SBO 401K for Partnership Businesses: Easy Method of Making Retirement Contributions

I run a small business partnership with two others. Am I limited to the SIMPLE IRA for retirement planning or is there any 401k plan that I can go for?Chris Epperson, Arkansas

A SIMPLE IRA is a good retirement plan for your business if you have employees who meet eligibility requirements that you have set for your company sponsored retirement plans. For example, consider that in addition to your business partners, you also have employees who are employed with your business for 5 years and are above 21 years of age. Then you have to make the retirement plan available to them as well.

If your business does not employ any more people other than yourself and your partners, then you have yet another option open to you- the SBO 401k. The SBO 401k or Small Business Owner 401K is a retirement plan especially designed for business owners like you who do not have other employees who qualify for the plan. You and your partners are considered business owners for the purpose of the plan, irrespective of the terms of your partnership.

You can make contributions from your salary to this 401k plan as well as opt for a profit sharing contribution. That is, a part of the salary you draw from your business in your capacity as partner is deposited into the account. In addition, a predetermined portion of the profits is also added in lieu of the ‘employer contribution’ that is made with regular 401ks.

The best part about SBO 401ks is that it is easy to set up the plan, administer it, and track the deposits and withdrawals you make from it. There are several options you can choose for online DIY SBO 401ks but make sure that you partner with a reliable provider like The software that this site provides helps you manage the plan easily, conveniently and quickly. This package is adaptable and flexible too, allowing you to choose from a range of investment options to park your 401k funds in.

Roth 401k vs. Traditional and Roth IRAs

How does the Roth 401k compare with the Traditional IRA and Roth IRA? What are the advantages of a Roth 401k for my sweet shop employees? – Haydee J. Fries, Delafield, WI 

The Roth 401k is a very useful plan for an employer to offer his employees to ensure their future financial security. It was introduced fairly recently in the year 2006. When compared with the Roth IRA, both plans have several similarities. In both these savings plans, the contributions are made with after- tax dollars. That is, your employee makes his contributions into this account after paying tax on his paycheck. Because it is taxed at this time, the employee gets to withdraw funds from the account tax free in future. This is especially advantageous to those employees who stand a good chance of falling within a much higher tax bracket at retirement time. They pay less tax now on the contribution to avoid paying taxes on the same funds at a higher rate later.

In contrast, contributions to a traditional IRA are made with pre tax dollars. A part of the employee’s paycheck is directly credited into the traditional IRA before he pays tax on the rest. Since he has not paid tax on the funds in this account at the time of making the contribution, tax is charged at withdrawal time. For those who will have very little income post retirement, this could be quite advantageous. But since it is impossible to predict what your financial status will be at retirement time, many employees prefer the Roth version of the 401k where they can simply pay the tax right now when they have a regular income instead of worrying about it later.

You can read more about these plans and also compare a few 401k suites at Use a ready to use software suite like the ones listed here to make the set up and administration of your Roth 401k plan easy.