How to Choose the Right Retirement Account for Your Business

Most business owners want to do the right thing for their future: Save for retirement, lower their tax bill, and maybe even offer a benefit to employees along the way.

But here’s the problem: many are using the wrong retirement plan. Some are overcomplicating things. Others are limiting themselves without even realizing it. And almost all are missing out on valuable tax credits.

Let’s break down the most common retirement plan mistakes and how to avoid them.

Mistake #1: Overcomplicating Your First Plan

If you're looking to put away just a few thousand dollars per year, there’s no need to open a business retirement plan.

A basic Traditional or Roth IRA is often more than enough. For 2025, the IRA contribution limit is $7,000 (plus an extra $1,000 if you're over 50). You don’t need to be incorporated or have employees. You just need earned income.

If you’re married, a spousal IRA can double that amount, even if your spouse doesn’t earn income.

Before jumping into SEP IRAs or Solo 401(k)s, ask yourself one simple question: How much do I want to contribute? If the answer is under the IRA limit, keep it simple.

Mistake #2: Choosing a Plan That Doesn’t Fit Your Entity

Business structure plays a huge role in how much you can contribute.

Let’s say you have an S Corporation and pay yourself a $40,000 salary. If you open a SEP IRA, your contribution is limited to 25 percent of your salary. That’s just $10,000. If you wanted to put in $20,000, you're out of luck.

On the other hand, a Solo 401(k) would let you contribute $23,500 as the employee, plus up to 25 percent of your salary as the employer. That opens the door to over $30,000 in contributions.

The plan you choose should match how you pay yourself. If you’re not careful, you could leave thousands on the table each year.

Mistake #3: Ignoring Setup and Maintenance Costs

One reason many business owners hesitate to start a retirement plan is fear of high costs. But those fears are often overblown.

Plans that end in “IRA” — like SEP IRAs and SIMPLE IRAs — generally have no administrative fees. They’re easy to open and maintain. You can even do it yourself through a custodian like Fidelity or Vanguard.

Solo 401(k)s are a bit different. These require a formal plan document, may involve IRS filings (like Form 5500), and could cost a few hundred to a couple thousand dollars per year.

The good news? Recent tax credits can cover most or all of those costs. More on that in a minute.

Mistake #4: Forgetting About Growth and Employees

A plan that works for you today might create problems tomorrow.

For example, SIMPLE IRAs are great for new employers with small teams. But they offer no vesting schedules, and even part-time employees can become eligible. Once you add team members, you might want more control.

With a Traditional 401(k), you can delay eligibility, set vesting rules, and customize your match. That flexibility can make a big difference as you grow.

If you think your business will scale or hire employees soon, don’t just think about today. Pick a plan that can grow with you.

Mistake #5: Missing Out on Tax Credits

Thanks to Secure Act 2.0, the government is now paying businesses to open retirement plans.

Here’s what’s on the table:

• Up to $3,000 over three years to cover setup and administration
  
  
• An extra $500 per year for automatic enrollment features
  
  
• Up to $1,000 per employee per year to match contributions for those earning under $100,000
  
  

In total, eligible businesses can receive up to $50,000 per year in tax credits. These credits can offset both setup costs and employee contributions.

If you’re worried about the cost of a 401(k), this is your green light to get started.

How to Fix It

Start by asking the right questions:

• How much do I want to contribute this year?
  
  
• Do I have employees now, or will I soon?
  
  
• Do I want the option for Roth contributions or self-directed investing?
  
  
• Is there a tax credit available for me?
  
  

Then choose the plan that matches your goals. For many, the Solo 401(k) offers the best blend of flexibility and contribution limits. For teams, a Safe Harbor 401(k) opens the door to advanced stacking strategies and higher deferrals.

And remember, you don’t have to do this alone.

Don’t leave money on the table. Make your retirement plan work harder for you.

TRANSCRIPT

[00:00:00] Running a business is hard enough, but figuring out your retirement plan, that's a whole different challenge. And what if I told you most business owners are either saving in the wrong plan or missing out entirely? Today we're gonna walk through some real world case studies to help you choose the smartest retirement strategy for your business.

[00:00:16] Whether you're buying solo, you have an entire team with you, or you're just trying to save a few thousand dollars a year. We've got you covered. I'm joined by retirement expert Matt Ruttenberg from Life Inc. He's back to break down what works, what doesn't, and how to take advantage of tax credits that are on the table, especially now around retirement planning.

[00:00:34] So let's dig into that and Matt, as always, you've been on the show quite a bit. Uh, welcome back to the show. Welcome to the Small Business Tax Savings Podcast, your ultimate guide to legally slashing your tax bill while building your wealth. Get ready to unlock the secrets of tax savings with your host, Mike Zeek, CPA.

