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Options for self-employed retirement plans

The importance of small business retirement plans.

Last updated: July 12, 2022 |

Article published: December 20, 2021

Many individuals start a business because they enjoy being their own boss and setting their own schedule. While these are great perks, many of the self-employed fail to create a retirement plan for themselves. While lots of companies make it easy to enroll in a 401(k) plan or offer retirement matching programs, when you step away from the corporate world, it is easy to forget this piece of your own compensation plan.

There are a few different options for self-employed retirement plans to consider as investment vehicles, including a defined benefit pension plan or a solo 401(k).

Defined pension plan

A defined pension plan is calculated based on income and the length of employment, and it offers guaranteed, salary-like payments. Historically used to encourage longevity with a company, these were more popular 30-40 years ago. According to Forbes, in 1980, 83% of private sector workers had a defined benefits plan as an option but only 17% did in 2018.*

Because defined pension plans are usually solely funded by employer contributions, it makes sense that someone who is self-employed would use it as a retirement plan. You’re paying into your pension. Plus, you benefit from tax deductions for the contributions and the plan accumulates tax-deferred growth.

If you’re the owner of a small business with employees to whom you’re providing a defined pension plan, it is important to understand that you’re required to provide guaranteed payments to the plan beneficiaries. This is very different from providing a 401(k) plan, which is dependent upon investment performance.

401(k) plan

As a solopreneur, you might consider a solo 401(k) instead of, or in addition to, the defined pension plan. With the growing interest in robo-advisors and a relatively low barrier to entry, it can be fairly simple to set up an individual 401(k). The most important aspect is that you are saving today for retirement. Of course, if you have a unique situation or a more complicated portfolio, you may benefit from a personalized self-employed retirement plan from a fiduciary financial advisor.

If it is nearing the end of the calendar year, you may also benefit from the tax advantages. Depending on your financial situation, consider maxing out your annual 401(k) contribution to receive the most tax benefits before filing.

We understand that running your own business takes time. Offering a retirement plan to your employees can be a great benefit to attracting talent, retaining employees and helping them get set up for financial success. But are you really equipped to manage your small business retirement plan? Or could your time be better spent growing your business?

We offer Employee Retirement Income Security Act retirement plan services to business owners using the same investment methodology we use for individual clients. Not only does it allow you to focus on operating your business, you also reduce the liability of running your employee retirement plan. We provide ERISA retirement plan services to business owners, including:

  • Personal enrollment assistance for each employee;
  • Professionally managed portfolios with highly diversified asset allocation models to meet each employee’s needs; and
  • One point of contact for the recordkeeper and third-party administrator.

Best of all, your employees will have access to our financial planners as a trusted resource for their financial planning (available for an additional fee and service agreement, direct with your employee).

Nonqualified deferred compensation plan

You also might consider a nonqualified deferred compensation plan. While these plans can offer a greater amount of flexibility, they are not covered under ERISA. As a self-employed retirement plan, this can allow you to save money today and defer the tax implications until later – when, presumably, you’re in a lower tax bracket. Typically, the fees for setting this up are minimal, and there are little-to-no annual costs, which makes it attractive to entrepreneurs.

Regardless of which option you choose, we hope you realize the importance of having a small business retirement plan in place. Whether you’re self-employed or manage some employees, saving today for retirement is of great benefit. If you aren’t working with an advisor who has the expertise to explore these options with you, call us. We work with self-employed individuals on retirement plans all the time and would be happy to assist you.


* Ashford, K. (2021, October 5). Understanding Defined Benefit Pension Plans. Forbes. Retrieved November 9, 2021, from https://www.forbes.com/advisor/retirement/what-is-a-defined-benefit-plan/

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