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4 Ways You're Leaving Money On the Table By Not Using a Retirement Plan

  • Employee Benefits
  • Article
  • 6 min. Read
  • Last Updated: 12/08/2023

Four ways business owners might miss investing into retirement plans.
It's easy to forget about retirement as you're running a business, but as an owner, don't neglect investing in your future self. Look at four ways you may be leaving money on the table instead of investing it into a retirement plan.

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As a small-business owner, you've put blood, sweat, and tears into building your shop, restaurant, office, or service. Much of the hard-earned money your business has generated is likely going back into your business; but are you remembering to invest in yourself too?

It's easy to forget about retirement as you're running a business, but as a business owner, you should also consider the significance of leaving money on the table.

For example, a restaurant owner may own and operate a location for decades, assuming that selling the business will afford them a comfortable retirement — when that result is anything but certain.

Here are four ways you may be losing money:

Reason #1: Neglecting Uncle Sam's tax benefits

The owner-only 401(k) plan was made possible by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). The plan, specific to a one-person business (and a spouse if applicable), offers tax benefits.

Instead of a pretax contribution, which is how many retirement plans operate, you may contribute all or part of your salary deferral amount as an after-tax Roth contribution (up to $23,000). These contributions are typically tax-deductible, which allow your earnings to grow, tax deferred.

Reason #2: Forgetting about compound interest

When you're caught up in budgeting for your business and ignoring the budget for your future, you're missing out on years of compound interest. The quickest way to maximize your dollar is through compound interest.

See how compound interest will impact your future. Use a retirement pay calculator to assess your personal situation. What salary do you pay yourself? What is your current age? When do you plan to retire? By inputting simple figures like how much you've currently saved and what you're contributing monthly, you'll paint a picture of what your retirement future looks like with and without a nest egg.

Reason #3: Prioritizing debt and ignoring savings

It's easy to get wrapped up into paying off new supplies with your business or finding business loans to help finance your dreams. But adding savings to your portfolio can have some unexpected benefits to fund your business. Although 401(k) plans are designed for retirement savings and can grow faster if the funds are left untouched, the owners-only 401(k) includes a provision that allows you to borrow from your account if you need quick access to funds. Most business owners would agree that borrowing from yourself, as opposed to a creditor, is more comfortable.

Reason #4: You're not aware of the type of plan available to you

Some business owners aren't aware an owner-only 401(k) is an option. Without knowledge of the products available to support small business owners, it's impossible to maximize your savings for retirement.

Owner-only 401(k)s allow contributors to give elective deferrals up to $23,000 (or your total compensation, whichever is higher). If you're catching up (or age 50 and over) you can give elective deferrals up to $30,500 (or your total compensation, whichever is higher). You can also utilize non-elective contributions up to 25 percent of your compensation. This allows you to maximize salary deferral contributions, and you don't need to go through compliance testing.

As with anyone looking forward to retirement, it's important to assess how much you currently live on. At the pace you're going, will you be able to retire at your target age comfortably? Don't assume anything about your business growth at this time; try to factor in savings only – the rest is a cherry on top.

If you aren't contributing to your retirement plan, you're leaving money on the table. The money that could be in your retirement account is setting you up for life after work - and also provides unexpected safety nets until the time has come for you to retire.


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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