[00:00:59] Yeah, [00:01:00] Mike, thank you for having me on Again, I appreciate it. Always love being on. Yeah, so earlier this year we did an episode where we kind of broke down this concept of let's do some case studies. Let, let's go through, through some real life scenarios of things that we've experienced and kinda where, where did we go down as far as what kind of strategies we're mm-hmm.

[00:01:16] We're going to talk about with them. And, you know, obviously everyone's situation is different, but I think that this, uh, we got some really good feedback. This gives some really good insights into saying, oh, okay, I, I, I have a path forward. So instead of having 20 strategies to think of. I'm down to two and, and that's where I'm gonna start specializing for myself.

[00:01:33] So hopefully the same thing happens here. Instead of doing advanced strategies, we're just talking about your general business retirement account in this scenario. So I'm gonna start out with scenario number one, and this would be somebody that has no employees and they're just looking to put roughly $5,000 a year, a year away towards retirement.

[00:01:53] Yeah. In, in that scenario, it's, there's, there's really no reason. To go overboard, uh, with the [00:02:00] 401k or even a simple, any, any sort of self, uh, employed retirement plan In general, there's no reason to go above and beyond just to just doing a regular IRAA traditional IRA or a Roth IRA. Um, it doesn't require whether it's self-employed income or earned income from a W2 employee.

[00:02:17] Uh, employer just doing a regular IRA, um, the maximum $7,000 for 2025. So you're well within that, uh, period, if you're, uh, over 50 years old, add another, uh, thousand dollars on top of it and you're good to go. So no reason to complicate things. It doesn't matter which bucket it's coming from, whether it's, uh, you know, your salary or your distributions.

[00:02:39] Um, it just, that's enough putting it into the IRA. Yeah. And you know, I, one point that we always talk about, especially, you know, for, for folks that are part of Tax Elm or have been through the Taxo software. One of the first questions we ask when it comes to retirement is, how much money do you wanna put away?

[00:02:55] Because that's gonna start to go down this path. And, and, and you know, like you mentioned, [00:03:00] if that number is 2000, 3000, 4,000, 5,000, whatever it is, if it's under that, IRA amount, why go through the process? To go through, you know, opening up a business retirement account when, when at the end of the day the tax.

[00:03:11] Piece of it is gonna be the same, you know, whether you open up a simple IRA and fund it up to $5,000, or you owed up an IRA and funded $5,000 to the tax benefit is is the same. So that is a question I think is important for business owners to start with. Don't overcomplicate things by starting to think, oh, I'm a business owner now I need a business retirement plan.

[00:03:30] That might not be the case, you know, we'll talk about in different scenarios on why that is the case. But for those that are looking in that five, $6,000 a year. An IRA might be totally fine and you have a, potentially a Roth option and if not a Roth option a, you know, a backdoor Roth option as well.

[00:03:45] Mm-hmm. Yeah, getting into the, the after-tax backdoor Roth options, uh, is a whole nother conversation, but there those are out there, and if it's just $5,000, keep it simple. Okay, so let's go to scenario number two and, and here we're doing the same example. [00:04:00] Somebody, a business owner with no employees, but now they're looking to put, say, roughly $12,000 a year towards retirement.

[00:04:05] So above that, five, six, 7,000. Now they're looking to put a little bit more and they're looking at that $12,000 per year, but they still have no employees. What type of retirement plan are we typically, or at least looking at for that option? Yeah, and, and that, that, that part of it where there is no employees.

[00:04:20] That just keeps everything simple. There's no annual testing. We have to worry about. Um, I've said this before, when you have employees, the IRS just wants to make sure you're taking care of them and you give them a minimal amount. Um, it's called annual testing, but if, if we're only playing with $12,000, um, there's really, uh, to keep it in the IRA world, we don't need to go into the four and K world because, um, that, that's just excessive contributions.

[00:04:45] We'll give in that in a minute. But you can either do a SEP IRA. Or a lot of people don't think about doing this is you can actually do a simple IRA and a lot of times, uh, people think simple IRAs are only earmarked for those with employees, but you [00:05:00] are an employee of your business. And I do want to keep in mind here, um, you don't need to have an entity.

[00:05:08] To establish a self-employed retirement plan. So self-employed retirement plan. Mm-hmm. Sep, simple 401k. You don't, you just need to have, uh, schedule C income, which is self-employed income. Basically. That's the minimum meeting you don't need, uh, to have the tax ID number. Um, sometimes we'll create an a tax ID number for the actual plan, but in this instance, if you're only doing 12,000, keep it in the IRA world.

