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  • Writer's pictureThe Lincoln Accounting Team

Let's Talk Retirement Accounts for Business Owners

Planning for retirement is a critical aspect of financial well-being, and business owners have unique opportunities to optimize their retirement savings. By strategically utilizing various retirement accounts, business owners can secure their financial future while benefiting from tax advantages and investment growth. We'll tackle some various methods for business owners to grow their portfolio while minimizing taxes. The Standard: Individual 401(k) Plan An Individual 401(k) plan, also known as a solo 401(k), is designed for self-employed individuals or small business owners with no employees (other than a spouse). This plan allows business owners to contribute both as an employer and as an employee, potentially resulting in significant retirement savings. The total solo 401(k) contribution limit is up to $66,000 in 2023. There is a catch-up contribution of an extra $7,500 for those 50 or older. The benefit of this plan is that you are not obligated to contribute to employees' plans, which could be cost prohibitive in certain cases. The Add-On Bonus Plan: SEP IRA (Simplified Employee Pension IRA) A SEP IRA is an attractive option for business owners, particularly those with few or no employees. It allows contributions up to 25% of net earnings from self-employment (up to a maximum of $66,000 in 2023). Contributions are made by the employer, which can be the business owner. It's straightforward to set up and has low administrative costs. And on top of these benefits, it allows the owners to market this as an employee perk, thereby attracting more talent into the business. The Match: SIMPLE IRA (Savings Incentive Match Plan for Employees) A SIMPLE IRA is ideal for businesses with up to 100 employees. It offers an uncomplicated way to provide retirement benefits to both the business owner and employees. Business owners can contribute up to $15,500 to a SIMPLE IRA account, unless they are 50 or older, in which case they can contribute an extra $3,500. The Bread-and-Butter: Traditional and Roth IRAs Both Traditional and Roth IRAs can be valuable components of a business owner's retirement strategy. Contributions to Traditional IRAs may be tax-deductible, providing immediate tax benefits, while Roth IRA contributions are made with after-tax dollars and offer tax-free withdrawals in retirement. Business owners can contribute up to $6,500 (or $7,500 for those 50 or older) in 2023. The Corporate Types: Defined Benefit Plan For business owners with high income and a desire to contribute significant amounts to their retirement, a Defined Benefit Plan could be an excellent option. This plan allows for substantial tax-deductible contributions, which are determined by an actuary based on factors such as age, income, and retirement age. The Change-of-Plans Account: Rollover IRAs Business owners who have retired or sold their business can benefit from a Rollover IRA. This account allows them to transfer funds from a former employer's retirement plan or a qualified retirement account into an individual IRA, providing continued tax-deferral and control over their investments. Selecting the right retirement accounts for business owners is a crucial step towards achieving financial security in retirement. Each option has its unique advantages and considerations, so it's recommended to consult with a financial advisor or tax professional to develop a comprehensive retirement strategy tailored to your specific circumstances. By taking advantage of these retirement accounts and maximizing contributions, business owners can build a solid foundation for a comfortable and secure retirement.

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