As a small business owner you pay taxes as well as Social Security on profits from your business. Many financial advisors are increasingly advising small business owners to look beyond the Social Security for retirement.
As a small business owner you can participate in a retirement plan. There are two types of retirement plans for you to choose: defined benefit and defined contribution.
A defined benefit plan promises the participant a specific monthly income at retirement. These traditional pension plans require assistance from a financial expert to establish. The problem with these plans is that it is not flexible to change provisions based on income each year.
A defined contribution plan on the other hand could provide the much needed flexibility for a small business owner. One type of defined contribution plan is a 401(k) plan. A business owner and/or an employee can make contributions from their monthly paycheck before or after tax depending on the plan. The plan can provide options for where to invest the contributions to the plan. How much to contribute is up to you to decide. The 2012 limits are $17,000 a year for persons under the age of 50 and over 50 can contribute up to $22,500 a year.