Small Business Retirement Plans

Anyone who works for a large company is nearly guaranteed some form of a retirement plan. While government jobs seem to be the only kind holding on to pension plans, options like 401(k) plans and Individual Retirement Arrangements (IRAs) are widely offered at big companies. However, startups and small businesses often do not have retirement options because they seem expensive and complicated to create and maintain. However, there may be smart options for owners to create small business retirement plans—with potential tax advantages.


For example, employer contributions may be deductible since the money that you spend on your employees will typically reduce your taxable income. Additionally, small businesses may be eligible for a tax credit to cover the administrative costs of starting certain types of plans. There are a variety of small business retirement plans to consider though, and small business owners need to carefully select the one that works for their business and their employees.

For example, people generally think of two different kinds of IRAs: a Traditional and a Roth. The traditional IRA has a taxpayer make contributions to an account. If those contributions are made with after-tax money, then they are typically deductible on tax returns. The money grows tax-deferred until it is withdrawn at retirement. The goal is that taxable income is lower at retirement, so you’re paying tax later and at a lower rate than if you had while employed. Meanwhile a Roth IRA does not have the advantage of a tax deduction at contribution because money grows tax-free. Many employees set up an IRA to supplement another retirement plan, like a 401(k). Small businesses however, may not offer another retirement plan.

An option some small business retirement plans use is to help its employees set up and fund their IRAs as part of a benefits plan. An advisor at Apex Financial Advisors can discuss the different plans for small businesses, but they typically include “the payroll deduction IRA”—where an employer does not contribute to the plan, but makes it easy for employees to contribute. Another option is a “simplified employee pension IRA.” For a “SEP IRA,” employers make a uniform percentage of pay contribution for each employee. Finally, business owners can consider a “Savings Incentive Match Plan for Employees IRA (SIMPLE IRA)” plan. Employees can contribute a percentage of their salary from each paycheck and the employer also makes a contribution.

There are also defined contribution plans that small businesses can consider, like a traditional 401(k). With a traditional 401(k) plan, eligible employees are automatically enrolled and contributions are deducted from their paychecks at a fixed percentage. Another option is a profit-sharing plan which allows employer contributions to be discretionary. There are even more options for businesses to use, like a safe harbor 401(k) plan that eliminates the nondiscrimination-testing requirement.

This is just a sample of the different options available to small business owners. Retirement plans are numerous and they can certainly be complicated. However, with a little expert help, you could find an option that works well for you, your business, and your employees. Contact an advisor at Apex Financial Advisors today to discuss any aspect of your retirement plan, your small business, and your options!

Source:
http://www.forbes.com/sites/kellyphillipserb/2015/08/24/debt-equity-and-startup-money/