[00:05:31] Um, if you're, if you are. Uh, maybe an S corp. And, um, your income, uh, the rule there is 25% of your salary if you're falling as an S corp. So that might not get you up to that $12,000. So if you're only paying you yourself, let's keep it simple, a $40,000 salary, but maybe you're doing a hundred thousand dollars total.

[00:05:53] So that 60,000 difference is your, is your distributions. You can only do 10 grand inside of [00:06:00] a sep. IRAA Sep IRA is 25%. Of your salary if you're an S corp. But if you're not an S corp and your filing is either a sole prop, uh, like the Schedule C, you're the 10 99 contractor, maybe it's gonna be about 20% of your net income.

[00:06:16] So if it's around 40, either way, it's not gonna get you to that 12,000. So then we'd want to bump up to the simple IRA, which gets you up into that higher contribution of 12,005, or actually it's 16,500, I believe it is for 2025. So you have a little bit more room. Um, but it's just a straight, straight contribution of a hundred percent of your income into that, into that simple ira.

[00:06:39] Yeah, that's a good thought. 'cause I think a lot of people think simple i a and we and we're, we will talk about that where simple IRA might be a good plan for those with employees. Uh, but you can open up with one without employees and that's, that's absolutely, that's something good to think about. Yeah.

[00:06:52] You know, as we were going through this, and I know it's not something that we really talked about, uh, or that we talked about often, but another thing that came into my mind with this scenario [00:07:00] is, uh, if you're married, you could potentially do two IRAs. So if you're at that $12,000 mark, you could just do.

[00:07:07] One spouse with an IRA and another spouse with an IRA. Combine that together. And now you're at the, you know, 14,000. So that would be a, a secondary option you could explore too. And that's whether or not they're earning income or not. 'cause you can do a spousal IRA, uh, with that so they don't have to earn the income.

[00:07:21] Um, and I do wanna note here too, you can do both. You can do a simple IRA or, um, let's say you can do a 401k and a traditional IRA at the same time, as long as you're within your income limits. Um, that we're probably not gonna dive too far into that, but it's okay to do both. One's an individual retirement account and one's a group retirement account, and you are absolutely allowed to do that as long as you keep within those, um, in income requirements for the IRA.

[00:07:48] Yep. Makes sense. Alright, so let's jump into scenario number three. And this would be, again, same example, business owner, no employees. But now instead of looking to put 5,000 away or [00:08:00] 12,000 away, now they're looking to put, take $25,000 or more per year away towards retirement. What type of plan are we starting to, to lean down when we, when we get to that route?

[00:08:08] Yeah. And, and we're still in the no employee realm, right? Yep. Yeah. So this is when we can start having a few options here, right? So. Uh, the max contribution for IRA 7,000 simple, uh, set by IRA is more, but it's limited to the percentage of your income. And then we have the simple IRA, which is 16 five once we're going into in the twenties, if you will, or in a, a more substantial contribution amount.

[00:08:35] Um, it opens up a few options actually, and one is most likely gonna be a solo 401k. Um, and the reason I say that is it's pretty simple. 23,500 is what you're allowed to give yourself and have that come outta your payroll and then you can tack on, uh, an more above and beyond that, um, in the form of profit sharing.

[00:08:57] The other thing, it also, again, depends [00:09:00] on what your salary is that you pay yourself. So if you wanna hit that $25,000 mark, but you're a high income earner, let's say you're paying, you're an S corp and you're paying yourself. A hundred thousand dollars salary because you're, you know, maybe 2, 2 50, 300, $400,000 a year.

[00:09:18] But you're paying yourself that $100,000 salary as an scorp. Again, 25% of your salary can go into a sep IRA. So we might say, just do the SEP 'cause your salary is enough to check off that box now. Inside the sep, there are no Roth contributions. Um, you're kind of capped at that point. You are absolutely capped if you're at that 25% of your salary.

[00:09:42] So if you have a year and you need to pivot 'cause you had a really good year the following year, you wanna go up a little bit, add some profit sharing. Um, then I would say a solo 401k is probably the better route. And the solo four, the solo four one K is actually two types of contributions inside of that.[00:10:00]

[00:10:00] Um, one is the employee portion, which is the 23,500 that comes straight out of your payroll. So all you have to do is pay yourself 23,500 as a salary and you can put all that in there. Uh, not to mention any if I taxes or anything like that, but the other part of it is profit sharing that gets you all the way up to, uh, $70,000 that is calculated the exact same way as the set.

[00:10:26] Okay, so it's basically the 23 5 plus an additional 25% of your salary on top of that. So with that set, the solo, if you might want to change it around a little bit more the following year, maybe your income's gonna go up. A solo 401k has a lot more latitude, a lot more flexibility. Then the set Ira. Yeah.

