Get help from an expert in person or online.<\/h3>
Small business certified tax pros have your back.<\/p>
Understanding your small business retirement plan options<\/h2>\n\n\n\n![\"researching](\"https:\/\/www.blockadvisors.com\/resource-center\/wp-content\/uploads\/2016\/03\/Small-business-retirement-plans.jpg\")
<\/figure>\n<\/div>\n\n\nLike many tasks for a self-employed person, determining your strategy for saving for retirement falls squarely on your shoulders. Whether you\u2019re on your own or have employees, it\u2019s important to understand your options for small business retirement plans.<\/p>\n\n\n\n
The right plan can not only help you attract and retain employees, it can also offer you tax benefits. For example, self-employed tax deferred retirement plans such as SEP IRAs, SIMPLE IRAs and Solo 401(k)s let deduct your contributions from your current income, allowing you to lower your taxes for that year. <\/p>\n\n\n\n
Here are some small business retirement plans to consider:<\/p>\n\n\n\n
SEP IRA for self-employed persons<\/h3>\n\n\n\nWhat is it?<\/h3>\n\n\n\n
A Simplified Employee Pension Plan (SEP) allows self-employed individuals and small business owners save for retirement.<\/p>\n\n\n\n
While many people are familiar with 401(k)s that let both employers and employees contribute, SEP IRAs are different. With a SEP IRA only the employer makes contributions. In other words, employees can\u2019t make contributions for themselves. However, as the employer, you\u2019ll be able to take deductions for contributions you make on behalf of employees as well as contributions you make for yourself if you are self-employed (we\u2019ll cover that next).<\/p>\n\n\n\n
Who is the plan for?<\/h3>\n\n\n\n
A business of any size can have a SEP IRA \u2013 there\u2019s no limit to the number of employees you have. Many sole proprietors, partnerships, and corporations establish SEPs.<\/p>\n\n\n\n
SEP IRA tax benefits<\/h3>\n\n\n\n
SEP IRAs are flexible and easy to set up. You can decide which years you will contribute to a SEP IRA, which is a benefit from a tax perspective as you can use the contributions for yourself as a self-employed tax deduction<\/a> and your contributions for employees as a business tax deduction. There is an annual limit on contributions (see below).<\/p>\n\n\n\nWhat else you need to know\u2026<\/h3>\n\n\n\n
You have until the tax deadline<\/a> for your business return, including extensions, to set up and contribute to a SEP IRA. Additionally, employees can choose Roth treatment for their elections starting in 2023.<\/p>\n\n\n\nContributions should comply with the allocation formula adopted in the SEP plan document (Form 5305-SEP<\/a>).<\/p>\n\n\n\nWhen tax time comes, keep in mind that there\u2019s a difference between contributions you make to your personal plan as a self-employed person and contributions you make in your employees\u2019 accounts.<\/p>\n\n\n\n
\n- Your contributions to your own account should be reported on Schedule 1.<\/li>\n\n\n\n
- Your contributions to your employees\u2019 accounts should be reported on your business schedule or return. This is because your contributions to employee SEP-IRAs aren\u2019t included in your gross income.<\/li>\n<\/ul>\n\n\n\n
You can contribute as much as 25% of your net earnings to a SEP IRA \u2013 up to $66,000 for 2023\u2014whichever is less. The same limitations apply for what you can contribute to your employees\u2019 accounts based on their earnings. The amount of your contributions generally translates to the amount of deductions you\u2019ll be able to take during that tax year.<\/p>\n\n\n\n
SEP IRAs come with a few restrictions, including the need to execute a written agreement to provide benefits to eligible plan participants and the requirement to contribute equally across all employees. The good news is that with a SEP IRA, you\u2019re not required to contribute each year and there are no annual filing requirements<\/p>\n\n\n\n
