Things to Consider When Choosing a Small Business Retirement Plan

29 Sep, 2016 / Comments: Comments Off on Things to Consider When Choosing a Small Business Retirement Plan / By

When it comes to securing your finances as a small business owner, a retirement plan may not be the first thought in mind. However, having the correct strategy for retirement can save you a lot of time and money, helping you achieve the right plan that fits in with your future, whatever it may be. Due to each small business being unique and different from the next, there are several factors that come into play when determining the perfect plan. Positives and negatives are present within each plan, but with varying features, you should understand why retirement is important and how it can work best for you. Here are 5 things to consider as a small business owner when deciding on options for retirement.


The Options

As a small business, there are more options than the standard 401(k). These plans are able to serve well for a corporation or a single business owners self-employed plan that is far more fitting for most smaller companies. As well as 401(k) plans, there are also varying types of IRA (Individual Retirement Account) plans such as SEP (Simplified Employee Pension) IRA and the self-directed IRA. Depending on what your small business centers around and what pros you’re looking for, one of these small business retirement options are dependable choices.


Number of Employees

The differing restrictions will vary from plan to plan, but a basic rule of thumb is that if your small business has under one hundred full-time employees that do not include yourself or your legal spouse, the self-directed IRA will be the option to select. If you have over 100 employees, look into the Simplified Employee Pension IRA plans. However, if just you or just you and your spouse run a proprietorship or a LLC, without the variable of having any paid full time employees, self-employed 401(k) plans are available and could be a better option due to investment opportunities and tax advantages.


Future Investing

Unlike standard corporate 401(k) plans that fully limit investing your money, a small business allows for investing in future assets such real estate, stock, and more with a retirement plan that allows self-directed investment choices. There are several plans available for small business owners for self-directed portfolio construction and the money you invest is still within your full control. Growing your retirement is almost equally important as establishing the continuous saving. It is important to view the entirety of the contract when signing the dotted line of your retirement plan, as some plans specifically state in fine print the investment choices available and unavailable.


Loan Opportunity

Tax benefits are one of the top pros to establishing a retirement plan, but some plans even offer the ability to receive a low interest loan to up to $50,000. Depending on the plan you decide on, loans are available to certain self-employed 401(k) plans and rarely are offered for IRA retirement options. Though the limit is usually set at $50,000, borrowing details as well as the total amount available through the loan can also be dependable to the specifics of the plan. Make sure and read through the details before agreeing to borrow.



One of the most commonly asked questions when planning for retirement is, “will I be able to control my money?” Simply put, some plans have the option for checkbook control, or the ability to control where your money is held, what it is invested in and lastly the option to take it out when you wish. Control is another variable determined in the fine print that you should definitely consider, especially when it outlines the boundaries and features of your retirement plan.

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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