Ramsey Everyday Millionaires: Should I Do a 401(k) or Simple IRA?

Release Date: December 11, 2024
Hosts: Dave Ramsey, Ken Coleman, Rachel Cruze, George Kamel, Jade Warshaw, Dr. John Delony
Podcast Description: Explore how ordinary people have built extraordinary wealth and learn strategies to live below your means, avoid debt, invest wisely, and practice disciplined financial management.

Introduction

In this episode of Ramsey Everyday Millionaires, listeners delve into the critical decision of choosing between a 401(k) and a Simple IRA for small business owners. The discussion is centered around Stephanie, a small business owner seeking guidance on the best retirement plan for her growing pest and wildlife control company.

Stephanie’s Business Background

Stephanie introduces her business to the hosts, highlighting its rapid growth and structure:

• Business: Pest and Wildlife Control
• Established: 2016
• Team Size: 17 members, including herself and her husband
• Revenue Distribution: 80% from wildlife control and 20% from pest control
• Growth: Achieved 150% growth in the current year

Timestamp [00:57]
Stephanie: "I have a team of seven that includes my husband and I... This year we've experienced about 150% growth."

The Core Question: 401(k) vs. Simple IRA

Stephanie reaches out seeking advice on implementing a retirement plan for her business. Her primary concern revolves around understanding the pros and cons of choosing a 401(k) over a Simple IRA.

Timestamp [00:32]
Stephanie: "I own a business and I'm trying to implement a 401k or a simple IRA plan. And I'm wanting to know the best things to look at, what to look for, what are the pros and cons?"

Insights from Jade Warshaw

Jade Warshaw advises Stephanie to consider various factors before making a decision:

• Max Contributions: Evaluate the maximum contributions for each plan.
• Employer Matching: Assess how much the business can match versus the employee contributions.
• Tax Implications: Understand the tax benefits of each option.
• Fees: Compare the costs associated with administering each plan.

Timestamp [01:17]
Jade Warshaw: "It all depends on how much, like what the max contributions are, how much the business is going to match that versus... it's better for the money to go to your team members."

She emphasizes the importance of consulting with a tax professional or a financial advisor to analyze the specific financial situation of the business.

Ken Coleman’s Practical Advice

Ken Coleman builds on Jade's insights by stressing the need for personalized consultation:

• Consult a Tax Professional: Engage with a tax expert who specializes in small businesses.
• Peer Consultation: Talk to other small business owners with similar profiles to gain practical insights.
• Simplify the Decision-Making Process: Create a straightforward comparison between the two plans focusing on benefits for both the business and its employees.

Timestamp [02:05]
Ken Coleman: "Go talk to a few [tax professionals]. They want to specialize obviously in small businesses and how they help with some of this stuff."

He also commends Stephanie for her business growth and dedication to her employees, reinforcing the importance of making a choice that benefits both the business and its team.

Stephanie’s Considerations and Concerns

Stephanie shares her CPA’s recommendation and her reservations:

• Recommendation: Her CPA suggests a Simple IRA to avoid the higher fees associated with a 401(k).
• Concerns with 401(k): Believes that a 401(k) offers more flexibility, such as vesting and optional employer matching, which align better with her business’s values and employee engagement strategies.

Timestamp [03:02]
Stephanie: "She immediately said, you need to go with a simple IRA... I'm viewing a 401 or a simple IRA as a little more limiting than a 401k."

Balancing Business Needs and Employee Benefits

The hosts discuss the importance of finding a balance that serves both the business’s financial health and the employees' retirement needs. They highlight that while a Simple IRA might present lower fees, a 401(k) could offer greater flexibility and benefits, depending on the specific circumstances of the business.

Timestamp [04:17]
Ken Coleman: "What's good for both."

Timestamp [04:30]
Jade Warshaw: "It'd be better for the money to go to your team members."

Conclusion and Encouragement

The episode concludes with Dave Ramsey encouraging listeners to visit ramsaysolutions.com/retire for more information on retirement planning. He underscores the importance of making informed decisions to secure both personal and employee financial futures.

Final Remarks [05:10]
Dave Ramsey: "Thanks for tuning in to Ramsey Everyday Millionaires... Ramsey Solutions is a paid non-client promoter of participating pros."

The hosts wrap up by celebrating Stephanie’s entrepreneurial spirit and her commitment to providing for her team, embodying the essence of the American dream through dedicated small business ownership.

Notable Quotes

• Stephanie:
  "[03:02]" "She immediately said, you need to go with a simple IRA... I'm viewing a 401 or a simple IRA as a little more limiting than a 401k."

• Jade Warshaw:
  "[04:17]" "It'd be better for the money to go to your team members."

• Ken Coleman:
  "[04:30]" "What's good for both."

• Dave Ramsey:
  "[05:10]" "Ramsey Solutions is a paid non-client promoter of participating pros."

Key Takeaways

• Evaluate Business Growth: Rapidly growing businesses like Stephanie's must carefully consider retirement plans that align with their financial trajectory.
• Consult Professionals: Engaging with tax professionals and financial advisors is crucial in navigating the complexities of retirement plan options.
• Balance Benefits: Strive to choose a retirement plan that benefits both the business and its employees, ensuring sustainable growth and employee satisfaction.
• Understand Fees and Flexibility: Weigh the costs and flexibility each plan offers to determine the best fit for your business model and employee needs.

By addressing these factors, small business owners can make informed decisions that support both their own financial goals and those of their employees, fostering a prosperous and collaborative work environment.