SIMPLE Plans for self-employed (with employees)<\/h2>\n\n\n\nWhat is it?<\/h3>\n\n\n\n
Savings Incentive Match Plan for Employees, or SIMPLE IRAs are another self-employed retirement savings option. As of 2023, employees can elect Roth treatment for these contributions.<\/p>\n\n\n\n
Who is this plan for?<\/h3>\n\n\n\n
A SIMPLE IRA plan is for employers with 100 or fewer employees. It\u2019s an employer-sponsored retirement plan with a built-in employer matching incentive. So, you must either match employee contributions (up to 3% of their salary) or make employer contributions of 2% of your employees\u2019 salary.<\/p>\n\n\n\n
SIMPLE IRA tax benefits<\/h3>\n\n\n\n
Similar to other retirement plans, there are limits to contributions, albeit they\u2019re typically a bit lower than SEP-IRA limits. You can put up to $15,500 in 2023, plus an additional $3,500 if you’re 50 or older.<\/p>\n\n\n\n
What else you need to know\u2026<\/h3>\n\n\n\n
To establish a SIMPLE plan, you need to complete Form 5305 or 5304, or an IRS-approved \u201cprototype SIMPLE IRA plan\u201d offered by many mutual funds, banks, and other financial institutions, and by plan administration companies. You can generally set up the plan through October 1.<\/p>\n\n\n\n
Solo 401(k) for the self-employed person<\/h3>\n\n\n\nWhat is it?<\/h3>\n\n\n\n
A Solo 401(k), or one-participant 401(k) plan, allows you to invest just like a regular 401(k) plan, but you can set it up and contribute independently.<\/p>\n\n\n\n
Who is the plan for?<\/h3>\n\n\n\n
This plan is intended for one-participant\u2014a single-member business owner. There are no employee contributions (other than a spouse, if the spouses together own the entire business).<\/p>\n\n\n\n
There aren\u2019t any age or income restrictions for setting up a solo 401(k).<\/p>\n\n\n\n
Solo 401(k) tax benefits for self-employed<\/h3>\n\n\n\n
Your Solo 401(k) can be set up as traditional or Roth 401(k). The traditional plan is taxed upon withdrawal, while the Roth is taxed immediately.<\/p>\n\n\n\n
With a traditional plan, contributions are made pre-tax. If you are self-employed, the contributions reduce your self-employment tax. With a Roth, your contributions are made with after-tax dollars.<\/p>\n\n\n\n
With a traditional plan, your distributions are taxed as ordinary income. With a Roth 401(k), distributions are tax-free.<\/p>\n\n\n\n
With this type of retirement fund, high contribution limits allow you to add more than any other retirement plan for the self-employed. Additionally, if you have recently become self-employed, this plan is attractive because you can easily roll over previous 401(k)s to it.<\/p>\n\n\n\n
The employee deferral contribution can\u2019t exceed $22,500 in 2023, or $30,000 if age 50 or older. An additional employer\u2019s nonelective contribution (also called profit sharing contribution) is allowed at up to 20% of net earnings (after reducing the business income by \u00bd of the self-employment tax) up to $330,000 of earnings in 2023. Total annual contributions between the employee and employer portions cannot exceed the lower of 100% of earned income or $66,000, or $73,500 if age 50 or older in 2023.<\/p>\n\n\n\n
What else you need to know\u2026<\/h3>\n\n\n\n
When you are self-employed, the amounts that you contribute to a solo 401k (excluding the Roth contributions) can be counted as a deduction to that year\u2019s taxable income on Schedule 1.<\/p>\n\n\n\n
What about Traditional or Roth IRAs for self-employed persons?<\/h2>\n\n\n\n
IRAs offer another retirement plan investing option, but the contribution limits are much lower compared to the options above ($6,500 limit for 2023, $7,500 if you\u2019re over 50). Plus, if you or your spouse has access to a workplace retirement plan, there are income limits.<\/p>\n\n\n\n
More help with the tax advantages of self-employed retirement plans<\/h2>\n\n\n\n
