11 Facts about Retirement Savings that Biz Owners and Gig Workers Need to Know

Whether you’re a small-business owner worrying about administrative fees or a freelance worker trying to understand your options, starting your own retirement plan can seem intimidating.

Although the costs of getting started with a plan can seem high, they may be easily outweighed by the benefits of doing so (or the costs of not doing so). Here are 11 facts about retirement plans that small-business owners and contractors need to know:

1. There are tax perks aplenty all around.

Employees and contractors can benefit from contributing pretax dollars and letting their money grow tax-deferred. Business owners who offer a plan can take a deduction for contributions they make to employees’ accounts up to certain limits. Owners can even take a tax credit up to a set limit to offset the expense of starting up a plan.


2. You have tons of options.

Contractors shouldn’t assume that their only option is an IRA. And business owners shouldn’t assume that their only choice is a 401(k). There is an alphabet soup of potential options in either case. Each flavor of account comes with different features—meaning there’s a good chance that there’s an account type that’s a good fit for your situation.


3. Saving now matters even if you can’t save much.

One common trap that gig workers, early stage owners, and others can fall into is believing that they’ll be able to more than make up for missed contributions once they reach a more financially secure position at a later date. But the longer your money has to grow, the stronger the magic of compounding. Even if you can only save $50 a month to start, you should start as soon as you can.


4. You may be able to save a boatload more money than you think.

High-earning contractors may fall into a different trap if they feel that the $6,000 annual cap on IRA contributions means a retirement plan isn’t worth their time. But other options can allow for much higher limits—with SEP IRAs and Solo 401(k)s allowing for contributions of as much as $56,000 in a given calendar year.


5. Paying into Social Security is great, but it isn’t enough.

If you’re a gig worker you should, of course, be declaring and paying taxes on all of your income—both because it’s the law and so that you are paying into Social Security. But the average monthly Social Security benefit paid is only $1,200. Unless you’re planning for a very frugal retirement, you’re going to need additional sources of income.


6. As an employer, you can still offer a plan even if you can’t afford to make contributions.

Perhaps you worry that once you set up a plan for employees you’ll be obligated to provide a generous match of contributions. But many employers don’t contribute anything toward employees’ accounts. Although helping to find your workers’ retirements can be a valuable benefit, just because you can’t offer it yet doesn’t necessarily mean you shouldn’t offer a plan at all.


7. Just having access to a workplace retirement plan can turn employees into smarter financial planners.

Having access to an employer-sponsored retirement plan—even for employees who don’t actively participate in the plan—is associated with higher rates of retirement planning. And not surprisingly, those who currently actively participate in a plan show the highest rates of engagement with retirement planning.


8. That’s important for owners, because workers’ financial stress is bad for business.

Companies lose an estimated half a billion dollars per year due to employees’ money stress, as workers with financial worries are substantially less likely to be able to finish tasks or produce high-quality work when they do. Investing in your employees’ financial security can be a way of investing in your business.


9. The impact on employee retention is real.

All employers struggle with finding and retaining qualified workers, and the struggle for small-business owners can be particularly acute. Retirement benefits can be a vital tool to help companies hold onto their best workers, with four in ten employees reporting that their retirement benefits are a major reason to stay with their current employer.


10. Strong workplace benefits are linked to better company performance.

Companies that use workplace benefits strategically to attract and hold onto workers actually report better performance. Because all of those incremental advantages—from easier hiring and retention to less-stressed workers—can add up to real results.


11. Starting a plan can help your employees, but it can help you too.

Retiring from the company you’ve created may be the last thing on your mind when you’re focused day-to-day on building it and getting it off the ground. But that doesn’t mean you should neglect your own financial future. About two in five small-business owners are not confident that they will be able to retire. Starting a retirement plan for your business can help you balance planning for your future with building your company’s present.

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