Many small business owners are unaware that there are qualified retirement plans tailor-made for one-person enterprises, professional practices, and entrepreneurs with new start-ups. Here are a few of the best tax-deferred retirement savings plans for sole proprietors and professional practice groups.
Cash Balance Pension Plans
Cash balance pension plans are a tax-deferred savings vehicle for business owners who want to heavily fund their retirement plans during peak earning years.
Pros include:
The annual contribution limit isn’t fixed.- Contribution limits are generous and increase with age.
- People 60+ can contribute $250,000 annually, whereas 401(k)s limit contributions for those 50+ to $57,500.
- Participants choose their payout method – they can elect to receive the money as a lump sum or as a monthly payment after retirement.
The beauty of a cash balance pension plan is its capacity to fund retirement over a short period of time. For example, if a solo business owner establishes a cash balance pension plan at 57 and contributes the maximum allowable contribution until they’re 67, they’ve made at least $1.5 million in tax-deferred contributions in just 10 years.
Solo 401k Plans
Solo 401(k) plans – sometimes known as one-participant 401(k) plans – are traditional 401(k) plans with a twist: they only cover a business owner with no employees or that business owner and their spouse.
The business owner isn’t required to incorporate the business to establish a plan; IRS regulations permit the owner-employee to make a tax-deductible salary contribution as an employee and a deductible profit-sharing contribution as owner.
In addition to providing an enormous tax-break (due to the “double dipping”), solo 401(k) plans are easy to set up and manage.
So if you don’t work for a big company or you run your own business, don’t despair – there are options out there that will allow you to retire someday.
Please contact us for more information about retirement savings or other money-related matters.