Taxes are one of the most significant expenses you incur each year as a business owner, so it\u2019s worth your time to educate yourself to minimize the overall amount of taxes you pay.<\/p>\n\n\n\n
For hands-on small business tax guidance<\/a>, get help.<\/p>\n\n\n\n
<\/figure>\n<\/div>\n\n\nLike many tasks for a self-employed person, determining your strategy for saving for retirement falls squarely on your shoulders. Whether you\u2019re on your own or have employees, it\u2019s important to understand your options for small business retirement plans.<\/p>\n\n\n\n
The right plan can not only help you attract and retain employees, it can also offer you tax benefits. For example, self-employed tax deferred retirement plans such as SEP IRAs, SIMPLE IRAs and Solo 401(k)s let deduct your contributions from your current income, allowing you to lower your taxes for that year. <\/p>\n\n\n\n
Here are some small business retirement plans to consider:<\/p>\n\n\n\n
SEP IRA for self-employed persons<\/h3>\n\n\n\nWhat is it?<\/h3>\n\n\n\n
A Simplified Employee Pension Plan (SEP) allows self-employed individuals and small business owners save for retirement.<\/p>\n\n\n\n
While many people are familiar with 401(k)s that let both employers and employees contribute, SEP IRAs are different. With a SEP IRA only the employer makes contributions. In other words, employees can\u2019t make contributions for themselves. However, as the employer, you\u2019ll be able to take deductions for contributions you make on behalf of employees as well as contributions you make for yourself if you are self-employed (we\u2019ll cover that next).<\/p>\n\n\n\n
Who is the plan for?<\/h3>\n\n\n\n
A business of any size can have a SEP IRA \u2013 there\u2019s no limit to the number of employees you have. Many sole proprietors, partnerships, and corporations establish SEPs.<\/p>\n\n\n\n
SEP IRA tax benefits<\/h3>\n\n\n\n
SEP IRAs are flexible and easy to set up. You can decide which years you will contribute to a SEP IRA, which is a benefit from a tax perspective as you can use the contributions for yourself as a self-employed tax deduction<\/a> and your contributions for employees as a business tax deduction. There is an annual limit on contributions (see below).<\/p>\n\n\n\n You have until the tax deadline<\/a> for your business return, including extensions, to set up and contribute to a SEP IRA. Additionally, employees can choose Roth treatment for their elections starting in 2023.<\/p>\n\n\n\n Contributions should comply with the allocation formula adopted in the SEP plan document (Form 5305-SEP<\/a>).<\/p>\n\n\n\n When tax time comes, keep in mind that there\u2019s a difference between contributions you make to your personal plan as a self-employed person and contributions you make in your employees\u2019 accounts.<\/p>\n\n\n\n You can contribute as much as 25% of your net earnings to a SEP IRA \u2013 up to $66,000 for 2023\u2014whichever is less. The same limitations apply for what you can contribute to your employees\u2019 accounts based on their earnings. The amount of your contributions generally translates to the amount of deductions you\u2019ll be able to take during that tax year.<\/p>\n\n\n\n SEP IRAs come with a few restrictions, including the need to execute a written agreement to provide benefits to eligible plan participants and the requirement to contribute equally across all employees. The good news is that with a SEP IRA, you\u2019re not required to contribute each year and there are no annual filing requirements<\/p>\n\n\n\n Savings Incentive Match Plan for Employees, or SIMPLE IRAs are another self-employed retirement savings option. As of 2023, employees can elect Roth treatment for these contributions.<\/p>\n\n\n\n A SIMPLE IRA plan is for employers with 100 or fewer employees. It\u2019s an employer-sponsored retirement plan with a built-in employer matching incentive. So, you must either match employee contributions (up to 3% of their salary) or make employer contributions of 2% of your employees\u2019 salary.