Gail MarksJarvis: Self-employers have options to save for retirement and reduce taxes

If you have a small business and are still stinging from the income taxes you paid Uncle Sam, you can take a simple step now that will get you through tax time in better shape next year and take care of one of the big mistakes small business owners tend to make: Failing to save adequately for retirement.

Entrepreneurs are often so busy tending their businesses they ignore retirement. Others simply put every cent they have into the business. That might be good for growing the business but not necessarily good for coming up with spending money in retirement.

It can also mean business owners end up paying more in taxes.

“Entrepreneurs need a balance between investing in the business today and investing in their future financial well-being,” said Lule Demmissie, managing director of retirement at TD Ameritrade.

Yet, 40 percent of self-employed people don’t save regularly for retirement and 28 percent don’t save at all, a TD Ameritrade national survey found.

Like employees, business owners can put money into a retirement savings account at work and take a tax deduction. Some savings plans allow you the flexibility to save a lot at times of plenty and cut back when cash isn’t coming as expected.

Ideally, your budget allows savings to automatically roll into an account each month. If your plan is to save what’s left over, chances are it won’t be there. That’s true whether your business is making a lot or a little.

To get the most from your savings, you want a retirement fund protected from taxes so your money grows effectively. For sole proprietors, the best approach would be to open a solo 401(k) or SEP IRA, according to Mike Piper, a Manitou Springs, Colorado, certified public accountant, who blogs about these options at ObliviousInvestor.com.

With a solo 401(k), you are allowed to save up to $18,000 a year as an individual, or $24,000 if you are over 50.

Further, as an employer of yourself, you are allowed to add extra savings to the fund, up to $53,000 a year with a solo 401(k) or SEP IRA, Piper said. Besides a tax deduction for the savings, your money would grow year after year without being taxed until removed.

Keep in mind that you can’t save more than you’ve made in the business and you must apply a formula related to the business profit and your self employment tax. This calculator will help: https://personal.vanguard.com/us/SbsCalculatorController.