Every May, small businesses are recognized and celebrated for their impact on the economy as part of National Small Business Month. To help honor your small businesses, we put together some helpful tips that we will be sharing over the coming weeks. Our first focus is on reducing taxable income through the implementation of retirement plans for which there are a few options.

Simplified Employee Pension (SEP) Contributions

An SEP Individual Retirement Account (IRA) may allow business owners to provide retirement benefits for themselves while doing the same thing for their employees. All contributions are deductible, even those made to owner accounts.

401(k) and Employer Sponsored Plans

Traditional 401(k): A retirement plan that allows you to invest part of your income, using pre-tax contributions. At retirement, the withdrawals will be taxed at the current income tax rate.

Roth 401(k): Like a Traditional 401(k) except contributions are made with after-tax dollars and are not deductible. The investments grow tax free, and the withdrawals will not be taxed when they are received by the investor.

401(k) Options: As a business owner, you can match employee contributions. The percentage match must be the same for all employees including the owners. The IRS incentivizes companies with less than 100 employees to create 401(k)s by helping offset startup costs.

Defined Benefit Plans: These plans provide predetermined payments to employees upon retirement or termination of employment. The payments are decided by many factors including the number of years employed, earning history and age. However, they can be costly, and contributions can be quite large.

Individual 401(k)

An Individual 401(k) is a retirement plan that can maximize your savings if you are self-employed of if you are a partner in a business whose only employees are the partners and their spouses. Contributions are generally deductible as a business expense and are not required annually.

The next step is working with a financial advisor who knows the ins and outs of financial strategies for small business owners. We at Trost Financial Consulting are here to help. Contact us here for more information.

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