[00:10:47] And, and, you know, the solo is, is especially for those that wanna put more weight towards retirement, I love the solo because it allows that flexibility. But I, I wanna talk a little bit, we're gonna get into what it looks like with employees here in just a [00:11:00] second. Mm-hmm. But you know, Matt, and you and I have had this conversation in the past, uh, 10 years ago, 15 years ago when I was in a business, and even before that, when I was in a different industry with partners and, and everything like that.

[00:11:12] We did not set up a retirement account because we thought it was too costly. We thought it would cost so much to, to set these retirement accounts. So talk a little bit about the costs to open and Sure. And keep these accounts active because I think that that was an eye-opener when I met you and it was like.

[00:11:29] Well, we're not talking five, $10,000 just to open an account. Like it's, it's really cost effective. And, and we'll talk later about credits and, and how that can help out. Yeah. But just talk a little bit slightly about, you know, whether it's a simple IRA, whether it's a set IRA, whether it's a solo 401k, what is typically like maintenance costs to just set those up, to have them operating, whether you're funding them or not.

[00:11:50] Yeah, and I'm gonna simplify it actually quite a bit. If, if it. If it ends in IRA, right? So simple, IRA, sep, IRA. There is no administration [00:12:00] required. Um, it's, it's more of just an, uh, almost like a advisory role is making sure the investments are, are kept up to it. Um, a lot of times the, your accountant, your CPA, can help you with calculations.

[00:12:12] It depends on, um, what you're trying to do with it. If you wanted to go DIY, you can absolutely go set that up at a custodian or you can, um, hire someone like us to help you, um, with the calculations, get the enrollment meetings going, things like that. Um, but when you go into the forum, K side of it, um. Uh, 401k defined benefit plans, which we have, that was in the other episode.

[00:12:34] Those do require administration. You create a, something called a plan document or adoption agreement, which is the actual legal document that you file with the IRS saying, I now have a retirement plan. And this is what the rules are, the eligibility, the um, uh. The types of contributions, the vesting schedules, things like that.

[00:12:55] So you have to have this adoption agreement, whether it's a solo 401k or a group 401k. [00:13:00] You do have to have that, um, you have to have that, uh, that document that is filed with the IRS. So there is going to be annual, uh, updates to that. There's gonna be filings of 55 hundreds, um, for, for most cases. So there's gonna be ongoing administration, and for the most part, even if you have a group, it's only gonna be a few thousand dollars a year.

[00:13:19] Um, we'll talk about the tax credits to help offset that obviously later. Uh, but beyond that, it's, it's, it's a nominal fee. Most of the costs come in the form of your match to your employees, which there's ways to rule to really minimize that and to control that is probably a better word, is to control that.

[00:13:38] So, we'll dive into that a little bit more on the next step. But, um, there is a cost to 4 0 1 Ks. There shouldn't be a cost to the IRAs. Makes sense. Yeah, that's super helpful. And, and it's very easy to, uh, if you say, okay, I just wanna start out small, I wanna get my feet wet, I wanna offer something, I wanna put something away.

[00:13:56] Let's say you decide on a set by array. Mm-hmm. If you get to a point in [00:14:00] your business where also now a solo 401k makes sense. Can, is it easy to transition from that set by rate into that solo 401k? Yes. Um, is it's, there's, there's a lot of, there's a lot of flexibility there actually. Uh, so we've done that quite a bit.

[00:14:16] We've, we've moved from SEP and we wanna move on to, um, 401k and even sometimes the defined benefit plan. And the one thing to con to understand is the SEP IRA and profit sharing are considered the same type of contribution. So, um, the sep i a is a very simplified version of pro profit sharing, is really the best way to explain it.

[00:14:38] So, um, when we, let's say we want to do something mid-year. Let's say you've done some contributions to your cep, we actually have some options. Um, we can either, uh, maybe pull back the contributions from the CEP and put it towards the profit sharing. It just kind of depends on how we're gonna do the calculations, if you have employees involved, things like that.

[00:14:57] Um, but it has the same rules from the [00:15:00] IRS. Uh, standpoint, they know it's an employer contribution. It's coming directly from your corporate account. It's not coming out of your payroll. Um, but yes, you can switch, you can upgrade as I call it, because you need another 23,500. You need more contributions. You should absolutely do that.

[00:15:19] Um, it's a, so there's a lot of variables involved and a lot of flex, a lot more flexibility than most people realize. Yeah, that's super, super helpful and hopefully, you know, those business owners that are just kinda like sitting in the background and you'll, you'll get some more motivation later on in this episode, but hopefully if you're sitting in the background saying, I know I should hit, you know, be contributing to retirement.

[00:15:37] Sounds like a lot of work. Sounds like a pain. Sounds expensive, so you just don't do it. Hopefully this is some motivation to, uh, take that next step. And, you know, we've been working with Matt for a while and him and his team do. Just an incredible job. Really helped make this process super easy, simple for everybody that can also, and also analyze your situation.

