There are 30.2 million small businesses in the U.S. comprising 99.9 percent of businesses in the country according to the SBA. However, data shows that small businesses don’t have retirement plans for their employees, and owners don’t have a retirement plan for themselves outside of selling the business.
Of note, contributing to a 401(k) is one of the few tax breaks employees and employers have. With the tax law changes, most people are using the standard deduction on tax returns.
Only about 1 in 10 taxpayers is expected to itemize now that Congress has increased the standard deduction, down from about 1 in 3 before the law changed. So, contributing to a 401(k) with pre-tax dollars is a huge benefit to take advantage of in light of these new rules. In light of National Small Business Week (May 5-11), we’d like to shed light on the importance of retirement planning as a small business owner, for both you and your employees.
Plan for employees
As the labor market continues to tighten and unemployment remains at the lowest levels in decades, it’s critical to provide a retirement plan as a benefit to attract and retain talent. When evaluating a job opportunity, people aren’t just evaluating the pay, but total benefits package, including health insurance, retirement plan and time off. Many owners voice costs concerns about having a plan, but startup costs have gone down drastically in recent years due to fee compression. In today’s environment, most business owners can’t afford not to have a retirement plan in place as it puts you at a competitive disadvantage when you’re looking for top talent. And as an incentive, the first year you have a plan there’s a one-time $500 tax credit available.
Plan for yourself
As a successful business owner, the majority of your assets are likely in your business. However, it’s important to be a diligent saver outside the company. Hopefully the day never comes, but if you’re business shuts down you’ll only have what you’ve saved to fall back on. Most business owner’s retirement plan is to just sell the business, and even if that is your intention, it’s critical to do the due diligence and get a business valuation and create a formulated retirement plan. It’s important to think about the future of your business and your golden years well in advance, not just hope things work out for the best.
For small business owners looking to create a succession plan, start a retirement plan or talk about teeing their employees up for financial security, reach out to us here.