Editorial: Jump-starting retirement plans for small businesses

We have many small businesses in our area. If you are among the nation's more than 31 million small business owners1, you likely spend much of your time juggling day-to-day activities of your business. While handling the here-and-now, it can be easy to put off planning for the future. If retirement planning has fallen on your backburner, it's time to bring it to your forefront. As a small business owner, you deal with a different world of retirement plans than somebody who is employed in a more conventional manner – making it all the more important to closely explore your options when deciding what's right for you. Now is a good time to explore options, as there are various deadlines approaching. Plan options to consider Self-employed individuals or business owners should be sure to fund IRAs as much as possible. The annual limit for 2021 is $6,000 ($7,000 for those age 50 and up). Funding IRAs is only a starting point. Here are a few other options for business owners to consider: Solo 401(k)s This offshoot of the traditional 401(k) plan can be established if you – or you and your spouse – are the only employees of your business. It offers the ability to direct the largest potential contribution annually. As much as $58,000 can be set aside in 2021 ($62,500 for those age 50 and older). This comes from a combination of employer and employee contributions. There are initial costs and efforts needed to start and maintain the plan, as it requires a plan administrator. Earnings grow on a tax-deferred basis and contributions made by an incorporated business can be deducted from business expenses. For non-incorporated businesses, the owner can deduct contributions from their personal income. For those with employees, a full 401(k) plan can be established, though different rules will apply. SEP IRAs This is similar in structure to Solo 401(k)s with two main exceptions: Costs are minimal, as it does not require the support of a plan administrator and it can cover employees. In this plan, all contributions are made by the employer, equal to no more than 25 percent of compensation or a maximum of $58,000 in 2021. The employer can determine what percentage of compensation to set aside each year, but it must be consistent for all employees, including the owner. SIMPLE Plans These plans allow businesses with fewer than 100 employees to establish either a SIMPLE IRA or SIMPLE 401k for each employee. Employees can make salary deferral contributions of up to $13,500 ($16,500 for those 50 and older) in 2021. Employers are obligated to provide a matching contribution in SIMPLE 401(k)s of 3 percent of compensation for employees who elected to defer or 2 percent for employees who did not elect to make contributions. Your business as a retirement asset Of course, monetizing the value of your business may be another way you fund your retirement. If your business can continue to operate successfully without you, then it should have value when it comes time to retire. Ideally, planning for any kind of business transition should start years before a sale occurs. Selling your business to a current employee may be one option to consider, or you may want to look for potential outside buyers. As a business owner, you have unique challenges – and opportunities – when it comes to planning for a successful retirement. Talk to a financial advisor about how to put a strategy in place to assure your long-term financial security. 1 U.S. Small Business Administration, "2020 Small Business Profile." Glenn Kenes, CRPC, AIF, is a private wealth advisor and managing director of Barber Kenes Retirement Solutions, a private wealth advisory practice of Ameriprise Financial Services, Inc. in Auburn. He specializes in financial planning and asset management strategies and has been in practice for 24 years. Contact him at: BKRetirementSolutions.com or 530-823-0710, 470 Nevada Street, Ste. 200, Auburn, CA 95603.