Which IRAs Are Best for Small Business Owners?


Business owners tend to enjoy setting their own path and creating their own rules. Well, the same can be applicable to planning for retirement. There are a range of options available, so that a plan can be specifically designed to meet all your financial goals. The following are the two best small business IRAs offered that you may want to consider.


SEP IRA, or Simplified Employee Pension Plan, is one of the most common retirement plans for self-employed individuals. This IRA may be the perfect choice for those that want to make substantial retirement contributions, since the annual limit is up to $49,000. It is also one of the easiest small business retirement plans to administer because it is easy to set up and maintain. It does not even require tax filing. However, the SEP IRA typically must be funded by the deadline for tax filing.

Sole proprietors, or independent contractors, can set up a SEP IRA for themselves. Individuals with any source of self-employment income are eligible for the plan, even if they are covered by another employer’s retirement plan, such as a 401k or 403b plan. Incorporated or unincorporated small businesses can also include all employees within the plan. All employees that are over the age of 21, who earn at least $450 during the year, and have been employed with the business for three out of the previous five years are required to be included. The employer can contribute a maximum of 25 percent of worker’s wages to the SEP IRA account for retirement savings. It is important to note that the employer must contribute equally for all employees.


A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is more complex than a SEP IRA, but less complicated than a 401k. The SIMPLE IRA has some higher overhead administrative costs that are not necessary with the SEP plan. There is also a lower annual contribution limit of $11,500. But, employees that are over the age of 50 are eligible for making catch-up contributions totaling $2,500 each year. Individuals that choose this plan will enjoy the ease of set up and maintenance, as well as the lack of pesky tax filing requirements.

This IRA is ideal for individuals that are self-employed and small business owners that have less than 100 employees. The only employees that will be eligible for contributions are the ones that have received $5,000 or more in income for the preceding tax year. The employees that are eligible can make contributions to their own account through regular salary deferrals. But, employers must either make matching contributions, or non-elective contributions. It is required that employers match each employee’s salary reduction contributions dollar for dollar, up to 3 percent.

Overall, it is important to weigh a number of factors before choosing the right IRA option for you or your small business. It depends upon the amount of money you wish to contribute, the number of employees, the costs of administering the plan, and the types of deadlines.

Exercise your freedom of choice by conducting thorough research, and you will find the perfect IRA plan!

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