As a business owner, you probably know how important benefits like health insurance and a 401(k) plan are—both to yourself and your employees. Not only do you need to stay on track with your own goals like retirement, but you’ve also got to keep your workers happy and remain competitive in a tough labor market.
To help you weigh your options, we've compiled a go-to guide with the many benefit options available to business owners.
1. Retirement plans
This is an important one, since an employer-sponsored retirement plan is how many people think to save in the first place. There are several types of retirement plans available for the self-employed or small-business owners, but here are three of the most common:
Solo/Individual 401(k) Plan
This plan, also known as the one-participant 401(k), provides the tax perks of a regular 401(k) but is designed for a solopreneur. The beauty of it is that your contributions can exceed limits to employer-sponsored 401(k)s because you can contribute as both the employer and employee. In 2023, that means you can put in $22,500 per year (or $30,000 including $7,500 of catch-up contributions for those 50 and older) as the employee, and as the owner, you can put in a percentage of your income—which varies based on how your company is set up—up to a total of $66,000 (or $73,500 including $7,500 for those 50 or older).
Simplified Employee Pension (SEP) IRA
A simplified employee pension (SEP) IRA is preferable to a traditional or Roth IRA because it lets you set aside more of your income, like solo 401(k). In 2023, you can put up to 25 percent of your net earnings into a SEP IRA up to a maximum of $66,000 a year. IRA contribution limits for 2023 cap your annual contributions at $6,500 (or $7,500 if you’re 50 or older).
If you’re thinking of establishing a SEP IRA for your employees, there are a couple of things to keep in mind. Your employees can’t contribute to their own SEP IRA, so the account would only be funded by you. You’d also have to contribute the same percentage for everyone in your company who has a SEP IRA, including yourself. That means you'd be unable to fund your SEP IRA with 25 percent of your net earnings and contribute 10 percent for your employees; you’d need to pick the same percentage for everyone.
Savings Incentive Match Plan for Employees (SIMPLE) IRA
With a SIMPLE IRA, both you and your employees are allowed to contribute to an IRA by making “salary reduction contributions” — i.e., electing to put a percentage of your salary into the SIMPLE IRA. The maximum amount an individual can contribute to a SIMPLE IRA in 2023 (whether business owner or employee) is $15,500 of net earnings, plus an extra $3,500 in catch-up contributions for those 50 and older.
As an employer, you must either match your employee’s contributions dollar-for-dollar up to 3 percent of their salary, or you can opt to make a fixed contribution of 2 percent of your employee’s pay. Those two options also exist for you, the business owner, which means you’re able to save beyond the $15,500 annual limit. You just have to make sure that you’re contributing the same amount (either the 3 percent matching or 2 percent fixed contribution) to your account that you offer to your employees.
2. Health care benefits
Under the Affordable Care Act, companies with fewer than 50 employees aren’t required to provide health insurance, but giving workers that option could help you keep them for the long haul. A 2022 study by the Society for Human Resource Management found that health insurance is the most important consideration in recruiting and retaining employees—emphasizing the importance of offering competitive health benefits to employees.
For small business owners, cost can be a limitation to offering health insurance, but there are a variety of options to consider, including:
Health reimbursement accounts, in which you’d make contributions to an account that can be used by an employee to help pay for individual health insurance policies they get on their own.
Shopping for a small group health insurance plan via HealthCare.gov’s SHOP Marketplace. You can also see if you’d be eligible for business tax credits.
Shopping for a small group plan on the private marketplace.
Contributing to the cost of health insurance that employees purchase themselves on a private health exchange, which provides them with a menu of plan options from one carrier or several carriers.
Trying to choose the best plan for your company and keeping track of all the rules is enough to make your head spin. Consulting a broker or benefits consultant can help you compare your options and make this process more manageable.
3. Life insurance
Protecting lost income in the event of your death or illness is important no matter what, but it feels even more important when you have family, employees and business partners that depend on you, too.
Life insurance can not only help replace your lost income for your family after you die, but your death benefit can help pay for any business-related loans that may have used your family’s assets as collateral. Also, if your business is owned by several people, the partners can take out life insurance policies on each other to fund a buy-sell agreement. This is when the surviving partners agree to use the death benefit from an insurance policy to buy out the deceased partner’s share of the company.
It’s also possible to buy a group policy, which is likely to be cheaper per person than buying an individual policy and—big plus—you and your employees may not need health screenings that may be required when buying individual policies.
Again, as with other small-company benefits, it’s worth working with a benefits consultant to help navigate which life and disability income insurance options are a good fit. As a business owner, it’s also a good idea to meet with a financial advisor to see how these benefits fit into your bigger financial picture.