Business owners have a variety of options when it comes to saving for retirement and offering employee benefits. When business owners think of retirement, often a 401k comes to mind. However, other types of retirement plans might be simpler to administer or more appropriate for their sized business. This article is not meant to list all available retirement plans, but to offer a few alternatives.
If your business has only a couple of employees or is family-run, you might consider a Simplified Employee Pension Plan. The SEP IRA is a good way to set aside a chunk of money for retirement and get a deduction for the contribution. While Traditional and Roth IRAs limit how much you can set aside — $6,000 if under age 50 and $7,000 if over age 50 — the SEP IRA could allow you to set aside much more. An employer can contribute 25% of their compensation or up to $58,000, whichever is less, and get a tax deduction for that contribution. The contribution would be made into an investment account with a wide variety of investment options. The reason that this plan is best for a family-owned business or one with few employees is that a contribution must be made for each eligible employee based on the contribution percentage the owner made for themselves. So if you contribute 25% for yourself as the business owner, you must also contribute 25% for each eligible employee.
You can see that this might get a bit expensive if you have several eligible employees. An eligible employee is at least 21 years of age, has worked for the company 3 of the last 5 years and received at least $600 in compensation during the year.