Retirement Accounts For Small Businesses

When you’re running your own business you still need to ensure you have a robust retirement plan in place for your employees. It offers them great incentive to stay with you and is a much more attractive prospect, especially with people these days becoming more conscious of their futures and how far their money can stretch. It might seem like a two minute job but if you’re going to get the best out of it for everyone involved then you’ll need to look a bit further than the first thing that pops up. Luckily for you we’ve put together a few of the basics to help make your life that much easier.

So what are the options when it comes to retirement plans for small businesses? Well, the main ones are:

  • Simplified Employee Pension Plan (SEP IRA)
  • Savings Incentive Match Plan for Employees (SIMPLE IRA)
  • Self-Employed 401(k) plan

While there are also 401(k) plans also available, these are more commonly used for larger businesses as they incur high setup costs and administration. Every plan offers different benefits and covers different levels of affordability so do take the time to look into them all.

SEP IRAs are a simple and affordable option for your employees, largely because they don’t have to pay anything into it themselves. All payment comes from the employer however they are tax deductible as they are considered a business expense. While it doesn’t have all the bells and whistles that some of the other retirement plans offer, it is easy to set up and involves considerably less reporting and fewer IRS Tests than other plans. A simple and sturdy option for both employer and employee.

SIMPLE IRAs are more commonly used for businesses with 100 employees or fewer. Not as fancy as some of the other options available, it’s main selling point is the simplicity of setup with this plan. Although both employer and employee are expected to contribute to this plan, the cap for employee contribution is only $11,500 per year plus $2,500 catchup for those over 50. This is not as much as some of the other options out there and when the employer only has to match the first 3%, it might not be the most appealing to potential employees.

Finally, the Self Employed 401(k) Plan, which is the most commonly used by small businesses. Offering the most flexibility in terms of accessibility to funds and contribution limits, the employer is not expected to match any contributions. An upper limit on contributions of $16,500 or $22,000 for those over 50 appeals most to many people looking for jobs in the current economic climate. With optional extras such as the Roth 401(k) (which offers up front taxation, rather than when withdrawals take place in the future) it is definitely the option that appeals to most employers and employees.

Written by:
Alex Lopez
Posted on:
August 12, 2017