay period and the employer is required to make either matching or nonelective contributions.

The biggest benefit of SIMPLE IRAs is right there in the name. This solution is straightforward to implement and easy to manage. Plus, retirement contributions vest immediately, which means you have 100% ownership of all the money in your SIMPLE IRA.

One downside of SIMPLE IRAs to keep in mind is that this solution does not allow for borrowing or participant loans. If you decide to withdraw before the age of 59½, it might leave you with hefty penalty taxes.

Safe Harbor 401(k)

Safe harbor 401(k) plans are a special type of 401(k). Employers must either match contributions from plan participants or make non-elective contributions for all eligible employees.

While safe harbor plans function similarly to a standard 401(k) plan, they provide small businesses and their employees with one major benefit: the ability to avoid annual IRS non-discrimination testing. Avoiding this testing also makes it much easier for owners and employees to maximize contributions to their 401(k) plan.

When considering implementing a safe harbor plan, it is important to note that the mandatory employer contributions can end up being financially burdensome depending on the number of employees a company has.

If you have questions regarding which retirement option is the right fit for your small business, let’s schedule a time to chat!