This article originally appeared in The Triton–a boat captain and yachting magazine–back in 2013. The contribution limits have been adjusted for 2017 figures. The material discussed is applicable not only for Yacht Captains but small business owners from a variety of industries as well.

As I work with more and more yacht captains, I’ve learned that many of them share a common goal: turning their current abundant liquid wealth into something they can count on in retirement. In the past few years a new planning tool has been developed that can be used to help provide just that. Roth 401(k)s are a unique way for yacht captains (especially those who have set up LLC’s, S-corps or Partnerships) to not only set money aside that grows tax free, but also to allow their businesses to make “donations” towards their retirement. Let me explain.

Let’s consider the situation of Mr. Yacht Captain, a 42-year-old New Englander who moved to South Florida in the 1990s with his family. He spent years honing his skills, working his way up from small to large vessels. Unfortunately, he hadn’t spent much time building his own financial future. His total income last year, paid to him through his S-Corporation, was $175,000.He wanted to set up a retirement plan to set aside at least $30,000 a year. His ultimate goal is to retire and live on a beach in Central America by the age of 62. If I had a client like Mr. Yacht Captain, I would recommend he and his corporation look into establishing a Solo Roth 401(k). Roth IRA’s have been around a while, as have 401(k)s, but in 2006, the U.S. Congress changed the rules to allow traditional 401(k) plans to use Roth contribution accounts. In a traditional 401(k), employees’ contributions are contributed pre-tax and the money grows tax deferred in the plan. Employers can match a portion of their employees’ contributions as a way to reward and retain them. When the employee makes withdrawals in the future, the money is taxed.

Roth 401(k)s work differently. They offer a small business owner the best of both worlds: a tax deduction today for their business and some tax-free withdrawals in the future. This is accomplished by using two separate accounts in the plan: a Roth 401(k) and traditional 401(k) account. Employee contributions go into the Roth account; employer matching contributions go to the traditional 401(k) account.

Because he has no employees (aside from himself), Mr. Yacht Captain’s Roth 401(k) is considered a “solo” plan. In a solo plan, the business owner wears two hats–the employee and employer. Solo plans have the same rules and requirements as other retirement plans with more than one participant. The main difference is they are easier to set up and administer. Inside his Solo Roth 401(k), he would be able to choose from a variety of investment options. Depending on his financial situation, investment objectives, time horizon and risk tolerance, he would be able to choose from mutual funds, Exchange Traded Funds (ETFs) and private money managers.

For 2017, Mr. Yacht Captain could contribute up to $18,000 from his after-tax wages into the plan. He wouldn’t receive a tax deduction on this contribution as it goes into the Roth account. However, it will grow in this account tax free. When he makes withdrawals during retirement (meeting certain requirements), he’ll pay no income taxes on the contributions or growth from this account. Also, keep in mind withdrawals made prior to 59 1/2 from both Roth and Traditional 401(k) accounts may be subject to a 10% early withdrawal penalty. Mr. Yacht Captain’s S-corp will also contribute $12,000 into the traditional 401(k) part of his company’s plan. This will be a tax deduction to his S-corp that will ultimately pass through to him as the owner, giving him a deduction of about $3,500, assuming a 28 percent tax bracket. In retirement, he will have to pay income taxes on the withdrawals that come from the Traditional 401(k) account. Ultimately, in this scenario, he gets the best of both worlds: a tax deduction for his company today and some tax-free earnings from the Roth account.

If he is able to contribute $30,000 a year in his Solo Roth 401(k) for the next 20 years, he could potentially have a nest egg of about $1.2 million assuming he receives  a hypothetical 7% return on his investments.

There are variety of retirement plan options out there for individuals and businesses.  Important factors business owners should consider as part of the decision should include contribution goals, the nature of their business, income, number of employees, and cost sensitivity. If you don’t have a retirement savings plan in place for your business, now is a great time of the year to look into establishing one!