<\/p>\n\n\n\n Similar to other retirement plans, there are limits to contributions, albeit they\u2019re typically a bit lower than SEP-IRA limits. You can put up to $15,500 in 2023, plus an additional $3,500 if you’re 50 or older.<\/p>\n\n\n\n To establish a SIMPLE plan, you need to complete Form 5305 or 5304, or an IRS-approved \u201cprototype SIMPLE IRA plan\u201d offered by many mutual funds, banks, and other financial institutions, and by plan administration companies. You can generally set up the plan through October 1.<\/p>\n\n\n\n A Solo 401(k), or one-participant 401(k) plan, allows you to invest just like a regular 401(k) plan, but you can set it up and contribute independently.<\/p>\n\n\n\n This plan is intended for one-participant\u2014a single-member business owner. There are no employee contributions (other than a spouse, if the spouses together own the entire business).<\/p>\n\n\n\n There aren\u2019t any age or income restrictions for setting up a solo 401(k).<\/p>\n\n\n\n Your Solo 401(k) can be set up as traditional or Roth 401(k). The traditional plan is taxed upon withdrawal, while the Roth is taxed immediately.<\/p>\n\n\n\n With a traditional plan, contributions are made pre-tax. If you are self-employed, the contributions reduce your self-employment tax. With a Roth, your contributions are made with after-tax dollars.<\/p>\n\n\n\n With a traditional plan, your distributions are taxed as ordinary income. With a Roth 401(k), distributions are tax-free.<\/p>\n\n\n\n With this type of retirement fund, high contribution limits allow you to add more than any other retirement plan for the self-employed. Additionally, if you have recently become self-employed, this plan is attractive because you can easily roll over previous 401(k)s to it.<\/p>\n\n\n\n The employee deferral contribution can\u2019t exceed $22,500 in 2023, or $30,000 if age 50 or older. An additional employer\u2019s nonelective contribution (also called profit sharing contribution) is allowed at up to 20% of net earnings (after reducing the business income by \u00bd of the self-employment tax) up to $330,000 of earnings in 2023. Total annual contributions between the employee and employer portions cannot exceed the lower of 100% of earned income or $66,000, or $73,500 if age 50 or older in 2023.<\/p>\n\n\n\n When you are self-employed, the amounts that you contribute to a solo 401k (excluding the Roth contributions) can be counted as a deduction to that year\u2019s taxable income on Schedule 1.<\/p>\n\n\n\n IRAs offer another retirement plan investing option, but the contribution limits are much lower compared to the options above ($6,500 limit for 2023, $7,500 if you\u2019re over 50). Plus, if you or your spouse has access to a workplace retirement plan, there are income limits.<\/p>\n\n\n\n Taxes are one of the most significant expenses you incur each year as a business owner, so it\u2019s worth your time to educate yourself to minimize the overall amount of taxes you pay.<\/p>\n\n\n\n For hands-on small business tax guidance<\/a>, get help.<\/p>\n\n\n\nWhat else you need to know\u2026<\/h3>\n\n\n\n
\n
SIMPLE Plans for self-employed (with employees)<\/h2>\n\n\n\n
What is it?<\/h3>\n\n\n\n
Who is this plan for?<\/h3>\n\n\n\n
SIMPLE IRA tax benefits<\/h3>\n\n\n\n
What else you need to know\u2026<\/h3>\n\n\n\n
Solo 401(k) for the self-employed person<\/h3>\n\n\n\n
What is it?<\/h3>\n\n\n\n
Who is the plan for?<\/h3>\n\n\n\n
Solo 401(k) tax benefits for self-employed<\/h3>\n\n\n\n
What else you need to know\u2026<\/h3>\n\n\n\n
What about Traditional or Roth IRAs for self-employed persons?<\/h2>\n\n\n\n
More help with the tax advantages of self-employed retirement plans<\/h2>\n\n\n\n
![\"Block](\"https:\/\/www.blockadvisors.com\/resource-center\/wp-content\/uploads\/2023\/10\/block-advisors-endorsement-logo-1-4-1024x436.jpg\"){kind=logo}
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