Securing Your Future: 3 Retirement Savings Options for New Businesses

Alisa Foster |

As a business owner, having the freedom to call the shots and chart your own path is exciting. However, there are less glamorous aspects of running a business that often slip under the radar, such as retirement planning.

While setting up a retirement plan may not ignite the same level of excitement as closing a big deal or launching a new service, it’s an essential step for securing a comfortable future (and maybe one day helping your employees do the same). After all, isn’t that why you pursued entrepreneurship in the first place?

If retirement planning has been on the back burner, let’s change that by exploring three common retirement savings options for new businesses!

1. Individual 401(k)

Also known as a Solo 401(k), this retirement plan is designed for self-employed individuals or business owners with no employees, except a spouse. It offers high contribution limits and allows for both salary deferrals (pre-tax or Roth) and profit-sharing contributions.

  • Employee Contributions: 100% of compensation up to the $22,500 contribution limit for 2023.
  • Employee Catch-Up Contributions (age 50+): $7,500 for 2023.
  • Employer Profit-Sharing Contributions: Up to $25% of compensation.
  • Total Maximum Contributions for 2023: $66,000 or $73,500 if age 50+.

Good to know: Hiring full-time employees disqualifies you from contributing to an Individual 401(k).

2. Simplified Employee Pension (SEP) IRA

A SEP IRA allows business owners to make contributions to their own retirement accounts and those of eligible employees, making it a suitable option if you plan to expand your team and provide retirement benefits. SEP participants now have the option of choosing Roth contributions, a feature introduced by the SECURE ACT 2.0, marking a departure from the previous restriction to pre-tax contributions only. This change doesn’t alter the funding mechanism, as SEP IRAs will continue to be funded exclusively by employer contributions. One other advantage worth mentioning is that SEP IRAs are simple to set up and have little to no administrative overhead.

  • Total Maximum Contributions for 2023: The lesser of 25% of an employee’s compensation or $66,000.

Which of your employees are eligible to participate in a SEP IRA?

  • Has reached age 21
  • Receives more than $750 in compensation for 2023
  • Has worked in your business in at least 3 of the last 5 years

Good to know: Since there are no elective salary deferrals, there is no option for catch-up contributions for individuals age 50+. 

3. Savings Incentive Match Plan for Employees (SIMPLE) IRA

A SIMPLE IRA is designed for small businesses with fewer than 100 employees. It allows employees to contribute a portion of their salary on a pre-tax basis or, as of 2023 with the SECURE ACT 2.0, on a Roth basis. Meanwhile, employers can choose to match those contributions or make non-elective contributions. A SIMPLE IRA offers a simple and cost-effective way for both employers and employees to save for retirement.

  • Employee Contributions: $15,500 for 2023.
  • Employee Catch-Up Contributions (age 50+): $3,500 for 2023.
  • Employer Contributions: Required to match employee contributions dollar-for-dollar up to 3% of their compensation or make a fixed contribution of 2% of compensation for each eligible employee.

Which of your employees are eligible to participate in a SIMPLE IRA?

  • Earned at least $5,000 in compensation during any 2 years before the current calendar year
  • Expects to earn at least $5,000 during the current calendar year

Good to know: Total maximum contributions to a SIMPLE IRA will vary depending on your choice as the employer between a mandatory 3% match or a 2% non-elective contribution. However, the maximum employee contribution for 2023 is $15,500 or $19,000 if age 50+.

Remember, your business has the potential to not only sustain your livelihood in the present, but also lay a solid foundation for a fulfilling retirement.

It’s always recommended to consult with your trusted advisor who can provide personalized guidance based on factors such as your business structure, financial goals, and employee considerations.

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Securities offered through LPL Financial, Member FINRA/SIPC.  Investment advice offered through WCG Wealth Advisors, LLC a Registered Investment Advisor.  The Wealth Consulting Group and WCG Wealth Advisors, LLC are separate entities from LPL Financial.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.