Self-Directed Retirement Plans for Small Business Owners

SIMPLE and SEP IRAs are retirement plans designed for small business owners as well as self-employed individuals. These popular plans allow today’s business owners to offer easy, tax friendly savings options for their employees. Self-directing either plan allows account owners to make their own investment choices to build retirement wealth. Self-directed retirement plans give you great flexibility and complete control over your retirement plan, which you’ll learn more about towards the end of this article.

It’s challenging for individuals who work for small businesses to save for retirement.  

One reason is the lack of pension and/or employer-sponsored savings plans. Because these options can be somewhat expensive, especially for small employers, many have opted not to utilize them at all. However, SEP and SIMPLE IRAs are two clever retirement plan options for small business owners and sole proprietors that can help them achieve many goals.

Powerful Advantages of SEP and SIMPLE IRAs

Both SEP and SIMPLE retirement plans have some of the same advantages, such as larger contribution limits for the business owner and possibly offering cost-effective avenues that help employers attract and retain valuable workers who desire retirement savings plans. But, there are differences in the benefits both plans offer, which are important to understand when choosing which account to use.

Another advantage of these plans is that they can be self-directed. Self-directed retirement plans allow diverse alternative investment opportunities to grow savings faster than one might with typical plans. Self-direction provides account owners a great deal of control over reaching their retirement goals by using alternative assets, such as real estate, to build wealth.

Advanta IRA understands the challenges small business owners face when choosing retirement plans. Below we provide a comparison of SEP and SIMPLE plans to help you decide which plan is right for you.

Savings Incentive Match Plan for Employees (SIMPLE IRAs)

SIMPLE IRAs are beneficial for small business owners with fewer than 100 employees who want to offer their employees an easy way to contribute to a retirement plan. These plans are cost-effective for employers in that the start-up administrative costs are minimal compared to some other plans. To participate, an employee must have earned $5,000 in wages in two previous years of work and expect to earn at least $5,000 for the upcoming year.

Employers who offer these plans enjoy the benefits of reducing business taxes and the flexibility of how much they contribute to their employees’ plans.

Basics of SIMPLE IRAs:

  • Contributions include both employee salary reduction contributions, as well as employer matching contributions or non-elective contributions.
  • Employees can contribute up to $12,500 annually with an additional catch-up contribution of $3,000 for those aged 50 and older.
  • Employers can match employees’ contributions dollar-for-dollar up to 3% of the employees’ deferral contributions, or they can make non-elective contributions of up to 2% of an employee’s compensation.
  • Contributions grow tax-free, and taxes are paid on distribution at retirement based on the applicable tax rate at that time.

There is a deadline for opening a SIMPLE IRA. This plan must be established between January 1 and October 1 in the year you want contributions to count on your tax return. So, you have until October 1, 2017 to establish an account for this tax-reporting year.

Simplified Employee Pension Plans (SEP IRAs)

SEP IRAs are great retirement savings plans for self-employed individuals and partners or owners of corporations. This plan is affordable and available to any employer to allow employees to make contributions to traditional IRAs held at institutions of their choice.

Basics of SEP IRAs:

  • SEP IRAs have lower start-up fees and operating costs than 401(k)s and other profit sharing savings plans.
  • All employees must receive the same benefits.
  • Distributions are taxed upon withdrawals which can be taken after the participant reaches the age of 59 ½.
  • This plan allows employers to make a tax-deductible contribution of up to 25 percent of each employee’s compensation.
  • Such high contribution limits allow plan owners ample capital to invest.
  • Employers are not locked into making annual contributions.
  • The annual contribution limit is $54,000, not to exceed 25 percent of an employee’s compensation.

There are special rules regarding contributions for self-employed individuals who are also considered employees relevant to SEP IRAs. Contact a financial professional for more information on complying with IRA regulations regarding contributions and other details.

Also, you have until April 15 to establish this account to count towards your tax-reporting year. So, you can open an account before April 15, 2018 for contributions to apply to your 2017 income tax return.

Self-Direct Your IRA to Gain Access to Alternative Investments

Self-directed retirement plans are perfect for individuals who want control of their investing funds and decisions, offering a hands-on approach to building wealth. Many small business owners and self-employed individuals are looking beyond traditional stocks, bonds, and mutual funds for investment opportunities and a self-directed SEP or SIMPLE IRA can open the door to diverse, alternative options while providing a higher contribution limit, as well. Choosing to invest in assets you know and understand can provide a level of comfort and possibly increase your chances for building wealth at a faster rate than traditional options allow.

Some popular examples of alternative assets:

These are only a few of the almost unlimited alternative assets available for self-directing. This offers you the flexibility to choose what’s right for you while maintaining control of your savings plan.

If you are thinking of choosing a savings plan for your business, Advanta IRA can assist you and make it easy to use these accounts. While we offer no advice on investments, we do offer our clients the ability to choose their own investments to grow tax-sheltered income for retirement. We can also explain these plans to help you determine which may be best for your needs.

Interested in learning more? Contact Advanta IRA for a free consultation today. 

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.