Retirement Plans for Your Employees
A quality retirement plan ranks as a top priority when candidates are considering potential employers. There are a broad range of plans to choose from. Your strategy in choosing one should be to match your company size, compensation structures and culture with your financial goals, both personally as the owner, and for your company. Offering an attractive benefits package reinforces recruitment efforts and will help boost the overall satisfaction of talented employees. Plus, many employer-sponsored plans can offer significant tax advantages to your company.
As a financial consultant, I work with companies to arrange additional services, such as education and enrollment seminars, that will help give all personnel a thorough understanding of their retirement plan. Here is a brief synopsis of some of the most frequently used plans. Of course, there are many options. You should discuss your unique situation with a financial advisor to determine the best plan for you.
Common Retirement Plans
An SEP IRA is a simple and relatively inexpensive way for sole proprietors and smaller businesses to offer a retirement plan. There are no mandatory or minimum contributions and funding is provided by the employer only. If you have employees, you may be required to contribute for them as well. As the business owner, you can deduct contributions from your company’s federal taxable income.
This plan offers minimal costs and administration. SIMPLE IRAs are funded by employee and mandatory employer contributions. Employers have a choice of matching dollar-for-dollar up to the first 3% of employee pre-tax contributions or matching 2% of compensation to all eligible employees. This works well for companies with 25 or fewer employees. As the business owner, you can deduct employer contributions from your company’s federal taxable income.
The Solo 401(k) may be a good option for the small business owner with no employees who is looking for an inexpensive way to save more money than most other retirement plans allow. You can contribute using a combination of salary deferrals and profit sharing with no mandatory or minimum contributions. Spouses and equal business partners are also eligible to participate. You may choose to allow a Roth 401(k) salary deferral within the plan. As a business owner, you can deduct contributions for yourself and your partner from your company’s federal taxable income.
The 401(k) is the most commonly used employer-sponsored retirement plan, becoming increasingly affordable and more widely used by businesses of all size. It is a flexible plan offering the highest level of employee pre-tax contributions, a wide range of employer contribution options and an optional loan provision. It works well for companies with 10 or more employees who want to start a new plan or transfer an existing plan. Employer may choose to allow all Roth 401(k) salary deferrals within their plan. As the business owner, you can deduct employer contributions from your company’s federal taxable income.
Restrictions, limitations and additional fees may apply.
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