As a small business owner, your success depends on offering a strong value proposition for your customers and employees.

Employer-sponsored retirement plans contribute to a positive company culture, which helps you attract and retain top talent. And the numbers back this up — 68% of workers say pension or retirement plans are a critical factor in staying with a job. 87% of Millennials want to learn more about financial planning, but a study from UC Berkeley found that over half of private-sector employees have zero retirement savings.

As an entrepreneur, it’s crucial to invest in growth. Establishing retirement strategies for your staff is a proven way to boost employee productivity and well-being. But with so many options available, knowing what kind of retirement plan is best for your team can be challenging. 

One helpful tool often overlooked is the Individual Retirement Account (IRA) which can provide small business owners with valuable tax advantages and flexibility.

Evaluating your options, making the best choice, and administering these retirement accounts can seem overwhelming. Working with an experienced and knowledgeable financial advisor can help you navigate these complexities and find your way to a thriving business. 

Let’s dive deeper into demystifying IRAs and what you should know about offering your valuable employees this coveted benefit.

Saving Taxes Today, Investing for Tomorrow

Traditional IRAs are popular for sole proprietors seeking immediate tax benefits. Contributions to a traditional IRA are generally tax-deductible, which means you can reduce your taxable income in the year you contribute. This reduces your tax liability, allowing you to retain more money to invest in your business or save for other financial goals.

Roth IRAs, on the other hand, allow you to make after-tax contributions. This means you won’t get a tax deduction for your contributions, but your money will grow tax-free. When you withdraw money from your Roth IRA in retirement, you won’t have to pay taxes on the money you withdraw.

If you anticipate being in a higher tax bracket during retirement or wish to enjoy tax-free withdrawals, consider converting your traditional IRA to a Roth IRA. Roth IRA contributions are not tax-deductible, but qualified withdrawals are entirely tax-free. 

While converting to a Roth IRA triggers a tax liability in the year of conversion, it can be a smart long-term strategy for small business owners with a longer time horizon. Roth IRAs can also be used to invest in real estate or buy a home.

A SIMPLE IRA plan (Savings Incentive Match Plan for Employees) allows both employees and employers to contribute to traditional IRAs set up as a retirement savings plan. This is an easy and inexpensive way to manage your contributions to your staff. 

As a result of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted on Dec. 20, 2019, small employers receive a tax credit to offset the costs of starting a 401(k) plan or SIMPLE IRA with auto-enrollment. Employers can match employee contributions equally at a rate of 1% to 3% of their employees’ salaries.

One of the benefits of a SIMPLE IRA is that it is easy to set up and maintain. You can open a SIMPLE IRA at most financial institutions, and you won’t have to file any annual reports with the IRS.

SEP IRAs (Simplified Employee Pension) plans are ideal for business owners who want to help their employees save for retirement while maximizing tax advantages. These plans allow you to contribute a percentage of your net self-employment income that’s higher than a traditional IRA, although they are treated the same for tax purposes. 

Contributions made to SEP IRAs are made by the employer or owner and encourage your retirement savings to grow while benefiting from tax-deductible contributions. You have control over the percentage you contribute to each employee’s SEP IRA, and this percentage can be adjusted annually based on your business’s performance and financial goals, making SEP IRAs flexible and adaptable to your changing circumstances.

Empowering Your Retirement Plan

As a solopreneur or small business owner, you recognize the importance of planning for the future and making wise financial decisions. But setting up and maintaining a vibrant retirement plan for your business isn’t everyone’s area of expertise. It’s best to consult with an expert advisor who can ensure you’re getting the biggest bang for your contributions.

IRAs are a fabulous tool for diversifying your retirement funding strategy. They offer more control and investment options and a world of possibilities. You can invest in a wide range of alternative assets beyond traditional stocks, bonds, and mutual funds.

Self-directed IRAs for sole proprietors can be used to invest in residential or commercial properties, providing a valuable opportunity to diversify your investment portfolio and potentially generate passive income.

If you’re passionate about supporting new ventures or have industry expertise, self-directed IRAs can be used to invest in private equity or startup companies. This allows you to align your retirement savings with your personal interests and potentially reap substantial rewards.

Partner with a Pro

Navigating the complexities of IRAs and retirement planning can be challenging for small business owners and the self-employed. Seeking guidance from a qualified financial advisor or tax professional can provide invaluable insights and ensure you make the most of your retirement savings and your business’s value proposition

I can help you understand the nuances of each IRA type, assess your eligibility, develop a tailored retirement strategy, and guide you through the contribution and distribution processes. 

Remember, it’s never too early to start planning for retirement, and the sooner you start, the more time your money will have to grow. Reach out today!