Small business owners are different from the average hourly employee in a lot of ways. One often- overlooked difference is how they plan for retirement. Although small business owners may offer a classic 401(k) for their workers along with other benefits such as insurance and other perks, such a plan may not be the right option for the owner of the company. Instead, you may want to consider a few of these other retirement planning tools.
There are three overarching categories of plans that aim to meet both owner and employee needs, and they all use investing in stock as a means to grow funds over time. Then, there are a few options under each of these umbrellas. Understanding the limitations and benefits of each option can help with business planning and overall small business strategy, including tax planning.  You can use the tips and information below to help you decide which option is appropriate for you and your company.
Related Article: Traditional vs. Roth IRA
IRA stands for “Individual Retirement Arrangement.” It is perhaps the easiest form of retirement planning, so many small business owners who are also employers prefer to use this type of retirement plan. Although many people assume that they need to establish IRAs on their own, employers can use these plans for themselves and their employees as well.
You should keep some additional financial considerations in mind, however. Specifically, even as a business owner, the most you can contribute to an IRA is still $6,000 in 2019 and 2020. 
1. Traditional Payroll Deduction IRA
Employers can arrange to deduct a portion of their employees’ income and deposit those funds into an IRA. Employees decide how much they want to contribute, if anything, and the employer simply facilitates the contribution.
A SEP IRA is another type of IRA. SEP stands for “Simplified Employee Pension.” It allows employers to contribute to an IRA in an easy-to-use way, but employees cannot contribute to this plan. Contributions can be made to either an Individual Retirement Account or Annuity.
The limitations to add to the IRA are much higher than the average IRA because you are contributing as an employer rather than an employee. However, you must contribute equally to all plans, which may not be ideal if you have employees.
3. SIMPLE IRA Plan
The SIMPLE IRA is the only IRA plan that allows both employees and employers to contribute to an IRA. However, it can only be used by employers that have less than 100 employees and do not also maintain another type of retirement plan. One of the benefits of this type of retirement plan is that a bank or financial institution will handle most of the paperwork for you in many cases.
This plan will allow you to establish an IRA for yourself in addition to any employees that you may have.
Defined Contribution Plans
A defined contribution plan differs only slightly from an IRA.  However, these plans are more commonly used by larger employers that have many employees. The contribution is most often a combination of an employee’s percentage-based contribution and an employer match contribution. The 401(k) is by far the most widely used retirement plan for businesses, but it may not be the best option for small businesses.
4. Solo 401(k)
Even if you do not have any employees as a business owner or entrepreneur, you can still establish a solo 401(k). The limits for contribution are significantly higher on these plans than a traditional IRA. They work just like they would if you were your own employee.
5. Traditional 401(k)s
Other 401(k)s are for those with employees, but they will only work for a small business owner if he or she is also getting a salary like an employee as well. There are also special plans for those who function as solo LLCs or similar entities as well.
If you would like some additional tips and guidance to choose the right retirement plan for you and your business, LPL Financial can help. Call today for more information or to set up an appointment.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.