Don’t have a retirement plan for your business.
What’s holding you back?
The consuming nature of running a small business often puts retirement plans behind growth plans. This is understandable yet why not have both? According to a recent survey done by CNBC, an average of 70% of small business owners’ wealth is invested in their growing companies. Adding a retirement plan to the mix helps balance the risk and prepare for retirement. It also provides a great benefit to your employees so you can attract and retain highly qualified team members.
Basically, there are four types of retirement plans that a small business owner might consider:
- Simplified Employee Pension Plan (SEP IRA)-Contributions are made by the employer only and are tax deductible as a business expense
- Savings Incentive Match Plan for Employees (SIMPLE IRA)-Is funded by tax-deductible employer contributions and pretax employee contributions(similar to a 401(k) plan)
- Self-Employed 401(k) plan-Offers the most generous contribution limits, but is suitable only for businesses with no “common law” employees, meaning any person working for the business who does not have an ownership interest.
- 401(k) plan (better for larger companies given admin costs)
The first 3 are generally more suitable for very small business-typically, 10 employees or less. Each of these plans has different characteristics-such as ability to cover employees, contribution limits, and administrative responsibility, to name a few. To choose the right plan for your business, you need to understand the nuances of these plans and match them to your priorities.
Each of the 3 small business retirement plans may offer certain tax advantages, including:
- Tax-deferred growth potential, which allows contributions to grow without being reduced by current taxes
- The potential to deduct employer contributions as a business expense
The good news is that all three of these plans are relatively low cost and easy to administer. Neither the SEP IRA nor the SIMPLE IRA requires annual plan filings with the IRS, just certain employee notifications. The self-employed 401(k) plans involves a little more effort, requiring an annual Form 5500 filing once plan assets exceed $250,000.
Ready to get started?
We can help you choose the right plan for your business and work with you throughout the process to make sure payroll reporting and other administrative tasks are taken care of.