4 ways entrepreneurs can save for retirement

According to the U.S. Department of Labor, you will probably have to pay more of your own retirement expenses than earlier generations. Saving money for retirement isn’t easy, especially for entrepreneurs, who often pour much of their free time and money into their business. Small business owners also tend to retire slightly later than traditional workers.

That doesn’t mean, however, that entrepreneurs should delay saving. If you’re running your own company — or are about to launch one — you can take advantage of four helpful retirement savings plans designed for you, listed below. (As you plan, consider consulting a tax professional to ensure you understand all the nuances of each option and set your plan up correctly.)

1. Self-employed 401(k)s: You must be a sole proprietor or partnership to qualify for this type of plan, sometimes called the one-participant 401(k). This option lets a business owner contribute more pre-tax income than other plan types. According to the IRS, self-employed 401(k)s:
   • Generally have the same rules and requirements as other 401(k) plans
   • Cover a business owner with no employees, and who satisfies the plan’s eligibility requirements
   • Allow elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit which was $19,000 in 2019, or $25,000 in 2019 if age 50 or over
2. SIMPLE IRAs: Available to businesses that generally have 100 or fewer employees (and no other retirement plan), according to the IRS, SIMPLE IRAs require employers to either:
   • Match the employee’s annual contribution up to 3 percent of their compensation; or
   • Make a 2 percent “non-elective contribution” for each eligible employee, which means that even if an eligible employee doesn’t contribute to their SIMPLE IRA, as the employer, you must still contribute 2 percent of their compensation
3. SEP IRAs: Simplified employee pension plans — otherwise known as SEP IRAs — let employers set aside retirement funds for themselves and employees, according to the IRS, without a conventional retirement plan’s start-up and operating costs. Employers can contribute up to 25 percent of each employee’s pay (up to a maximum of $56,000 in 2019). The flexibility of this option can allow an employer to contribute larger sums during a profitable year and smaller amounts during less profitable years (just remember that you must contribute equally for all eligible employees).
4. Profit-sharing plans: Profit-sharing and defined-benefit pension plans are essentially the self-employed equivalent of corporate retirement programs. Defined-benefit pension plans — which, according to the IRS, provide a fixed benefit for employees when they retire — are often more complicated and expensive to set up than other plans. For business owners’ purposes, a profit-sharing plan — which lets you save 25 percent of compensation (up to $56,000 in 2019), and also counts as a business tax deduction — may be a better option. Contributions don’t have to be a fixed amount, but employers have to provide a defined formula for allocating the contributions and distributing funds to plan participants after they reach a certain age, a set number of years have passed, or other factors have occurred.

For some Americans, entrepreneurship actually is a retirement plan: 11 percent of current wage and salary workers age 45 to 74 say they intend to start a new business when they retire, according to an AARP study.

However, if you plan to fully retire from running your business at age 72 — or after — the above options can help you start saving today.