Guide for Small Business Owners and Solopreneurs for Insurance and Retirement

When you don’t work for a large employer who offers health insurance and retirement benefits, or you are responsible for providing those same benefits at your own small business, making sure you have the right policies in place – for the right price – can sometimes be a challenge.  

Business Owner Options 

Whether you have owned a small business for decades, or are just starting, it’s important to understand the landscape when it comes to protecting yourself and your employees. Here are some of the options for self-employed and small business owners for health insurance and retirement accounts.

Planning for Retirement

On the bright side, owning a business gives you a lot more flexibility when it comes to retirement accounts, explains Justin Pritchard, a certified financial planner with Approach Financial, Inc., in Montrose, Calif. “When you’re an employee for somebody else, you typically only have your IRAs and any workplace plans available,” Pritchard says. “But a business owner can start their own retirement plan.”

The One Participant 401(k) for the Self-Employed 

Enter the one-participant plan. Pritchard often advises self-employed clients to look at an individual 401(k) – also called a one-participant 401(k) or a Solo-K. Why? 

401(k) Options

“Those Solo-k plans allow you to save a substantial amount, and you’re eligible for Roth or pre-tax contributions regardless of your income,” he says. “Compared to SEP IRAs, a Solo-k generally allows for larger contributions and deductions unless you have a very high income. Most people don’t reach that level, which makes an individual 401(k) an excellent option.”

Roth Strategy

Plus, with the right plan design, Pritchard says, you can use something known as a mega backdoor Roth strategy, which enables you to put away up to $70,000 of Roth-type (already taxed) money in 2025. It’s important to note that you can’t contribute to a Solo 401(k) if you have employees. To learn more about one-participant plans, visit the IRS’s website where they offer a section on 401(k)s for the self-employed. You can find the page here: https://www.irs.gov/retirement-plans/one-participant-401k-plans

Retirement Planning for Small Businesses

If you have employees, things can get a little more complicated (and expensive) when it comes to retirement planning. That’s because you may need to contribute to employee accounts if you set up a 401(k) or other workplace plan for yourself, notes Pritchard.

“Planning to give employees 3% of their pay is probably a nice estimate to start with, but the actual amount could go higher or lower, depending on the details,” he says, explaining that doing so helps to retain and incentivize your staff, but it’s also an expense. “There are also administrative expenses with 401(k) plans, but SEPs and SIMPLEs don’t have the same requirements.”

Professional Employer Organizations

If the alphabet soup of retirement plan options seems a little confusing, don’t fret. There are companies, of course, that focus on helping small businesses provide an array of benefits to their workers. Known as a professional employer organization (or PEO), these firms offer outsourcing services for everything from payroll to benefits administration. To find a PEO that best meets your needs, you can do an online search. 

More Resources for Small Business Owners

• Internal Revenue Service offers a variety of resources for companies with small staffs seeking broader benefits. An online comparison of retirement plan options from the IRS is available here: https://www.irs.gov/pub/irs-pdf/p3998.pdf

• The Small Business Retirement Savings Advisor, created by the Employee Benefits Security Administration, provides retirement savings options for small business employers, including help to determine which programs could be most beneficial. Visit the site here: https://webapps.dol.gov/elaws/ebsaplan.htm

Health Insurance Coverage for Small Businesses 

If your business employs less than 50 full-time workers (or what’s known as  50 full-time equivalents), you are not required to offer healthcare coverage. If you’re self-employed, you can buy your coverage on the exchanges via healthcare.gov.

However many smaller companies do want to extend this important benefit as a way to hire and retain top talent. For those employers, the Small Business Health Options Program (SHOP) could provide a solution. To get started, you need to determine if your business is eligible for the program. Healthcare.gov offers several online tools – including calculators and estimators – to make figuring that out a little more manageable.

You can visit the site here to get started: https://www.healthcare.gov/small-businesses/choose-and-enroll/resources

Qualifications

Generally, to qualify for SHOP, according to Healthcare.gov, the small business (or non-profit organization) must:

• Plan to offer health insurance coverage to all full-time employees.
• Have a primary business address in the state where coverage is to be purchased.
• Have at least one employee enrolling in coverage who isn’t the owner, business partner, or spouse of either.
• Typically have between one to 50 full-time equivalent workers

With reporting by Casandra Andrews