Offering a retirement plan can be a powerful tool when you’re competing to attract the best employees. And if you’re a sole proprietor, a retirement account can help you save even more money for the future. Here are some of the most popular retirement options for small business owners, along with ways to help with the cost of starting and operating a retirement plan.
Retirement plan options
Simplified Employee Pension (SEP) IRA Account. Contribute as much as 25% of your business’s net profit up to $69,000 for 2024.
401(k) Plan. Contribute up to $69,000 of your salary and/or your business’s net profit.
Savings Incentive Match Plan for Employees (SIMPLE) IRA Account. You can put all your business’s net profit in the plan, up to $16,000 plus an additional $3,500 if you’re 50 or older.
Tax breaks to start a retirement plan
Tax Credit for Startup Costs. A tax credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan is available for up to three years for eligible businesses with 50 or fewer employees. Businesses with 51 to 100 employees can still be eligible, which caps the credit at 50% of administrative costs and with an annual cap of $5,000.
Taking advantage: This credit could potentially cover all set-up and administrative costs during the first three years of a plan’s existence, as average 401(k) set-up costs range from $1,000 to $2,000, while average annual administrative costs range from $1,000 to $3,000. To keep your annual administrative costs as low as possible, it may be worth shopping around to look at different plan providers as the fees can vary.
Tax credit for employer contributions. Eligible businesses with up to 100 employees may qualify for a tax credit based on its employee matching or profit-sharing contributions. This credit, which caps at $1,000 per employee, phases down gradually over five (5) years and is subject to further reductions for employers with 51 to 100 employees.
Taking advantage: Once this tax credit expires after the plan’s first five years of existence, employer contributions to 401(k), SEP, and SIMPLE plans are still tax deductible up to certain limits. This means that both the employer and employee can continue to reap tax savings for the entire life of the retirement plan.
And remember that employees can still contribute to their own individual IRA. So let your employees know that in addition to having either a 401(k), SEP, or SIMPLE account through your company, they may also qualify to contribute to their own traditional IRA or Roth IRA.
It’s never been easier or more affordable to start a retirement plan for your business, so if you have not already done so, look into the alternatives that best fit your business.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
Many taxpayers start preparing their tax return with hopes of receiving a sizable refund, only to find out that their actual refund is much smaller than expected — or that they actually owe the federal government money instead! If this happens to you, here are some of the likely reasons:
Higher take-home pay. Look at last year’s W-2 and see how much was withheld for federal income tax. Now check this year’s W-2. If it is lower, you will need a corresponding reduction in your tax obligation to get the same refund as last year. The good news? You’ve had more of your income available to you throughout the year. The bad news? Paying less tax each pay period can result in a lower refund or even a tax due balance at tax filing time.
Withholding tables are not always accurate. The IRS provides businesses with tax tables to figure out how much of your paycheck should be withheld to pay your taxes. While these tables are mostly accurate, sometimes these tables instruct your employer to withhold more than necessary — leading to a refund. But sometimes the opposite is true and your employer may not withhold enough — leading to a balance due.
You earned money from a side hustle. You are responsible for making payments to the IRS for taxes you owe from working a side hustle or as a freelancer. If you didn’t make these payments to the IRS as you were earning the money throughout the year, you’ll have to make a lump-sum payment when you file your tax return.
Your state takes a different path. Tax laws passed by many states closely mirror tax laws passed by the federal government. But many times these laws never match 100%. This means that while you may see a refund on your federal tax return, you might end up owing money on your state tax return.
With the uncertainty of whether or not you’ll receive as large of a refund as you’re expecting, consider holding off on plans to spend your refund until your tax return is finalized.
A domino effect occurs each time the Federal Reserve changes interest rates. An increase leads to higher rates for consumers when they borrow, while paving the way to better returns for savings accounts. A decrease results in paying less interest when borrowing money, but also causes a drop in how much your savings can earn.
While waiting to see what the Fed does in 2024, consider having a plan in place for both these scenarios — a hike in interest rates as well as a cut. Here are some ideas for formulating your own financial plan for each scenario.
When Interest Rates Increase
Shop around for new savings accounts. Rate increases are good for long-term savers and families who are stashing away money for short-term goals like buying a home. When interest rates are on an uptick like they are right now, it’s a great time to shop around for a high-yield savings account or to lock in a great rate for a portion of your savings with a certificate of deposit.
Focus on paying down high interest debt. Rate increases can create disastrous results for people who have debt with variable interest rates. For example, data from the Fed shows the average credit card interest rate increased from 14.22% in 2018 to 21.19% in the second half of 2023. If high-interest debt is dragging you down financially, rate increases give you more incentive to pay it off.
Avoid borrowing when possible. Surging interest rates make borrowing money more expensive, so try and avoid borrowing for personal and business reasons. If you must borrow, attempt to exhaust every other source of cash before taking on new debt.
When Interest Rates Drop
Refinance existing debts. Look into consolidating or refinancing all your existing debts, including your mortgage, personal loans, and credit cards. Lower rates can help you save money on interest, secure a lower monthly payment, and help you pay off a debt’s balance more quickly.
Look for ways to put additional funds to good use. Lower interest rates make it less appealing to stash money away in savings account products, money market accounts, and certificates of deposit. Instead of savings accounts that feature little or no interest, look for ways to invest for the future or put your money to use for things you need.
Apply for funding. Rate drops also make borrowing money more attractive. Consider applying for a personal or small business loan, but only if you have a plan for it.
The traditional rule-of-thumb for emergency funds is to have enough cash stashed away to cover 3 to 6 months’ worth of expenses. For many people, though, this sounds better in theory than in practice.
When you’re starting from scratch and don’t have a lot — or any — extra cash at the end of the month, consider these ideas to help grow your emergency fund.