[00:15:55] So definitely feel free to check that out. We'll have a link to Matt's, uh, information. You can [00:16:00] reach out to him in the show notes. Uh, but let's jump into scenario number four. And so now we're kind of getting into scenarios where you start to have employees. So let's look at it. Let's say you're a business owner with 10 employees.

[00:16:12] Um. And they don't really care about personal retirement, but they're looking to become more attractive to employees. So they're not really, you know, they'll put it a little bit away here. Maybe they're in that IRA range where it's five, six, $7,000 a year they're looking to put away, but they wanna offer a plan, not just.

[00:16:28] You know, for themselves as a potential option when it, when and if it makes sense. But more so they wanna offer plans so that they can say that to, to offer it to their employees so that their employees have an option, they have the ability to contribute some to their employees and just make it, uh, a lot more attractive.

[00:16:43] Make them seem like more of a, a business that's gonna attract people to, uh, to come work for them. Yeah. And, and this is kind of now that we're getting into the employee realm. Um, we really dive into the consultation, the conversation ahead of before the plan design comes in and we ask those two questions.

[00:16:59] [00:17:00] Um, you mentioned earlier, the first one is, is what is the purpose of this plan? Why do you want something? And there's, it's a multiple choice question. Is it I want contribution for myself, I need to save money on taxes, or I want to, uh, recruit and retain employees. Or sometimes it's my state mandate is telling me that I have to do something or my employees are pushing me to do something.

[00:17:23] Um, it's not about me, it's about them. And the second question then goes into how much do you want to contribute? Right? Um, regardless of how they answer question one, it's how much do you want to contribute? And in this scenario, it's all about the employees. They wanna recruit and retain. They're not quite ready to contribute or they don't want to, maybe they don't like traditional investments they want to do.

[00:17:44] Um, they want to, uh, buy more franchises or they wanna, um, uh, reinvest in their company and that's totally fine. So it's all about the employees in that situation. And there's a couple options. There's actually probably, um, probably three [00:18:00] to be honest with you. And the first one is going to be going back to what I said earlier, the simple IRA, again, very simple, very uh, uh, no pun intended, but that's what it's for.

[00:18:10] It's simple, it's easy to set up. There's not a lot of bells and whistles. There's like no integrations. There's, um, investment lineups can be limited, but it's very straightforward. You get a menu of two kinds of contra, uh, matching or contributions that you give to your employees. They're two or 3%, and then you can save up to the 16 five.

[00:18:32] You can do zero, you can do six, but it's very simple. There's no administration costs. The only thing, only out of pocket that you're gonna be giving. Um, is it what you give to your employees? The, the, the match or the contribution? The other option there is a traditional 401k and the traditional, not a safe Harbor, 401k, a traditional 401k.

[00:18:52] And the reason why we might shift over to the traditional 401k is because the simple has no vesting [00:19:00] schedule. When you give 'em that two or 3%, it's theirs. If they walk out the door, they walk out the door and take that two or 3% with them. The eligibility is a little bit, um, difficult to handle too because all they have to do is earn $5,000 and two out of the previous, uh, or out of the two previous years.

[00:19:21] Um, and then so maximum one year eligibility. So if you have a lot of part-timers, they're going to eventually be eligible at some point with the simple. Um, so if you go to the, the traditional. You can now limit it to, it has nothing to do with the payroll. It has to do with hours of operation. It's 20 hours or more.

[00:19:39] It's a thousand hours a year, and you can push that out. Eligibility have to be with you for one year. So it's easier to pull and remove employees out of that, um, because we want to have that retention and make sure we're giving this benefit to the proper people. And the other side of it is the vesting schedule can go out as far as six years, a much larger, a [00:20:00] much longer retention tool.

[00:20:02] To say, if you stay with me for six years, then you get all this, two, this, this money back, and then you're not stuck to this menu of match of two or 3%. You can create, you can put zero match if you wanted to. Uh, but generally what we're doing is we're trying to, uh, stretch out the match as much as we can.

[00:20:20] 'cause we want to incentivize the employees to contribute their own money. So we might be doing something like a, let's say a 25% match on every percent they put in. Up to up to 6%. So if they're putting in six, you only have to give 'em 1.5% match, but it's stretching it out to six. So they are incentivizing to, uh, incentivized to contribute more and save for their retirement.

[00:20:42] So you have really two paths where you have one that's the easy turnkey button. There's no vesting schedule, and you might end up getting people in that plan you don't really want to contribute towards. And the other one is the traditional, where you have more control. There are gonna be administration costs, [00:21:00] um, but you can protect your cash flow and your assets a little bit more, but then we'll get into tax credits, how we offset those administration costs in here in a little bit.

