Small Business Retirement Plans
Business retirement plans offer special advantages to companies over personal retirement plans. They offer employee incentives and provide additional contributions, minimizing expenses and maximizing deductions. Multiple types of plans exist. Review the chart below to learn more about the options available.
-
A 401(k) is great for established businesses. It comes with higher costs but allows for additional customization, ensuring it meets your needs. The plan is for companies with up to $50 million in assets that want to offer employees the tax savings and retirement benefits.
Employee Contributions:
Payroll-based contributions with an annual limit, not to exceed 100% of compensation. An additional contribution amount is available for employees over the age of 50.
Employer Contributions:
Can make matching, fixed, or profit-sharing contributions. Limits exist when reviewing the combination of employee and employer contributions.
-
A Self-Employed Pension, or SEP, IRA is great for small businesses with few to no employees. It allows for large contributions without many of the limitations of other plans. Contributions can be costly for businesses with multiple employees.
Employee Contributions:
There are none.
Employer contributions:
Contributions up to the lesser of the annual limit or 25% of the employee’s compensation. 20% may be used instead of 25% for a streamlined process when dealing with contribution limits and contributions, as a deduction, lower compensation.
-
A Savings Incentive Match Plan for Employees, or SIMPLE, IRA is a great tool for small businesses with employees that are beginning the retirement plan process. The costs are low and they are easy to manage. SIMPLE IRAs have lower maximum contribution limits as well as lower employer contribution percent limits. The SIMPLE IRA’s lower limits become a challenge as businesses grow and wish to offer additional incentives.
Employee Contributions:
Employees can contribute up to the lesser of the annual limit or 100% of their compensation. An additional contribution amount is available for employees over the age of 50.
Employer Contributions:
Match up to 3% of the employee’s compensation. Alternatively, a business can contribute 2% for every employee even if they do not make contributions to the plan.
-
Solo 401(k) plans are great options for businesses with no common-law employees. It allows for maximizing contributions, deferrals, and provides access to Roth contributions.
Employee Contributions:
Payroll-based contributions with an annual limit, not to exceed 100% of compensation. An additional contribution amount is available for employees over the age of 50.
Employer Contributions:
Contributions up to the lesser of the annual limit or 25% of the employee’s compensation. Limits exist when reviewing the combination of employee and employer contributions.
It’s important to plan which type of account will work best for your business before establishing one. Are you unsure which plan best suits your needs? Contact us today to get the help you deserve!
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Level Books assumes no liability for actions taken in reliance upon the information contained herein.
