Retirement Plans for Business Owners

Make it your business to plan for retirement. Discover the benefits of the right plan for your employees.

Insurance & Employee Benefits for Small Business | Retirement Plans for Business Owners

You’ve built your business and have a great future ahead of you. You hope. Have you thought about your business 10, 15, 20 years from now? Do you have an exit plan? Most small businesses don’t have one. How about a retirement plan for you and your employees?

There are 30 million small businesses in the U.S. Of that, 42% of small business owners count on the sale of their company for retirement income[i]. That means many don’t save for retirement at all or think about retirement plans for their employees.

In today’s market, not having an employee retirement plan makes it difficult to hire and retain employees. There are several advantages to retirement planning as an employer:

  • Save for your own retirement
  • Receive tax credits and other government incentives
  • Hire and retain better employees
  • Boost employee productivity with plans tied to company profits
  • Deduct employer contributions from your taxes

You and your employees can also look forward to the following:

  • Investing in their future
  • Setting aside money for their retirement
  • Enjoying tax-deferred gains from investments
  • Be happier with a benefits package that includes a retirement plan
  • Getting support from licensed fiduciary to help your with your options

Choosing a plan

From developing business plans to maintaining a budget, business owners shoulder a lot of responsibility. It should therefore come as no surprise that funding retirement for you and your employees will likely fall on you as well.

How do you choose what retirement plan options are right for your business? There are several types to choose from and the options can be confusing. Below are some advantages and detail to help you with your selection:

A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. Elective salary deferrals are excluded from the employee’s taxable income. Employers can contribute to employee accounts. Distributions, including earnings, are includible in taxable income at retirement (with some exceptions). Advantages of the plan include:

For EmployersFor Participants
  • Tax benefits
  • Employer contributions deductible as business expense
  • Flexible programs
  • No annual nondiscrimination testing for some safe harbor 401(k) plans
  • High contribution limits
  • Loans may be offered

A SIMPLE IRA plan (Savings Incentive Match PLan for Employees) allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers (with less than a 100 employees) not currently sponsoring a retirement plan. Employers must match employee contributions or make unmatched contributions. Advantages of the plan include:

For EmployersFor Participants
  • Low cost
  • Employees contribute to own accounts
  • Employer contributions deductible as business expense
  • Easy setup and management – less paperwork involved
  • No IRS reporting requirements
  • High contribution limits than personal IRAs
  • Employers contribute to each employee’s account
  • Immediate vesting

A Simplified Employee Pension (SEP) IRA is used by self-employed or small business owners. Advantages of the plan include:

For EmployersFor Participants
  • Low cost
  • Employer contributions deductible as business expense
  • Flexible contribution limit
  • No annual contributions
  • Easy setup and management
  • Minimal paperwork, no IRS reporting requirements
  • Can discontinue plan at any time
  • Reduced fiduciary responsibility (Employees select their own investment choices)
  • Employer contributes to each employee’s account
  • Immediate vesting

Ideal for self-employed individuals or employers who have no “common law” employees, meaning any person working for the business does not have an ownership interest. It offers the most generous contribution limits of the other plans. Advantages of the plan include:

For EmployersFor Participants
  • Tax deduction
  • High contribution limits
  • Easy setup and management
  • No annual filing requirement unless assets exceed $250,000
  • Accepts rollover of funds from other retirement savings vehicles
  • Loan may be available
  • Reduce expenses and delays linked to an IRA custodian
  • Flexible contribution options

1 U.S. Small Business Administration, “2018 Small Business Profiles,” 2018.
2 The Motley Fool, June 2018.

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