Business owners are terrible at paying themselves first. I say this with love, because I used to be one of them. You reinvest everything into the business because you believe in it. You’ll take care of retirement “someday.” And then someday is fifteen years away and you’re staring down the barrel of a retirement account that has $12,000 in it.
Let’s fix that.
A nest egg isn’t optional. The business is not your retirement plan. Let me say that again for the people in the back: the business is not your retirement plan. Businesses fail. Industries change. The buyer you were counting on doesn’t materialize. You need money that lives outside the business you own.
Here are the retirement vehicles small business owners should know about:
- SEP IRA
- Simple to set up, low administrative burden.
- For 2025, you can contribute up to 25% of compensation, capped at $70,000 (check current limits at IRS.gov).
- Works well for self-employed people and small businesses with few or no employees.
- Solo 401(k)
- For business owners with no employees (other than a spouse).
- Higher contribution potential because you contribute as both employee and employer.
- Can include a Roth option, which is valuable for tax diversification.
- SIMPLE IRA
- Works for businesses with up to 100 employees.
- Lower contribution limits than 401(k), but easier administration.
- Traditional 401(k)
- More complex, more expensive to administer.
- Best when you have employees and want to offer a real retirement benefit.
- Defined Benefit Plan
- For high earners who want to sock away large amounts.
- Complex and expensive, but powerful for the right situation.
Outside of retirement accounts, build a personal emergency fund. Three to six months of personal expenses, held in something liquid. This is different from your business cash reserve. This is the money that keeps your lights on if the business has a bad quarter.
A few additional thoughts:
- Pay yourself before you pay the business back.
- I know the instinct is to plow money back in. But if you never pay yourself, you’ll never build wealth.
- Automate your contributions.
- Set it up and forget it. AI-driven financial planning tools can now optimize your contributions across multiple accounts based on tax strategy, which used to require a financial advisor’s undivided attention.
- Diversify outside the business.
- If 100% of your net worth is in the business, you’re not an owner, you’re a hostage.
You work hard. You deserve to retire with dignity. Start today. Even small amounts compound. The best time to plant a tree was twenty years ago. The second best time is today.
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