Setting up a retirement plan might feel overwhelming, but it’s one of the smartest financial decisions you can make as a business owner. Not only does it help secure your future, but it also provides major tax savings. Plus, having a retirement plan is a great way to attract and retain top talent. So why do so many small business owners put it off?
It usually boils down to:
- Not knowing which retirement plan is best.
- Feeling bogged down by paperwork or regulations.
- Missing out on the big tax benefits because they think it’s only for larger companies.
The truth? Setting up a retirement plan doesn’t have to be complicated. Here’s how to make it work for you, your employees, and your bottom line.
Step 1: Pick the Right Retirement Plan for Your Business
Choosing the right plan is critical—it can make or break how much you (and your business) benefit. Whether you’re a solo operator or managing a growing team, there’s a retirement plan that fits. A few popular options include:
- SIMPLE IRA: A straightforward option for businesses with fewer employees.
- SEP IRA: Flexible for fluctuating revenues—perfect for solo owners or smaller businesses.
- 401(k): Offers higher contribution limits and flexibility but comes with additional setup and management considerations.
Take the time to assess your business’s financial situation, your growth goals, and what benefits would matter most to your employees. The right plan can make a huge difference in maximizing both retirement savings and tax advantages. Not to mention, attracting top talent.
If you’re a law firm owner, here are 4 additional tax saving strategies for your practice.
Step 2: Set It Up the Right Way
Once you’ve chosen your plan, setting it up correctly is key. Skimping on this step can lead to compliance headaches and missed opportunities for tax savings. Consider working with a plan administrator or a financial advisor to ensure everything is handled properly. We have great relationships with these professionals and would be glad to connect you.
Taking the time now to get the setup right will save you stress later and help you maximize your retirement plan’s benefits. You’ll also avoid potential pitfalls, like failing to meet contribution deadlines or navigating IRS regulations.
Step 3: Maximize Contributions to Save on Taxes
Here’s where the tax benefits kick in. By contributing the maximum allowed amount to your retirement plan, you can significantly lower your taxable income. For example:
- With a 401(k), you can contribute up to $22,500 annually (or $30,000 if you’re over 50).
- Employer contributions (yes, that’s you!) are also tax-deductible.
- Even if you’re opting for a lower-cost plan like a SIMPLE IRA, consistent contributions can still save you thousands in taxes every year.
Pro Tip: If your business has a particularly strong revenue year, you may want to maximize your contributions to make the most of those tax savings. And don’t forget to review your plan annually to ensure you’re staying on track.
Why It’s Worth It
Setting up a retirement plan isn’t just about saving for the future—it’s about giving your business a competitive edge. You’ll attract great employees, reduce your tax liability, and ensure financial stability for years to come.
At first, the process may feel like a lot to manage, but it’s worth every bit of effort. And you’re not in it alone. If you’re ready to take the next step or need help figuring out where to start, we’re here to guide you.
Take Action Today!
Ready to secure your future and save on taxes? Schedule a free consultation with our team to start having strategic conversations that will help you grow your business.
Joy Lutz, CPA, CTP
I help our client’s keep more money in their pockets by implementing proactive tax strategies.
I promise you, working with a CPA and Certified Tax Planner can be much more exciting than crunching numbers and reviewing last year’s taxes.