Small Business Retirement Plans: What You Need to Know
by Mashum Mollah Business Planning & Opportunities Published on: 04 August 2018 Last Updated on: 14 November 2024
As a small business owner, offering your employees a retirement plan can benefit you, your company, and your workers.
A recent survey published by The Guideline shows that less than half of Americans are somewhat, or very confident, that they will be able to retire comfortably. For Americans whose employers don’t offer a retirement plan, that percentage drops to less than one third. On the other hand, when employers do offer their workers a retirement plan, over half feel confident in their ability to comfortably retire.
Want to learn more about choosing a retirement plan that’s right for you?
Find out what you need to know about small business retirement plans here!
What You Should Know About Small Business Retirement Plans
When it comes to planning for retirement, research indicates that it isn’t only employees who feel unprepared. According to Manta, one-third of small business owners don’t have a retirement savings plan, either.
The owners surveyed cited a variety of reasons for their lack of post-retirement planning. Some stated that they did not earn a large enough profit to save substantial funds. While others claim they never intend to retire at all.
No matter what your reasons for forgoing a self-employed 401K, you could be making a big mistake. There is no such thing as guaranteed lifelong health, after all. And, the truth is, most people will come to a point in life when their earning potential will start to decline.
This valuable benefit can lessen your taxes, help maintain a high-quality staff, and help employees feel secure about their future.
Check out the small business retirement plans comparison below.
Comparing Your Options for a More Secure Future
If the thought of choosing from a wide range of small business 401K plans overwhelms you, we may be able to help. Our comparison offers a simplified look at the retirement options available to you. It shows how these plans might impact you, your company, and your staff.
Traditional 401K Plans
Many employers prefer traditional 401K plans because of the flexibility in eligibility requirements.
Other benefits are options such as profit sharing, matching, and the potential to use as a source for personal loans if needed.
Employees also appreciate the ability to tap into their retirement savings if necessary. They are fully vested for any contributions made to their 401K from day one.
These small business retirement plans have three requirements, which are as follows:
- The employer has a fiduciary duty to act in the best interest of employees regarding the 401K plan offered
- The company must conduct annual non-discriminatory testing to ensure that all employees have the opportunity to participate in the 401K plan if they so choose
- Small business owners must file a FORM 5500 with the IRS Department of Labor each year that they offer the 401K plan
In addition, employers can receive tax credits and deductions for offering a 401K plan to workers. And, employers can choose between profit sharing and profit matching options.
SIMPLE IRA Plans
The SIMPLE IRA, or Savings Incentive Match Plans for Employees, is often a good choice for employers with less than 100 employees. This is especially true if no prior small business retirement plans have been available.
This plan offers employers the opportunity to assist workers by matching up to 3% of their salaries.
Employees up to 50 years old can contribute $12,500 dollars per year. Employees older than 50 can contribute an extra $3,000. This can help those who have not prepared an opportunity to make up for lost time, to an extent.
SEP IRA Plans
This is an employer-initiated plan that allows business owners the freedom to set up and control contributions. Some employers prefer this plan because there are no testing or reporting requirements. Employees set up their own plans to receive contributions.
Although this plan provides an easy set-up for employers and does not require outside interferences, it comes with a risk. Should you have employees that opt to save aggressively, you might end up having to pay big bucks to keep up with your contributions.
If you have questions about setting up your own retirement benefits, American IRA is a self-directed IRA resource that helps small business owners know and explore their options further.
Solo 401K
These small business retirement plans are best suited for owners of companies with no employees, other than themselves and their spouse.
These plans offer the business owner and their marriage partner the same benefits of a traditional 401K.
The benefit is that there are far fewer compliance rules involved. For example, you have no obligation to participate in non-discriminatory testing. Nor do you have a fiduciary responsibility.
You must file either a FORM 5500 EZ or a FORM 5500 SF with the IRS each year, but only if the 401K assets exceed $250,000 dollars.
Want More Advice for Small Business Owners?
Owning your own business is full of challenges.
In addition to small business retirement plans, you have a long list of other things to think about.
We understand what it takes to run a small business, and we want to help you achieve success.
We’re always looking out for top-notch tips to help you save money and boost your bottom line.
Want more expert advice from small business pros?
Look no further for all-in-one expertise that can help you grow your business in the most cost-effective ways possible.
Check out this post to find out how you could cut your company’s costs by thousands!
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