For many small business owners, including those who own manufacturing companies, saving for retirement may not be high on the list of priorities. After all, the cost of day-to-day operations and reinvesting in the business may not leave much for personal retirement savings.
According to a study conducted by the Small Business Administration only about 36% of business owners have an individual or company sponsored IRA, and just 18% participate in a 401(k) plan. One reason may be the owner’s belief that, when the time comes, he or she will retire on the proceeds from selling the business. Therefore, it makes more sense to invest in growing the business.
With proper long-range planning, that may well be how things turn out. Unfortunately, not every business plan succeeds as we expect. Changes in the business landscape, disruptive technologies, health issues or declining revenue may force earlier than anticipated parting from a business. Or, in the end, selling the business does not produce the hoped for income.
That’s why it’s so important for manufacturing business owners to put in place and adequately fund retirement plans for themselves and, in the interest of recruiting and retaining employees who add value to the company – their workforce. Depending on your size and form of business (corporations, sole proprietorship, partnership) there are 3 basic plans to choose from:
SEP IRA: A Simplified Employee Pension Plan is easy to set up and manage, and has no start-up costs. Sole proprietors, partnerships and corporations are eligible. Employers must make all contributions to employees at the same percentage of compensation as they make for themselves.
Simple IRA: For sole proprietors, partnerships and corporations with 100 employees or fewer. Like traditional IRAs, the contributions are income tax-deferred until withdrawn. They require mandatory business contributions that match employee contributions.
401(k): These plans are designed for larger companies and require greater setup and administration costs, so are not typically recommended for small businesses. There is also a Self-employed 401(k) Plan for business owners who have no employees (except a spouse).
Of course, if you choose not to have a company retirement plan, there are individual options, such as a traditional or Roth IRAs. A trusted, Certified Financial Planner may help you make the best retirement plan decisions.