June 01st - 4 minutes to read

Your Guide to Retirement Planning for Small Business Owners

Get insights on five frequently used retirement plans for business owners!

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When you’re in the throes of the day-to-day as an entrepreneur, retirement can feel very far away. But, as a small business owner, you and you alone are responsible for your retirement planning. Luckily, there are many options ranging from plans for self-employed individuals to those with employees to think about. To help you determine what’s right for you, Royal Oak Financial Group professionals have compiled the basics of retirement planning for small business owners.

5 Small Business Retirement Plan Options

Whether you’re a sole proprietor, part of a Limited Liability Corporation (LLC), corporation, or partnership, there are plans to help you reach your retirement savings goals. Preparing a well-thought-out retirement plan can alleviate stress, give you financial security, and even open you up to tax advantages. The following four options are the most common retirement savings plans for small business owners.

1. Self-Employed 401(k)

If you don’t have any employees other than yourself and your spouse, you can utilize a self-employed or solo 401(k) to fund your retirement savings. These plans rely on elective deferrals that come out of your pretax income. If you’re catching up on your retirement planning, you’ll be happy to know that these plans allow you to put away more savings than most. You can contribute up to 25% of your compensation, with a maximum contribution of $61,000 for 2022. The IRS changes contribution amounts yearly, so be sure to check their website for the latest numbers.

2. Traditional or Roth IRA

Individual retirement account (IRA) options are great for those that don’t need to offer retirement benefits to employees. Roth IRAs are funded with after-tax dollars, which means your distributions in retirement will be tax-free. On the other hand, traditional IRAs are funded with pretax money, so you’ll pay taxes on them when you begin making withdrawals. In 2022, the maximum contribution is $6,000 ($7,000 if you’re over 50).


But what if you have employees and want to stay competitive about attracting talent? You will likely want to offer an employer plan. Businesses with fewer employees may benefit from a simplified employee pension (SEP). These plans allow both owners and employees to make pretax contributions. This is often a great option for small employers, as it offers a fair amount of flexibility. As an employer, you can make tax-deductible contributions for eligible employees, but you can change what you’d like to contribute to your employees each year. As a result, you aren’t locked into a higher contribution rate if you fall on tough times.

On the employee side, employer contributions are tax-deferred, so they won’t pay taxes until they take distributions. Employee contribution limits work out to 25% of the employee’s compensation, with a limit of $61,000 per year in 2022.


Another option for those with fewer employees is a SIMPLE IRA plan. Unlike the SEP IRA, matching contributions are mandatory. These options are available for businesses as small as sole proprietors up to 100 employees. Like the options we’ve covered above, most contributions are tax-deferred, and investment growth is tax-free, although distributions during retirement will be taxed as standard income.

5. Traditional 401(k)

Last but not least, traditional 401(k) plans offer income tax benefits for your employees and your business. Plan participants can make salary deferrals up to $20,500 in 2022 (with additional catch-up contribution limits for those 50 and older). As an employer, this type of plan may allow you to take advantage of initial tax credits. The downside here is that there is generally more administrative work to be done.

Choosing between these retirement plans for small businesses requires you to look at the big picture of your organization. Working with a professional tax advisor or financial planner can help!

If you are ready to find a retirement plan for your Lancaster, OH business, consider contacting Royal Oak Financial Group. Our tax professionals and financial advisors have the expertise to help you align your business considerations, retirement goals, and financial situation to find a retirement plan that fits your needs. Get in touch with us today to get started!