[00:21:09] So it depends on the goal, it depends on the, it depends on the build out of your employee pool and what that might look like too. So those are, it's a conversation ahead of time. Let's see which one makes the most sense for you at the end of the day. Um, the costs are gonna be nominal depending on what goal you're trying to, uh, cont what goal you're trying to achieve.

[00:21:29] Yep, that makes sense. And so let's go into our final scenario before we kind of talk about tax credits as well as some deadlines and what that looks like. But, uh, scenario number five here is, again, same example. You have 10 employees, but in this scenario, you have a business owner that's looking to max out their retirement while also, of course offering a vehicle to their employees, but they don't wanna spend too much.

[00:21:52] They don't want to, they don't want to contribute too much to their employees. They just want to be able to max out everything that they possibly can with theirs, while also taking care of their employees at [00:22:00] the lowest amount possible. What are some of the options that you look to for, for those business owners?

[00:22:05] Yeah, and this, this is. This is where we start having fun with the, with the plan design, to be honest with you. So we go back to those two questions. What is your goal? Max out. Save money on taxes. Give the bare minimum to the employees, whatever it is. So, um, a lot of times what we're gonna be doing is designing a plan where the owners are the absolute center of our plan design.

[00:22:28] And imagine we've talked about this before, the retirement plan stack. Imagine an upside down three-tiered wedding cake, uh, for those who are listening bottom layers. Four one k. Profit sharing defined by you can go up to several hundred thousand dollars pre-tax contributions. Now the goal here is to, uh, give the most to the employee to employers with bare minimum to the employee.

[00:22:51] I've said this before too. The 4 0 1 a tax code is basically all qualified retirement plans. It's built for the owner, [00:23:00] but as long as the IRS says you've taken care of your employees, now you can do whatever you want. That's the whole concept behind these plan designs and we're, we're the core of that.

[00:23:09] Retirement plan stack is going to be a safe Harbor 401k okay. Safe harbor all the way. And the reason why we do safe harbor is because it is a, it is a IRS pre-approved menu of matching investing schedules that we can choose from. Uh, it's, it could be 3%, it could be 4%, it could be 3.5%, it could be up to six.

[00:23:33] Um, but the IRS says, as long as you choose one of these, now you can do whatever you want, check it's a fair plan to your employees. Now you can max out that 23,500. And then we go into profit sharing for anything above and beyond that. And then we go into defined benefit plans, which is basically a defined benefit plan.

[00:23:51] One of the versions of a defined benefit plan is a pension, or another one is a cash balance plan. So this gets a little bit more, um, [00:24:00] involved and, and advanced there. Uh, but the sky's the limit on that end of it. And it's all about what do we have to give to the employees. So that goes into efficiency ratings to make sure that it's worth it.

[00:24:11] As long as you're in the black, we're good. If you're in the red, then we have to have another conversation and fi figure out a different solution for you. Yeah, that makes sense. And you know, in this scenario, we talked about someone that wants to max out their retirement and, and put as much away as possible.

[00:24:24] And so for that person also, I would say, Hey, let's start at this safe harbor, uh, 401k mark. But then let's also potentially look at. The episode we did last time, it's some of those advanced plans and what can we, what can we pile on top of that as a potential option if that's what you're looking to do.

[00:24:38] So, you know, as we've kind of been talking about these, you notice that there is a lot of options. Uh, there's a lot of definitely opportunities you can have. And so typically. And Matt, you know, dealing with this every day is gonna give you a slightly different answer. But my, my, my, when I'm typically looking at what options are available, I always kinda say if it is $5,000 or less, [00:25:00] $6,000 or less, just, just put money into a, a regular IRA.

[00:25:02] But when, when I look at scenarios with no employees, uh, I'm typically looking at a sep IRA. Or a solo 401k. And I will traditionally push people towards a solo 401k because it allows for more flexibility. You have Roth contributions, you have, uh, the ability to do some self-directing. And there's, to me it allows definitely higher contribution limits.

[00:25:24] And then you go into, when you have employees, I typically tell people you have like a simple IRA route, a 401k, a Safe Harbor 401k, and those are kind of the paths you go down. But you know, as we've kind of been having this discussion with Matt. There's a lot of opportunities. There's a lot of different routes you can go down based on what you're, what you're actually looking for.

[00:25:41] And so that's where I always encourage, uh, small business owners to connect with a retirement specialist like Matt, just to get some insights. And, you know, Matt and his team is, is more than happy to walk through what you currently have, whether that's nothing or you do have a plan in place, and also talk to you about how, how they can make that better and, and what different opportunities you have based on what your wants or needs are.[00:26:00]

[00:26:00] You know, I, I, I always say this every time I talk to ma, I, I, I wish I would've, I wish I would've knew you 15 years ago when, when, when I first started getting, looking into this retirement aspect, because I was always going through like solutions that were tied to my payroll software and. There was these big fees, you didn't really understand what you're in.

