If you’re a woman who owns a small business, you have plenty of company.
Women own more than 10 million U.S. companies, and women-owned businesses account for about 40 percent of all privately held U.S. firms., according to the Center for Women’s Business Research.
The good news? Women are rapidly entering the small-business arena. Unfortunately, they may face a retirement savings gap compared to male business owners.
Consider these statistics:
•19.4 percent of male business owners have 401(k) or similar plans, compared with just 15.5 percent of women owners, according to the U.S. Small Business Administration’s Office of Advocacy.
•The percentage of female business owners with Individual Retirement Accounts is about the same as that of male business owners — but the men have more money in their accounts.
The average woman’s IRA balance is about $51,000, compared with $91,000 for men, according to a recent Employee Benefit Research Institute report.
Although these figures change constantly with the market's ebbs and flow, the difference between genders remains significant.
One way to help close this savings gap is to set up a retirement plan for your business. But for many women business owners (and male owners), the perceived cost of setting up and running a retirement plan has been an obstacle.
However, the retirement plan market has opened up considerably for small business owners over the past several years, so you might be surprised by the ease and cost of administering a quality plan that can help you build resources for your own retirement — and help you attract and retain good employees.
With a financial professional's help, you can consider these plans, which may be available to you:
• Owner-only 401(k) — This plan, also known as an individual 401(k), is available to self-employed individuals and business owners with no full-time employees other than themselves or a spouse. You may even be able to choose a Roth option for your 401(k), which allows you to make after-tax contributions that can grow tax-free.
• SEP IRA — If you have just a few employees or are self-employed with no employees, you may want to consider a SEP IRA. You’ll fund the plan with tax-deductible contributions, and you must cover all eligible employees.
• Solo defined benefit plan — Pension plans, also known as defined benefit plans, are still around — and you can set one up for yourself if you are self-employed or own your own business. This plan has high contribution limits, which are determined by an actuarial calculation, and as is the case with other retirement plans, your contributions are typically tax-deductible.
• SIMPLE IRA — A SIMPLE IRA, as its name suggests, is easy to set up and maintain, and it can be a good plan if your business has fewer than 10 employees. Still, while a SIMPLE IRA may be advantageous for your employees, it’s less generous to you, as far as allowable contributions, than an owner-only 401(k), a SEP IRA or a defined benefit plan.
As a business owner, you spend a lot of time thinking about what needs to be done today, but you don’t want to forget about tomorrow. Consider putting a retirement plan to work for you soon.
Joe Faulk is a financial adviser.
This article originally appeared on Crestview News Bulletin: FINANCIAL FOCUS: Women business owners need retirement plans