Retirement Plan Options for Small Businesses

As a small business owner, you recognize the need to recruit and retain talent. While competitive wages and health insurance typically are the most important benefits for workers, more business owners are recognizing the importance of offering a retirement plan in their benefits package.

Benefits for Both

Offering a retirement plan as an employee benefit can give you an edge in hiring and retaining talented workers. And you can save for your own retirement at the same time. Your tax and financial professional can help you choose which plan works for your business. Here are three to consider:

1. SIMPLE (Savings Incentive Match Plans for Employees) IRA or 401(k) are limited to businesses with 100 or fewer employees. Employers make non-elective contributions of 2% of compensation to each eligible employee or match individual contributions up to 3% of compensation. The plan is easy and inexpensive to set up and operate and has no filing requirement.

2. SEP (Simplified Employee Pension) Plans are available to any size business to set aside money in retirement accounts for the owner and employees. The business owner contributes up to 25% of compensation to a SEP IRA. Employee contributions are not allowed. The plan is easy to set up and operate, and administrative costs are low. There are no filing requirements, and annual contribution amounts are flexible.

3. 401(k) Plans enable employees to contribute a portion of their wages to individual accounts. Salary deferrals are excluded from taxable income (with the exception of designated Roth deferrals, which are made after tax). Employers can contribute to employees’ accounts. The employer must file paperwork yearly to show the plan complies with IRS regulations.

Tax Savings

Employer contributions to a retirement plan are deductible from business income. You also may be able to claim a tax credit for some of the necessary costs of starting a SEP, SIMPLE IRA, or qualified plan.