For an owner, the retirement account is also a tax decision. The right one depends on your profit, your payroll and whether you have staff, and the wrong one quietly costs you for years.
Each one trades simplicity against how much you can put away, and each one treats employees differently.
For an owner with no employees other than a spouse. You contribute both as the employee and as the business, which is why it usually allows more than an IRA at the same income. Roth contributions are an option in many plans, so some of the money can grow for tax-free withdrawal later.
It asks for a little more paperwork than a SEP and it has to exist before the deadline that applies to your entity, which is why this is a conversation to have during the year, not in April.
The simplest plan to open and run. The business makes the contributions, and the percentage you use for yourself is generally the percentage you use for eligible employees, which is what makes it straightforward for a solo owner and expensive once you have a team.
Built for small teams. Employees can contribute from their pay and the business matches within set rules, so it costs less to run than a 401(k) while still giving staff something real. It suits a business with a handful of employees and modest amounts to set aside.
For strong, steady profit that the owner wants to shelter in large amounts. An actuary sets the funding each year and the business is expected to keep funding it in lean years too. Often paired with a 401(k). How a cash balance plan works.
Contribution limits, deadlines and deduction rules change every year and depend on your entity and payroll. We confirm the numbers for your situation with your CPA before anything is opened.
The account is the last decision, not the first one.
Profit, how you take pay, your entity and who is on payroll decide what is possible.
How much you can set aside, what it costs to run, and what it obliges you to do for your team.
Deadlines are set by your entity and filing dates, so the plan is timed into your year.
As income changes, the contribution and sometimes the plan itself should change with it.
Crucial Business & Life Solutions is not a law firm or investment advisory firm.
Answer some questions, upload your return and book your 30-minute assessment. We will show you what your current profit actually supports.
