Retirement Strategies for Small Business Owners

Retirement Strategies for Small Business OwnersPlanning for retirement can be a relatively overwhelming and stressful undertaking. It helps, however, to get a head start on your strategy so you’re not scrambling when you should be relaxing. Traditional retirement plans, like the ones employees of big corporations can take advantage of, aren’t available for small business owners—and that’s precisely the reason why more research on the part of the business owner needs to happen. You’ve got to save for retirement entirely on your own, without the guidance one might get when working for a corporation. Here, we’ll discuss the different types of retirement plans available to small business owners and which might be best for your situation.

For small business owners, there are 5 self-employed retirement plans you can consider investing your money into: Traditional or Roth IRA; Solo 401(k); SEP IRA; SIMPLE IRA; Defined-Benefit Plan. Let’s dive into what each one means!

Traditional or Roth IRA

There are two main differences in these two types of IRAs: with a traditional IRA, your contributions are tax-deductible but once you retire, withdrawals from the account are taxed. It’s the opposite with a Roth IRA, where contributions are not tax-deductible but post-retirement withdrawals are. You’d choose one of these plans based on whether or not you believe your tax rate will be higher or lower when it comes time to stop working. An IRA is generally the easiest option to start saving for retirement, and it’s also great if you have an employer-backed 401(k)—you can roll those 401(k) funds into an IRA.

Solo 401(k)

Also referred to as an individual 401(k) and self-employed 401(k), the solo 401(k) is great for small business owners with no employees other than their spouses. Any contributions into this account are not taxed, with deductions after retirement being taxed. It’s a great option because you can contribute to this account as both an employer and employee, which means more savings in the long run.


Simplified Employee Pension plans, or SEP IRAs, are best suited for business owners who have just a few employees (or none at all). It’s fairly similar to a traditional IRA, however you as the business owner can make bigger contributions to it—up to 25 percent of each employees’ salary. Employees cannot contribute to SEP IRAs, and there is no filing requirement for employers.


If you are a larger business owner, this option—which stands for Savings Incentive Match Plan for Employees—will be your best bet. It’s for business owners with up to 100 employees, and it lets you and your employees contribute to the account. There are also no start-up or operating costs associated with the SIMPLE IRA. Any contributions you make to your employees’ accounts are also tax-deductible. 

Defined-Benefit Plan

According to Investopedia, this plan is “an employer-sponsored retirement plan where employee benefits are computed using a formula that considers several factors, such as length of employment and salary history.” Pensions, for example, fall into this category. Defined-benefit plans are called so because the formula for calculating benefits payouts is known ahead of time and is not reliant on investment strategies like other retirement plans. Benefits can be doled out in monthly payments or as one large sum and cannot be withdrawn like they can with a traditional 401(k).

Retirement planning doesn’t have to be a headache. With the right strategies in place, you can rest assured that you’ll be able to comfortably close this chapter of your life. In the meantime, keep an eye out for new and noteworthy content here on The Financial Pantry—ARF Financial’s blog covering all things small business.