Small business owners wear many hats. Running a business and handling administrative tasks can leave very little time for strategic planning, but one of the most important actions that an entrepreneur can take is to establish a retirement plan. Here are several reasons why you should establish a plan for your business.
1. Attract and Retain Employees
One of the challenges that small business owners face is attracting and retaining qualified employees. As wage pressure increases for employers, offering a retirement plan may alleviate some of those concerns. Many employees are willing to forgo higher wages for a generous benefits package. Potential hires may also feel comfortable knowing that you have a plan in place in case they would like to rollover a plan from their previous employer.
2. Tax Benefits
Offering a retirement plan can provide small businesses with many tax benefits. Employer contributions to the 401k plan are tax deductible. These contributions can accumulate and any investment gains will enjoy tax-free growth until there is a distribution.
3. Succession Planning
Many entrepreneurs do not have a plan for their retirement. Small business owners tend to reinvest and put profits back into their business. As they prepare for retirement, many plan to sell their business. If they are unable to, they may find themselves working far longer than they had ever intended to. By developing a retirement plan and maximizing their annual contributions, small business owners have a better chance at achieving retirement security.
The benefits of establishing a retirement plan are many. As the costs decrease and the number of 401k providers increase, small business owners have a variety of options to choose from.
(Levar Haffoney is a principal at Fayohne Advisors, LLC.)