Smart Moves for 2025: FAQs on Annuities, Roth IRAs, and Retirement Plans for Small Business Owners

An annuity is a contract you enter into with an insurance company where you contribute money—either as a lump sum or through a series of payments—and, in return, you receive regular disbursements in the future. Think of it like creating your own personal pension plan. There are immediate annuities (payments start quickly) and deferred annuities (payments start later), and options for fixed, variable, or indexed earnings. Fixed annuities offer guaranteed returns, variable annuities tie returns to investment performance, and indexed annuities link returns to a market index like the S&P 500.

An annuity can be a powerful addition if you've already maxed out tax-advantaged accounts like 401(k)s and IRAs, and you're seeking predictable, stable income during retirement. It can also protect you against the risk of outliving your assets—something I remind my clients is becoming more common with people living well into their 90s. Annuities are especially helpful for risk-averse investors who want certainty without managing investments personally.

Yes. For non-qualified annuities, only the earnings portion is taxable as ordinary income when withdrawn. If it's a qualified annuity (funded with pre-tax dollars), the entire distribution is taxed. In 2025, standard income tax brackets and the $14,600/$29,200 standard deduction apply. It's important to factor taxes into your cash flow projections during retirement to avoid surprises.

Aside from the increased contribution limit to $7,000 (plus $1,000 catch-up), the SECURE Act 2.0 brought a major shift: Roth 401(k)s are no longer subject to RMDs! That gives Roth savers even more incentive to maximize their tax-free growth potential without worrying about mandatory withdrawals. Many employers are also offering Roth matches, which can be a game-changer.

If you anticipate being in a higher tax bracket later, or if you value the flexibility of tax-free withdrawals, a Roth IRA is worth serious consideration. I often advise younger clients and small business owners during their lower-income years to prioritize Roth contributions. Additionally, Roth IRAs offer estate planning advantages, allowing heirs to inherit accounts with minimal tax impact.

Yes. A Roth conversion remains a strategic move, but remember, you’ll pay taxes upfront on the converted amount. With 2025 brackets and deductions, smart tax planning (and potentially spreading conversions over several years) can soften the impact. Partial conversions over multiple tax years often make more sense than one large conversion.

A SIMPLE IRA (Savings Incentive Match Plan for Employees) is tailored for businesses with 100 or fewer employees. It requires less paperwork and lower administration costs than a full 401(k), while still offering employees a meaningful way to save for retirement. Unlike SEP IRAs, SIMPLE IRAs allow employee salary deferrals.

For 2025, the employee deferral limit is $17,000, with an additional $3,500 catch-up for those 50 and older. Employers must either match employee contributions up to 3% of pay or contribute a fixed 2% to all eligible employees. Contribution deadlines and setup timing are crucial—typically, plans must be established by October 1 to be effective for the calendar year.

Besides lower costs and easier maintenance, a SIMPLE IRA requires no annual discrimination testing. It's a fantastic starting point for solo entrepreneurs, family businesses, or early-stage firms where complexity is the enemy of action. However, SIMPLE IRAs have lower contribution limits compared to a 401(k).

Yes! If your income is within the Roth IRA limits—$161,000 for singles and $240,000 for married couples filing jointly in 2025—you can fund both. It’s one of the most powerful "tax triangle" strategies I recommend. Having tax-diversified accounts gives you maximum flexibility to manage your tax brackets in retirement.

Withdrawals are taxed as ordinary income. Beware: if you take a distribution within two years of first participating, the penalty for early withdrawal jumps to 25% instead of the standard 10%. Planning your withdrawals thoughtfully can save thousands over your retirement.

If you have any traditional (pre-tax) retirement accounts, yes. RMDs now start at age 73. However, Roth IRAs—and starting in 2025, Roth 401(k)s—do not require RMDs during your lifetime, which adds major flexibility in tax planning. Timing RMDs properly can help control taxable income and preserve healthcare subsidies like IRMAA brackets.

Generally, taxable accounts first, then traditional tax-deferred accounts, and Roth accounts last. This allows taxable assets to reduce while preserving tax-deferred and tax-free growth as long as possible. However, sometimes a blended withdrawal strategy works best to smooth taxes across decades.

Waiting. I can't count how many times business owners tell me, "I'll do it next year." Every year without a plan means lost opportunities: less tax deduction, less investment growth, and sometimes forfeiting years of compound interest. Plus, a lack of a retirement plan may limit your ability to retain key employees.

Max out your pre-tax contributions first (401(k) at $23,000 in 2025), then leverage catch-up contributions if eligible. If cash flow permits, backfill a Roth IRA for additional tax diversification. Smart layering of accounts gives you the ability to dial taxable income up or down in retirement. Consulting a CPA to run multiyear tax projections is one of the smartest moves you can make.