Business Retirement Plans and the Commitment Question

The life of a business owner is filled with tremendous responsibility and requires your full attention. As a business owner, you are left with little time to be an expert in investments, markets, and knowing the ins and outs of business retirement plans.

The first step in this process is asking yourself the commitment question: “Will I be able to commit to making matching contributions to my business retirement plan?” This is a very important question because it determines your level of flexibility when selecting your plan.

Some plans require that your business makes defined contributions in order to fulfill the requirements of that plan, and if not met, could result in costly penalties for your business. Selecting the right plan for your business also depends greatly on the type of business you own and your ability to make contributions to your plan.

The most common mistake business owners make with business retirement plans is that they select plans without asking themselves the commitment question. All too often they are faced with the financial cost of making this mistake; whether it be in tax penalties or having to establish a new plan. 

Most businesses tend to establish 401(k)/Self-Employed 401(k)s, SIMPLE IRAs, or SEP IRAs. We must understand that every business has different needs and it is strongly recommended that you consult with a tax professional before implementing any retirement plan for your business. 

There are several options available to any business owner, whether they are solely self-employed or have several employees. The major differences concerning these plans is flexibility, contribution limits and administrative requirements. In addition, your business entity type (c-corporation, s-corporation, partnership, or sole proprietorship) may also be a factor. A general understanding of business retirement plans can benefit you, your business, and your employees in a very big way.