Cutting Expenses
Review recent statements to find opportunities to save. Look over your bank statements and credit card bills from the last few months to see where all your income is going. Spend some time tallying up expenses in categories you have some control over, such as entertainment, dining out, clothing and online shopping.
Cut down on lifestyle expenses. Identify areas to cut your spending and create new spending goals in categories that were problematic in previous months. Some of the easiest places to cut include online shopping, subscription services, clothing, movies and music. Once you reach your emergency fund goal, you can consider adding some of these spending areas back into your budget.
Spend less on food. One of the biggest budget busters for many families is their spending on food — both at the grocery store and at restaurants. Control food spending by making a meal plan and cooking most of your meals at home, shopping sales at the supermarket, and making meals with ingredients you already have.
Increasing Income
Squirrel away windfalls. Consider adding windfalls such as tax refunds, work bonuses, or annual gifts you may receive from a family member to your emergency savings as soon as you receive it.
Sell stuff you don’t need. Look around your home for items you rarely use and then sell unwanted stuff using an online marketplace. Used items that can fetch a good sales price include workout equipment, brand name clothing and accessories, small furniture and antiques.
Add a part-time job or side hustle. Boost your income by picking up more shifts at work, asking for overtime, or getting a second job or side gig to fill your spare time. This step can help you bring more money home so you can add to your emergency fund.
Once you start looking for ways to spend less and earn more, there’s one final step that can help you grow your emergency fund. Make sure the money you find on both ends of the spectrum makes its way to your savings, either through manual or automatic transfers.
The best way to do this is by having a dedicated emergency fund in an account that’s separate from your regular checking and savings accounts. By moving your extra money into this account, you can grow your emergency fund with less temptation to spend it.
The idea of building a personal brand might seem intimidating, but the benefits can be career altering. Not only does your brand promote you to the entire market, it solidifies your standing within your network where most new career opportunities come from. Here are some steps to consider for building a brand that promotes your strengths and showcases your value.
Do a personal evaluation. Start by reflecting on your personal and career experiences. Write down a list of traits and accomplishments that are good portrayals of the value you bring to people and organizations. Ask yourself questions such as, “How would others describe me?” or “In what situations would people look to me for help?” Also take an inventory of your social network presence. You can even try googling yourself to see what comes up. Understanding the current state of your brand, both online and offline, is imperative before taking the next step.
Be authentic. As you do your self-evaluation, the shape of your persona will start to emerge. Maybe you’re a go-to person for complex problems, or someone people confide in for advice, or a trusted leader that isn’t afraid of making the big decision. Odds are you’re a combination of a lot of different things, but try to nail down the main ideas so you can narrow your focus. The key here is to be authentic and genuine. There’s no sense building a brand based on something that you’re not — this only causes problems for you and everyone around you.
Build your online profile. More than ever, people and businesses are looking to learn about you by researching online. You should try to match your online profile to your in-person qualities. This comes more naturally to some than others, but even some simple steps can enhance your online persona. Start by choosing a profile picture that displays who you are in the best possible light. On LinkedIn, for example, your career industry will dictate the style you choose. This photo will be your first impression, so make sure it conveys the look you are going for.
Engage and network. Networking is extremely important to your brand. A LinkedIn study shows that 85% of professionals believe networking is important for finding your next role, while 70% of job changes happen because of a connection at the new company. To increase your online presence, consider posting on a consistent basis. You can start simple by sharing an article you thought was interesting. Then take it a step further by sharing a story that taught you something. The more you do it, the more comfortable you’ll be, and the more that your authentic personality will start to show.
Tell your story. Don’t be afraid to share things about your personality and experiences that helped shape who you are as a person. This will draw people to you and start to build trust. And you don’t have to get deeply personal…even the smallest little details about something unique about your day or an experience can make you more interesting.
Building a brand is a lifelong process, so keep at it and don’t be afraid to evolve as you go and learn. And who knows, you might even learn something about yourself in the process.
While your credit score is a three-digit number that’s automatically assigned to you, this is one area of your financial life where you have quite a bit of control. The moves you make or don’t make with your credit can help determine where this score falls at any time, and the impact can be dramatic.
Where good credit, a score of 670 or higher, can mean having access to financing with the best rates and terms, a low credit score can mean paying higher interest rates and more loan fees — or even being denied financing altogether. Bad credit can also mean having trouble getting an apartment or a job if your employer asks to see your credit report for hiring purposes.
The following steps can help you improve your credit this year and beyond:
Set up bills for automatic payments. Because your payment history is the most important factor used to determine credit scores, make every effort to pay bills on time. Set up your bills for automatic payments so they’re paid no matter what, and you can avoid unnecessary credit score damage.
Pay down existing debt. How much you owe in relation to your credit limits is the second most important factor used for credit scores. This means avoiding carrying a balance on your credit cards and never using more than 25% of your credit line or your credit score could be impacted.
Look over your credit reports for errors. Check your credit reports from all three credit bureaus — Experian, Equifax and TransUnion. You can do this once a year for free at AnnualCreditReport.com. If you find any errors or information you don’t recognize, take steps to dispute this information with the credit bureaus.
Build credit with new financial products. If you need to build credit from scratch or repair credit after mistakes made in the past, look for new credit products that are easy to obtain. Your best options are secured credit cards that require a cash deposit as collateral and credit-builder loans.
Use a free app to build credit. You can use a free app like Experian Boost to get credit for payments you’re already making like utility bills, subscription services and even your rent. All you have to do is connect your accounts to this app to have your payments reported to the credit bureaus.
You don’t have to live with a low credit score for another year, especially since so many things can help you improve it. By never missing a payment, paying down debt, checking over your credit reports and getting creative when it comes to building new credit, you can end 2024 in much better shape.