[00:26:18] And you know, I, when I, when I first brought my retirement plan over to you, I think you looked at it and you're like, man, I don't know what was going on in this thing. But it was very inefficient. It was costly. Um, and it was just because it was like one of those off the shelf. Here's my plan, plug and play.

[00:26:33] Didn't really know what I was doing, but just wanted something to offer it. Uh, but go working with you has been so helpful 'cause we get customized plans, customized advice. We're actually talking to a human instead of, you know, just this big conglomerate. And so that's why, uh, if you're interested in kind of getting your plan looked at or what might be a good potential option for you, definitely check out the link in the show notes.

[00:26:53] But Matt, two things I want to kind of end this episode on. First one is gonna be tax credits. There is some, [00:27:00] um. What I would call pretty eye-opening tax credits for those that want to, uh, start a business plan and start a retirement plan where a lot of, not only the administrative costs could potentially be covered, but even some of your contributions towards your employees, part of the plan could be covered as well in the form of a tax credit.

[00:27:18] So kind of talk through some of those tax credits that, that, that are currently out there right now. Yeah. And it, it's, it's surprising how, uh. Uh, little it's been, it's been spoken about, to be honest with you. It's like a lot of people don't realize how big these tax credits can get. Uh, so this is Secure 2.0.

[00:27:37] Um, this passed in the 11th hour of 2022, I guess it was. Right. Uh, so in, implemented on, uh, January 1st, 2023. And basically, uh, let's, let's kind of do a scenario with those 10 employees. Um, if you had 10 employees and everyone's participating or you're giving them something, uh, to some degree the [00:28:00] tax credits are gonna be around $13,000.

[00:28:02] And I'm gonna break that down a little bit for you here. So, and this is again, for any plan, including a simple IRA that was implemented after 2023. There's some tax credits prior to 2023 as well, but they're much smaller. Um, so. $3,000 of that 13 is going to pay for your out-of-pocket costs for your administration, cost, your record keeper, okay?

[00:28:28] And that's gonna be, uh, basically, um, up to $500 per employee. Uh, and then you're gonna get an extra $500 for just having an opt out plan. This is a new required law starting in 2025, but you're still getting a tax credit for it. For all plans after 2023, it's called a, uh, auto enrollment. So you get $500 just to have them say, no, I don't want to, I don't wanna contribute.

[00:28:56] Instead of saying, yes, I want to contribute, and then you get the [00:29:00] $500. Um, and it's, it will cover a hundred percent of your costs. It'll absolutely cover a hundred percent of your cost. The other part of it, the other 10 grand, you're gonna get a thousand dollars per employee that earns under a hundred grand to offset the match that you give them.

[00:29:16] You can absolutely create a net zero cost on top of the taxes that you're gonna save. So the cost itself go into the administration costs, record keepers, fees, things like that. But the cost is also your, the, the match you're gonna give to your employees, so you can cover that with your tax credits.

[00:29:34] Absolutely. And that gets stretched out over five years. So it's up to, uh, 16,500 just for the. Paint the cost of it and then up to 50,000 per year, up to 50, up to a hundred employees to get that, um, tax credit. So there's a lot involved in that contribution. We do, we do. Or inside that calculation, we do estimates for people.

[00:29:56] Um, and then you're gonna file 88, 81 is the tax form [00:30:00] to offset those tax credits, but it is substantial and you can get, uh, up to $50,000 per year in tax credits to offset these contributions. That's crazy. So, you know, my point of that is if you're listening to this and you're like, ah, I want to offer a retirement plan, or, Hey, it would be a good option to at least have out there for my employees, there's never been a better time to start to open a retirement plan with the credits that are made available to you.

[00:30:24] So, uh, if, if you're in that boat, now is the time to act like we, yeah. These are credits that are on the table ready for you to be available. This is free money where you can actually have a retirement plan in at least the first couple years or first year for sure. It's covered. You, you're not, there's no out-of-pocket cost for that plan, which, which can be really good.

[00:30:41] So let's talk about someone that's in that route saying, okay, finally, I'm finally gonna open that retirement account that I've been talking about for years. Finally, gonna take care of help out some employees. Um, can we dive into just slightly some important deadlines for those that want to open up, uh, set by RA, uh, solo 401k, uh, regular 4 0 1 KA sip IRA.

