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For the savvy business owner: Invest like a boss!

Updated: Feb 2

Small businesses are the backbone of the American economy. A 2012 study presented by the SBA (Small Business Administration) showed that small businesses make up 99.7 percent of U.S. employers, 63 percent of net new private-sector jobs, and 48.5 percent of private-sector employment. Women-owned small businesses accounted for 36 percent of small businesses, and approximately 75 percent of small businesses were sole proprietorship i.e. they didn’t have any employees.

The small business owner embodies the very spirit of independence, so it makes sense that small business ownership and investing would go hand in hand in the quest for independence, control and wealth building. However, many business owners are so focused on running their businesses, that they aren’t aware of or don’t take advantage of some of the perks available to them. I encourage you to meet with a financial advisor or tax consultant to optimize your investments as a small business owner. In the meantime, I’ve outlined below some of the investment plans and options available to small business owners and I urge you to invest like the boss that you are! 

Three types of retirement plans that small-business owners might consider:

  1. Simplified Employee Pension Plan (SEP IRA)

  2. Savings Incentive Match Plan for Employees (SIMPLE IRA)

  3. Self-Employed 401(k) plan

A side note: Don’t be intimidated by the names of these plans; they are designed to help business owners and other self-employed individuals save for retirement. The tax advantages can be a serious perk for your business if used properly.

The three plans each offer tax advantages and have many similarities, but there are also differences to consider. Some of the similarities between the plans are:

  1. Employer contributions can be deducted as a business expense

  2. Each plan allows contributions to grow tax-free. Taxes are deferred until withdrawal.

  3. Expenses incurred while starting and maintaining the plan can make you eligible for a tax credit of up to $500. Restrictions apply to the type of expenses, in addition to other restrictions.

To highlight the differences and to summarize the basics of each plan, refer to the chart below (courtesy of Fidelity Investments).

Small-business retirement plans at a glance



Simple IRA

Self-Employed 401(k)

Who it’s for

·         Self-employed individuals or small-business owner, including those with employees

·         Sole proprietors, partnerships, corporations, S corporations

·         Companies with 100 employees or fewer, that do not have any other retirement plan

·         Sole proprietors, partnerships, corporations, S corporations

·         Self-employed individuals or business owners with no employees other than a spouse (and no plans to add employees)

·         Sole proprietors, partnerships, corporations, S corporations with no common law employees

Key Advantages