Whether your retirement is just around the corner or still over the horizon, you have probably thought about the best ways to save for retirement as a small business owner. There are a plethora of options, and the process can feel overwhelming as you search for the right retirement solutions for you and your employees.
There are many different benefit plans that a qualified advisor can discuss with you, including:
- A 401(k)
- A Personal Defined Benefit Plan
- A Cash Balance Defined Benefit Plan
- A SEP IRA
- A SIMPLE IRA
All plans offer different benefits depending on your company’s benefit budget, how close you are to retirement, and how many people you employ.
One interesting option to consider is a small business defined benefit plan. You could be the CEO of a 100-strong tech startup or your employee list could begin and end with you, but in certain situations, this approach may be just what you’re looking for.
Getting to know the modern small business defined benefit plan
Defined benefit plans, commonly known as pension plans, have lost popularity in recent years. For some companies, especially larger corporations, the risk is too much to bear and the benefits do not outweigh the potential cost. However, if you are a small business owner, it might be time to rethink that perception.
Smart moves for small businesses
A defined benefit plan for small business owners can provide you and your employees with a strong, secure way to start accruing savings – fast. Depending on your age and the structure of your plan, defined benefit plans can help you and your key employees save between $200,000 and $300,000 annually. Not only does this allow you to put away more money for retirement, it also allows you to reduce your personal tax liability.
Like all plans, small business defined benefit plans do have their drawbacks – these plans require the assistance of an actuary and an annual funding liability. Additionally, you need to commit to the plan. It must be viable for at least three to five years.
As with any high reward situation, there is some risk that comes with it. For example, even if your company underperforms, you are required to fund the plan. However, newer forms of defined benefit plans allows for greater flexibility of funding and coverage than the traditional defined benefit plans.
While not appropriate for everyone, a defined benefit plan is an excellent choice for many small business owners, particularly professional firms and small businesses with key employees who are already maximizing contributions to their 401(k) or profit sharing plan. If you are interested in learning how to set up a defined benefit plan, we can help you. Our Retirement Services team was recently ranked as a Top 100 Adviser by Plan Adviser Magazine and has more than 80 years of combined experience. We’re confident we can help you find the perfect retirement plan to fit your needs.
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