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Sheridan, WY

3 Self-Retirement Plans Small Business Owners in Sheridan, WY, Should Know About

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By Jim Shellenberger, CFA, CFP®

Small business owners have a lot to think about: daily business operations, attracting and retaining both customers and employees, and managing cash flow are just a few that top the list. When you add retirement planning to the mix, it can feel downright overwhelming.

Thankfully there are many retirement plans to choose from, and you don’t have to make the decision all on your own. At Elevate Wealth Management, we are dedicated to helping small business owners in Sheridan, WY, make the best decision when it comes to their self-retirement plans. 

If you’re looking to add a self-retirement plan to your small business, here are the top 3 to consider.

1. SEP-IRA

A Simplified Employee Pension (SEP) plan allows employers to contribute to employees’ traditional IRAs, but a business of any size (even one without employees) can set up a SEP-IRA. SEP-IRAs are similar to traditional IRAs in that contributions grow tax-deferred until retirement. Distributions are then taxed as regular income. As of 2023, you will now be able to do a Roth version of the SEP thanks to the SECURE Act 2.0 that was passed at the end of 2022.

Employees cannot make contributions to their own accounts, but the contribution limits are higher than those for IRAs. Employers can contribute up to the lesser of:

  • 25% of employee compensation, or
  • $66,000 for 2023

Pros

Cons
  • Easy to set up and operate
  • Low administrative fees
  • Contributions to SEP-IRAs are tax-deductible. 
  • Employers can make contributions on a discretionary basis as revenue fluctuates.
  • Offers higher annual contribution limits than standard IRAs
  • No filing requirement for employer
  • No nondiscrimination testing required
  • Employers are required to contribute the same percentage to each employee’s account, including their own.
  • Employees cannot make their own contributions.
  • No catch-up contributions offered to pre-retirees 50 or older

Ultimately, this option is well suited for business owners whose cash flow varies. The contribution flexibility rewards employees with greater contributions during times of high revenue without inconveniencing the employer during times of low revenue. 

2. SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA plan is similar to a SEP-IRA in that it allows employers to make contributions to employees’ retirement plans at lower start-up and operating costs than other retirement plans. But with a SIMPLE IRA, employees can also make their own contributions to retirement, which can be less expensive for employers.

Employees can contribute a maximum deferral amount of $15,500 in 2023, and employers must provide either a 3% compensation match or a 2% nonelective contribution.

Pros

Cons
  • Easy to set up and operate
  • Low administrative fees
  • Contributions to SIMPLE IRAs are tax-deductible.
  • Includes catch-up contribution option for pre-retirees 50 and older 
  • No filing requirement for the employer
  • No nondiscrimination testing required
  • Employer may not hold any other retirement plan.
  • Employer is required to make certain minimum contributions to employees’ plans each year.
  • Lower annual contribution limits

SIMPLE IRAs can be used by any small business, but are typically limited to businesses that have 100 or fewer employees. SIMPLE IRAs allow employees to share in their own retirement funding, but employers have less flexibility in choosing how much to contribute annually. Also thanks to the SECURE Act 2.0, there are now Roth versions of SIMPLE IRAs for 2023 going forward.

3. Pooled Employer Plan

A Pooled Employer Plan (PEP) is a type of self-retirement plan that allows multiple businesses to combine their retirement plans. In doing so, the administrative expenses are reduced and participation in the plan more economically feasible. It is similar to a 401(k) plan that is much cheaper and more accessible to small and mid-size businesses. In the past, PEPs could only consist of businesses related by industry or association, but the SECURE Act has removed this requirement. 

Pros

Cons
  • Easy to set up and operate
  • Reduced administrative and operational burdens
  • Contributions are tax-deductible.
  • Includes catch-up contribution option for pre-retirees 50 and older
  • Tax credits available to offset start-up costs
  • Less flexibility since operations are managed by a third party
  • Employer cannot transfer all administrative duties or fiduciary responsibilities.

Making the Right Choice

If you’re a small business owner in Sheridan, WY, with questions about self-retirement plans, we would love to hear from you! With our comprehensive process and our passion for serving small business owners, Elevate Wealth Management is here to empower our clients to make the best financial decisions to reach their unique goals. Schedule an introductory meeting by reaching out to us at jshellenberger@frontierasset.com or 307.673.5675.

About Jim

Jim Shellenberger, CFA, CFP® is a financial advisor at Elevate Wealth Management, an independent, fee-only wealth management firm serving young professionals, pre-retirees, and retirees in Sheridan, Wyoming, and surrounding areas. With the mission of serving and educating, Jim is dedicated to providing comprehensive, top-notch services that not only help his clients reach their goals, but also empower them to make the best financial decisions for their lives and walk toward their future with confidence. Jim is known for going the extra mile, not only offering valuable knowledge in investment management as a former investment analyst, but building long-lasting relationships so he can give honest, customized advice and strategies that make an impact on their lives. 

Jim has a bachelor’s degree in business administration with a minor in finance from the University of Wyoming. He is proud to be a Wyoming native and loves exploring the outdoors with his family—hiking, fishing, hunting, and backpacking. Faith is an integral part of Jim’s life, and he always looks forward to attending church on Sundays, Bible study on Fridays, and being part of his church community. He’s also an avid sports fan! Fun fact: Jim owns shares in the Green Bay Packers. To learn more about Jim, connect with him on LinkedIn.