Broker Check
The Retirement Plans for Sole Proprietorships and Small Business

The Retirement Plans for Sole Proprietorships and Small Business

January 03, 2021

Small businesses and sole proprietorships have access to a couple of great retirement plans.
If you have 1-2 employees (including yourself), then there are a few unique plans you should consider. 

SEP (Simplified Employee Pension)

SEP (Simplified Employee Pension) is a plan that was created to give business owners and employees an opportunity to fund a retirement plan for themselves. Why this is one of the best plans to consider for business owners is how much can be put away in this plan and it is a way to get a tax benefit as well.

 You can put quite a bit away into this plan (25% of earnings or up to $57,000 whichever is less in 2020) making it a great investment tool. Since it is also tax-deferred, whatever you put in there can be deducted.

 However, the catch is that whatever you contribute you NEED to contribute the same amount into another SEP for your employees. This is why it is optimal to use only when the team is small.

Uni(k) (solo 401(k))

Uni(k) (also known as a solo 401(k)) is an investment plan very similar to a SEP plan, but with several differences. It is a 401(k) plan designed so that only one person can participate in it.

 Like the SEP it allows for a deduction as well as to put some great savings aways towards your longer-term goals.

 You can again, but quite a bit of money away into this one, up to the 401(k) limit of $19,500 (in 2020) per year and a catch-up provision of $6,500 if you are above the age of 50.

 This plan is excellent in many ways, but there are also limitations. First, although it is just for one person you still need to do the 401(k) requirements for the regulations and other administrative challenges.

 Finally, you can only set one of these up if you are working by yourself or including a spouse. Otherwise, you cannot set one up,

Check out our videos to learn more!