When it comes to retirement planning for small business owners there are a lot of options available which can be confusing.

There is no one strategy that is perfect for everyone so our goal here is to give you an overview of what's available to help you make a decision on what you may want to implement in your business.

We partner with Matt Ruttenberg and Life Inc Retirement Services so if you would like to get started on setting up a retirement plan you can visit their site here.

With the changes from the Secure Act 2.0, now is a great time to start a retirement account for your business. 

What Tax Credits are Available to Opening a Business Retirement Account?

There has never been a better time than now to start a business retirement plan. The government is getting serious in offering tax credits to do exactly that. 

To qualify for these tax credits:

• You should have no more than 100 team members who each earned a minimum of $5,000 from your company last year.
• Additionally, at least one employee in your retirement plan should be a Non-HCE (Non Highly Compensated Employee).
• Finally, your business shouldn’t have had a plan in place in the previous 3 years.

You can file for these tax credits using Form 8881.

The following credits are available:

• Administration Credit

  • Employer’s will receive $250 per non-highly compensated employee that participates in a plan.

  • This will allow the business to offset up to 100% of any out of pocket expenses including administration and record keepers costs.

  • This will last for the first three years of the plan.
• Auto-Enrollment Credit
  •  Companies implementing automatic enrollment for their employees in a 401(k) plan may be eligible for a $500 credit.

  • Despite this auto-enrollment feature, employees have the option to opt out of the plan should they choose not to participate.

  • This will last for the first three years of the plan.

• Contribution Credit
  • Companies have the potential to receive up to $1,000 per employee who earns under $100,000 annually.

  • This incentive is designed to help businesses offset the costs associated with providing a match or contribution to their employees’ retirement plans.

  • This will last for 5 years using the following amounts: Year 1 – 100%, Year 2 – 100%, Year 3 – 75%, Year 4 – 50%, Year 5 – 25%.

You can go through a calculator to see what tax credits may be available to you here.

What Is The Goal of A Business Retirement Plan?

Before you think about putting a retirement plan in place you need to think about what your goal is by starting one as that will be a starting point to the best option for YOU. Typically we say you fall into of these (or both):

• Employer looking for their own retirement or tax savings.
• Help recruit and retain high quality employees. 

What Retirement Options Are Available On The Personal Side?

Both a Traditional IRA and Roth IRA are options that are available to you whether you are a business owner or not.

• Traditional IRA
  • 2024 Contribution Limits:
    • $7,000 (If 50 or older: $8,000)
    • Starts to phase out at AGI of $77k (Single) or $123k (Married) if you are covered by a workplace retirement plan.
• Roth IRA
  • 2024 Contribution Limits:
    • $7,000 (If 50 or older: $8,000)
    • Starts to phase out at AGI of $146k (Single) or $230k (Married).

What Retirement Plan Options Are Best For Businesses With No Outside Employees? 

If you have no employees you will likely want to focus on one of the two options below.

• SEP IRA
  • 2024 Contribution Limits:
    • EmployER: $69,000
  • Allows the owner to contribute up to 25% of their W2 income. If you are a sole proprietor, the maximum is 20% of net earnings.
  • Choice of Pre-tax or Roth Contributions.
  • Employee contributions are NOT allowed. (employer must do same amount of contribution as their own).
  • Who is this plan for?
    • Companies with few or no full-time employees.
    • Business owners looking for a simple retirement plan.
    • Employers who want to eliminate annual filings and compliance testing.
    • Employers who don't mind contributing equally to their employees.
      
      
• Solo 401k (AKA Individual 401k)
  • 2024 Contribution Limits:
    • EmployEE: $23,000 (If 50 or older: $30,500)
    • EmployER: Maximum 25% Contribution 
    • Max Between Employee and Employer: $69,000 (If 50 or older: $76,500)
  • Will allow the owner to contribute 100% of their income up to a certain point.
  • Allows the company to match your contribution.
  • Choice of Pre-tax or Roth Contributions.
  • Who is this plan for?
    • Solo-entrepreneurs and employers with no full-time W-2 employees.
    • Business owners thinking of adding employees in the future.
    • Highly successful solo-entrepreneurs looking for considerable contributions.
    • Business owners who want to include their spouse in a plan.

What Retirement Plan Options Are Best For Businesses With Employees?

When you have employees outside of the owners you will want to look into the following options.

• Payroll Deducted IRA
  • 2024 Contribution Limits:
    
    • $7,000 (If 50 or older: $8,000)
    • Same phaseouts of Traditional IRA and Roth IRA above.
  • Gives your company the feel of a retirement plan for your employees, even if you’re not quite ready for a 401k.
  • Allows your employees to contribute towards retirement straight out of their paycheck.
  • Choice of Pre-tax or Roth contributions.
  • Matching contributions from the employer are not allowed.
    
    
• SIMPLE IRA
  • 2024 Contributions Limits:
    • EmployEE: $16,000 (If 50 or older: $19,500)
  • “Turn-key” matching and vesting options.
    • Either 3% match or 2% employer contribution required.
  • Your choice of employment qualification into the plan.
  • No administration costs.
  • Who is this plan for?
    • Companies with under 100 participants in the plan.
    • Employers looking for a low cost alternative to a 401(k) plan.
    • Employers who want to eliminate annual filings and compliance testing.
    • Business owners who don't mind an instant vesting schedule.
      
      
• Safe Harbor 401k
  • 2024 Contribution Limits:
    
    • EmployEE: $23,000 (If 50 or older: $30,500)
    • EmployER: Maximum 25% Contribution 
    • Max Between Employee and Employer: $69,000 (If 50 or older: $76,500)
  • Allows the owner to maximize contributions without relying on high employee participation.
  • “Turn-key” matching and vesting options for easy compliance testing.
  • Both Pre-tax and Roth Options inside the plan.
  • Who is this plan for?
    • Companies with one or more full-time employees.
    • Employers who want to maximize their own contributions.
    • Businesses looking to compete for quality employees in their market.
    • Employers who want to minimize annual compliance testing.

What Advanced Retirement Planning Options Are Available?

Every single plan is different with a fully custom design and flexibility.

• Cash Balance Plan
  • 2024 Contribution Limits:
    • $300,000+
      • Aged Banded Contribution Rates
  • Can be a stand alone plan or paired with any 401(k) and Profit Sharing plan.
  • High contribution limits for high income earning business owners.
  • Allows employers to save substantially on taxes
  • All contributions are employER contributions.
  • Requires actuary in additional to normal compliance needs.
    
    
• Non-Qualified Plans
  • Deferred Compensation Plan
  • Bonus 162 or Executive Bonus Plan
  • Owner Only Plans 
  • Learn More Here

As a reminder, we partner with Matt Ruttenberg and Life Inc Retirement Services so if you would like to get started on setting up a retirement plan (or just looking for a consultation) you can visit their site here.