Retirement Plans
As a small business owner, choosing the right retirement plan is crucial for both personal financial security and attracting and retaining quality employees. The following is a brief outline of potential plans to consider, but it is not all-inclusive.
There are various types of 401 (k) plans, and there are other plans available that are not mentioned here.
SEP IRA
(Simplified Employee Pension IRA)
Simplicity - These are relatively easy to set up and have minimal administrative requirements, making them suitable for small businesses with limited resources.
Flexible contributions help the employer in that you can contribute up to a certain percentage of each eligible employee's compensation, providing you with flexibility in managing your contributions based on business profitability.
Employees – Since only the employer makes contributions, if you have a business with employees, these employees may prefer a different plan. However, as the business owner it gives you the flexibility to reward employees without requiring their contributions.
Contribution limits: SEP IRAs allow higher contribution limits than traditional or ROTH IRAs
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During 2023, the contribution limit or 25% of eligible employee compensation up to $66,000 but this amount is subject to change each year.
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At the maximum, you can still contribute an additional amount up to the maximum IRA contribution for that given year, which often changes each year and depends on your age. Contact us for the current age and rates [link to contact us form]; However, consider making that contribution to a ROTH IRA if you are eligible to do so. (Consult your tax or financial advisor for what may be best for you.)
SIMPLE IRA
(Savings Incentive Match
Plan for Employees IRA)
Employees may participate, and this plan can involve both employer and employee contributions, promoting employee engagement in saving for retirement
Easy administration, the SIMPLE IRA is slightly more complicated than a SEP despite the name.
Match or Contribution is the choice of the employer, who can choose between a matching contribution or a non-elective contribution for employees, and this flexibility can be attractive for many employers.
401k
Wide Range of investment options, allowing you and your employees to tailor investments to individual risk tolerances and goals.
Higher contribution limits. Contact us for current contribution limits, which often change [insert link to contact us page]
These plans are generally more attractive to employees and prospective employees for retention, and offering a 401 (k) can significantly enhance your business’s appearance and retention rate for employees by demonstrating a commitment to their financial well-being.
The 401 (k) plan can be structured to allow for loans, and hardship withdrawals are also allowed depending on the plan design.
Most business owners will opt for a plan administrator to help them administer the plan and keep in compliance with ERISA laws. The plan may bear the fees for these services or plan participants, which vary based on several factors.
Keogh Plans or (HR-10)
Self-employed individuals can use this tool, allowing them to contribute as both employer and employee.
These plans are flexible and come in both defined-contribution and defined-benefit variations, offering flexibility in how contributions are made based on your needs.
Contributions may be tax-deductible, potentially lowering your current tax liability, and they provide you with greater control over your retirement savings and investment choices.
The maximum contribution again changes from year to year, however, the benefit of having it designed as a defined benefit plan may be appealing to some.
Some types of pension plans allow for the deferral of several hundred thousand dollars per year into the plan and may be appropriate for business owners without many employees, where the business has high earnings.
