Monday, December 9, 2013
Business Retirement Plan Considerations
Helping your employees achieve financial security, no matter where they’re starting from.
Your business may be relatively small in size, but you no doubt realize – just like the “big guys” do – that having a retirement plan for your employees can be an attractive benefit. A company-sponsored plan can improve both employee job satisfaction and productivity.
In addition, a tax-qualified retirement plan offers advantages to both employees and employers. For example, employer contributions to such plans are deductible. And, there’s a tax credit available to qualified small employers that set up an eligible new plan.
The Choice is Yours
Small business owners have a number of choices when it comes to choosing a retirement plan. Some types of plans carry a heavier administrative burden than others, while some are quite simple to manage. Here are some of your options:
401(k) Salary Deferral Plan. 401(k) plans can be a very effective way for employees to save for retirement. Basically, employees defer a portion of their pay to their 401(k) plan before any taxes are withheld. You can choose to match some or all of the employees’ contributions. Current income taxes on plan earnings are deferred, too. No income tax will be owed until funds are actually distributed from the plan. Best of all, we offer a 401(k) plan designed just for small businesses – one of the simplest 401(k) plans available.
SEP. The Simplified Employee Pension (SEP) allows small businesses to, in essence, set up individual retirement accounts (IRAs) for each participating employee. You can then make deductible contributions to each employee’s IRA, as long as the total contribution amount doesn’t exceed the IRS limits. Annual contributions are not mandatory to the plan. And with low start-up costs, minimal reporting and recordkeeping requirement, and flexibility in allocating annual contributions, the SEP is truly a simple approach to retirement planning.
SIMPLE IRA. The Savings Incentive Match Plan for Employees (or SIMPLE) is another option to consider. This type of plan can be established as an IRA for each employee for businesses with up to 100 employees. Under a SIMPLE Plan, you generally must either match each participating employee’s contribution (up to a certain level of compensation) or contribute at least a minimum amount on behalf of all eligible employees, whether they contribute to the plan or not. As the name implies, the plans are simple to set up and maintain because the set-up procedures and administrative requirements are quite straightforward.
Profit Sharing Plan. These plans offers a great deal of flexibility. The sponsoring business can include a formula in the plan to determine annual plan contributions or contributions can be made at the discretion of the employer’s governing body (its board of directors, for example). If business is sluggish in a given year, then no contribution has to be made. And, since plan contributions are based on profitability, a profit-sharing plan can provide a positive incentive for employees to work harder and smarter.
Put our experience and financial strength to work for you
Each of these options has its own unique benefits, but deciding which plan type is best for you can be tricky. I’m here to help in any way I can. I’m backed by a team of experts, so together, we can decide the approach to take. Give me a call to find out more.