The following is a guest post by James Wilson.

You throw open your wallet all the time as a small business owner. The printer is out of paper – out comes the wallet. You’re a little short on payroll – out comes the wallet. It’s time to retire – out comes the… whoops.

It’s easy to forget about the future when you’re spending so much time, money, and energy dealing with the problems that have your attention right now. Jim Blasingame, a contributor at Forbes refers to small businesses as a teenager with a hand constantly extended, asking for more and more money. Except, as Blasingame points out, small businesses have dozens of hands that clamor for your cash.

But exactly how much should you be saving? According to the IRS, the average American needs 70 to 90 percent of their preretirement income in order to live comfortably in his or her golden years. Many small business owners optimistically expect their business to fund their retirement when the time comes; others purchase a plan for themselves and their employees. But which one is right for you? A company like Clear Internet would need a much different retirement plan to compensate owners and employees than a smaller business like a mom and pop laundromat would.

You’re far from alone in your struggle to find the perfect retirement plan as an entrepreneur. Luckily, there are some very easy and painless solutions to make sure you are prepared for those long afternoons on the golf course and the best family time of your life.

Reinvesting vs. Retirement

If you plan to let your business revenue stream support you and your family through retirement, you are probably leaning more towards reinvesting every extra penny back into the business itself, rather than paying into a plan like an IRA or 401(k). But financial expert Jim Blasingame doesn’t agree with this strategy, claiming that,

There comes a time when a growing company’s operational and market critical mass should produce sustained profitability. At that point the business owner should act like a parent when the last kid is out of college – stop deferring gratification and start accruing it, like funding a separate retirement plan.

In other words, it’s not a good idea to rely solely on your business to provide for you during retirement. To borrow a tired phrase, it’s like putting all of your eggs in one basket. So, while your business may very well provide for you in retirement, you should at least take some of the money you planned on reinvesting, and choose a good retirement plan as a backup source of revenue.

Retirement Plans for Yourself

Solo 401(k): For self-employed individuals who run a business but are essentially the only employee.

The Solo 401(k) retirement plan is one of the newest retirement plan offerings, and it’s available to most self-employed business owners that act as a business’ only full-time employee. Partnerships where multiple owners act as the full time employees, however, may also be eligible. One other valuable feature of the Solo 401(k) is that it can be extended to your spouse if he/she is on the payroll or receives some form of income from the business.

Special note: A Solo 401(k) can be used as collateral for a tax-free loan for your business.

Solo-DB Plan: Best for high income entrepreneurs.

While Solo 401(k) plans have a contribution cap of around $50,000 per year, the Solo Defined-Benefit plan allows yearly contributions of up to $100,000. One of the greatest advantages of the Solo-DB plan is the flexibility with which retirement benefits can be paid. You can choose to receive a percentage of your average preretirement salary, a flat monthly payment, or use a formula based on how many years you worked prior to retirement.

Special note: The Solo-DB plan offers large contributions that are tax deductible.

Retirement Plans for Your Employees

Simple IRA: Best for people with a small number of employees.

The Simple IRA is perfect for self-employed entrepreneurs or small business owners with 100 employees or less. This type of retirement plan emphasizes simplicity and has fairly low yearly contribution limits ($11,500 for those under age 50 in 2011). If you start this plan after turning 50, you can contribute an additional $2,500 per year until retirement.

Special note: As the employer, you can provide the plan to your employees, and you must match their contributions dollar for dollar (up to a maximum of 3%).

SEP IRA: Employer contributes everything. Up to 25% of compensation or $49,000.

The SEP IRA (or Simplified Employee Pension) plan is typically used as part of a business profit sharing agreement, where the employer contributes to the retirement plan themselves. Upon retirement, benefits are taxed at the normal income tax rate. Employees must have worked with their employer for a minimum of three of the five years before starting the plan.

Special note: SEP IRAs are also good for self-employed entrepreneurs that file a Schedule C tax form every year.

Consider Hiring a Professional

If you are still struggling to pick a retirement plan that best fits your business, there is always professional help available. Although hiring a professional is more expensive than preparing a retirement account on your own (in the short term), it’s best to spend the money now, and not have to worry about the retirement plan until it comes time to retire. Even if you work with a professional, however, be sure to do your own research to cut down on consulting time.

James Wilson is an internet marketing entrepreneur with six years of experience in the industry. He currently divides his time between running his own business and writing about the principles of sound business practices.

Photo by scottwills.

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