Investing in a 401(k) for Small Business Owners’ Retirement Savings - Cabot Wealth Network

Investing in a 401(k) for Small Business Owners’ Retirement Savings

Setting up a 401(k) for small business owners is a great way to save for retirement while getting the benefits that bigger corporations offer.

A 401(k) is widely regarded as an essential component of a successful retirement plan. The problem is that most people think you need to work with a large company to have them. While anybody with earned income can open IRAs and Roth IRAs, rarely do we consider a 401(k) for small business owners. 

Running a small business has plenty of perks. It’s also a lot of work, and finding creative ways to invest can be time-consuming. There is good news. A unique type of 401(k) called a Solo 401(k) is available to qualifying small business owners.

This financial vehicle allows small business owners to build a valuable asset to take care of them and their family when the time comes to exit their business life. Some business owners don’t plan to stop working. Still, a 401(k) for small business owners can at least afford them the option of a comfortable retirement.

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Learn how to invest in a 401(k) for small business owners

The immediate hesitation might be figuring out how to invest in a Solo 401(k) for small business owners. People working for a large company have the luxury of having much of the enrollment process for their 401(k) practically automated for them. Still, this can also be a disadvantage as many people have no clue where the money in their 401(k) is going or how it’s performing compared to other options.

So, while there is a little more effort required for small business owners, this can also be seen as a slight advantage since they’ll better understand where their money is going and what it’s doing.

The most important step in creating a 401(k) for small business owners is deciding who will establish and maintain the plan for you. You could do this on your own, but that will take up a lot more of your time. Working with a financial institution will take a lot of work off your plate, give you strong guidance along the path, and take off much of the load of doing the 401(k) plan on your own.

Avoid these mistakes while investing in a 401(k) for small business owners

Some business owners make a mistake in not understanding how the 401(k) works to their advantage. As the owner of a business with a Solo 401(k), you would be eligible to contribute both as the employer of the business and as an employee of the business.

Combined contributions of these roles mean you can contribute a maximum of $58,000 per year (excluding any potential catch-up bonuses). Contributing as an employer or an employee alone would not include many potential contributions and, therefore, you could loose out on a lot of the potential growth from your retirement savings.

Working with a professional will help ensure you don’t make the mistake of missing out on potential contributions.

What hesitation do you have with opening your own Solo 401(k)? What is the next step you need to take?

Nancy Zambell

Learn from Expert Analyst Nancy Zambell

Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. As a lecturer and educator, Nancy has led seminars for individual investors at the National Association of Investors, Investment Expo and the Money Show. She has also taught finance, economics and banking at the college level, and has been quoted extensively in The Wall Street Journal, Investor’s Business Daily, USA Today, and BusinessWeek. Now let her give you the tools and resources, including a monthly magazine, for gaining the peace-of-mind to live comfortably now and in retirement in her Cabot Money Club.

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