[00:30:59] [00:31:00] What are some of the deadlines that they have? If, if that's something they want to do here in 2025? Yeah, and, and a lot of this is stemming from Secure 2.0 is the, I want to mention that. And there's a lot of, uh, uh, evolution still to this date on Secure 2.0. So things are changing constantly, so they just obviously reach out and ask.

[00:31:19] It's better to ask and figure it out. I don't care if it's two years ahead of time, just learning what's available and when it's due. Is important. So, um, first and foremost, let's kind of go from, from January 1st and where we're at. You can, if you have a imple, if you implement a solo 401k, as long as you're not a corporation.

[00:31:41] So you're filing as an, uh, uh, either a sole proprietor, uh, single member LLC, you have up until, um, April 15th to, to contribute into your first year. And then after that, you actually have a little bit of leeway after. Um, but generally it's, uh, getting it set up before the end of the year. Is the, the new rule on that one.[00:32:00]

[00:32:00] Um, beyond that, setting up a simple IRA has to be done by October 1st of the current year. So for 2025, it has to be October 1st if you want a 2025 deduction. Okay? Um, same goes with the Safe Harbor 401k for the current year, October 1st if you want 20, 25 deductions. Now, if you're doing a set by array. Or you're wanna do a profit sharing or any of those you have up until the day you file for the previous year, including extensions.

[00:32:37] Okay? So if you file an extension for an S corporation, for example, you have up until September 15th to implement and contribute for the previous year. So yes, as of today, the day we're recording this, we are still implementing 2024 plans and getting deductions. So if you get this tax bill on April [00:33:00] 15th, uh, and March 15th and says, oh my gosh, I gotta extend this because I don't wanna, I, I don't, I need to figure out some more ways to, um, offset these taxes.

[00:33:08] You can still do that all the way up until the day you file, including extensions. So, uh, these are the most important. It's October 1st for the current year for Safe Harbor and Simple October 1st for both of them, for any employer contributions, which are sep, profit sharing, defined benefit. That's the day up until you file, including extensions.

[00:33:29] Those are the most important dates. There's a lot of little nuance dates in there too. Like when can you do amendments, when can you switch? There's a lot there and I think it'll be overwhelming to just kind of say it over the, over a podcast, but um, feel free to reach out and we can go over all those dates.

[00:33:44] 'cause literally every single scenario is a little bit different. Yeah. You know, and that, and that's the thing that's interesting is that, uh, that that's where you guys can come in or folks like you can come in to be super helpful in that aspect. The other thing that gets a little complex is once you start to get in into having [00:34:00] employees in your plan, you run into ERISA rules and, and some of these other different things you have to be really careful on, especially if you have.

[00:34:07] Let's say you're driving or have multiple businesses where you have a business over here, a business over here, and how does that treatment work and Yeah. You know, we see a lot of people that will be operating as a, uh, they'll have a, a full operational company from, and then they'll have just this one solo company that they have and they're like, well, I'm just gonna do my retirement in that solo company and not take care of any of the employees in this other operation.

[00:34:27] Yes. And. Sometimes that might be possible. A lot of times it's not. And so those are all things that, you know, working with a team that fully understands us, especially once you get into having employees, can be, uh, can be super helpful. Yeah, and those are called control groups and, um, whenever there's employees involved, it's best to get some advice from someone.

[00:34:46] Don't try to go around it and try to figure it out. The IRS will always lean towards your employees. There's ways to get around it, but yeah, having those conversations to make sure it's set up with the right is, is definitely very, very important. Perfect. So today we covered [00:35:00] just a handful of common retirement plan scenarios, but there's no one size fits all solution that we figured out.

[00:35:05] And, and the wrong choice could really cost you thousands in missed tax savings or just tax advantage. There's a credit opportunity, so if you're wondering what plan fits your business, drop a question in the comments or click, click the link below to book a free consultation with Matt and the Life Inc team.

[00:35:20] And if you wanna learn more about how to build smarter tax strategies retirement and beyond, check out our software tax zone. We help business owners like you implement proven strategies from start to finish. Book your free discovery call using the link in the description. Let's make your money work as hard as you do.

[00:35:35] Matt, thanks for joining. Thanks, Mike. Appreciate it. Yeah, and everybody else, I'll see you on the next one. Thanks for tuning in to the Small Business Tax Savings Podcast. We hope today's episode sparked some brilliant ideas to help you save on taxes and grow your wealth. If you loved what you heard, hit the subscribe button and share the wealth with fellow entrepreneurs.

[00:35:59] For a treasure [00:36:00] trove of tax saving resources, visit tax savings podcast.com. There you'll find tools, guides, and all the info you need on reducing your taxes. Let's elevate your business to new heights together. Remember, the insight shared here are for educational purposes and not specific tax or legal advice.

[00:36:18] Always consult with a qualified professional for your unique situation. Until next time, keep thriving and saving.