Retirement Savings Strategies for Clients with Small Businesses

Retirement Savings Strategies for Clients with Small Businesses

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Given all of these retirement plan options, it’s important to understand the key benefits and drawbacks of each. The chart below illustrates the features or requirements present with each plan. 

Feature

SEP IRA

SIMPLE IRA

Individual 401(k)

Safe Harbor 401(k)

Low cost

X

X

 

 

Annual IRS filing

 

 

X*

X

Employer contributions

X

X**

X

X**

Employee contributions

 

X

X

X

Loan feature

 

 

X

X

Roth feature

 

 

X

X

*Form 5500 required when assets reach $250,000. 
**Mandatory contributions.

To determine which plan is right for your clients, start by asking key questions, such as, “Are you trying to maximize your own retirement savings?” or “Are you willing to make contributions for the employees?” You can determine the best fit once you assess your client’s greatest priorities. For example: 

  • If a business owner with no employees wants to maximize his or her retirement savings, an individual 401(k) would most likely be the best choice because it generally provides the highest contribution limit for a self-employed individual.
  • If low cost and minimal maintenance are priorities, a SEP or SIMPLE IRA may be the best fit.
  • If a business owner with employees wants to provide incentive for employees to stay with the company, an employer-funded SEP IRA may be appropriate.

By understanding each client’s priorities, along with the features of each plan type, you’ll be well positioned to help your clients make the best choice for themselves, their business, and their employees.

Has working with small business clients led to other opportunities for your firm? What questions do your clients have about their retirement plan options? Please share your thoughts with us below!

 Commonwealth Financial Network is the nation’s largest privately held independent broker/dealer-RIA. This post originally appeared on Commonwealth Independent Advisor, the firm’s corporate blog.

Copyright © Commonwealth Financial Network

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