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Easy Pension Options for Small Business Owners
If you start researching small business pension options, the alternatives quickly overwhelm.
Banks, financial planners, insurance agents and many others clamor for your attention and offer up what they tout
as the obvious best option.
Fortunately, and perhaps surprisingly, you can create easy pension options for your small business. These easy
options are usually available regardless of whether you operate as a sole proprietorship, partnership, limited
liability company or corporation. And for many small business owners, the easy options also often represent the
best value.
Easy Option #1: A Traditional Individual Retirement Account
To start, don't overlook the traditional individual retirement account. No matter what your income, as long as
neither you nor your spouse are covered by some other qualified retirement plan, you can setup and deduct
contributions to a traditional individual retirement account. Typically, neither the business nor the individual
pay fees or pay only modest fees to have an IRA in place.
Regular annual contributions to a traditional IRA grow large over time. A $5,000 annual contribution (the standard
amount allowed in 2008) made over 35 years grows to more than $550,000 after adjusting for inflation. (I'm assuming
you earn an after-inflation 6% rate of return in this scenario and the others that follow.)
That $550,000 IRA balance is actually a pretty good ending account balance--enough for many business owners'
retirements if they've also paid off a mortgage and qualified for social security. And remember that married
couples can often double the ending value amount by doubling the annual contributions.
In summary, then, a traditional IRA shouldn't be overlooked--especially if you and any employees want to save only
a few thousand dollars a year.
Easy Option #2: A Simple-IRA
If you or employees want to save more money than is possible with a traditional IRA, you can often for free or
almost free set up a Simple-IRA plan for the business.
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