Setting up a small business includes numerous responsibilities right from inception to the final stage of implementation. One imperative decision among the myriad of tasks in the planning and the selection of the most fitting retirement options for yourself and also preparing retirement plans for employees.
The type of retirement options that can be chosen by small business owners depends on a number of important criterion such as:
- The size of the business
- The structural pattern of the business
- The amount of money which can be kept aside effortlessly
- Are their expectations of contributions by the employees too
- Does the administration has a priority over the contribution
Even after a grave contemplation of the above-given aspects, the most appropriate retirement planning for the employees can be baffling for the small business owner. They often they try to take the course which they are most familiar with i.e. 401(k) plan even though there are several other options, which they can retrospect upon, after a detailed study.
Why the need for retirement plans for employees?
Out of several reasons to offer a well-defined retirement option to your employees, the most compelling can be to maintain the edge of competitiveness by holding on to skilled employees. Profits and successful business does depend on competent staff and to extract their best, you have to offer them a secured future. Besides this, you can also avail tax benefits by having them deducted as business expenses.
Here’s an interesting read on best retirement options for small businesses in 2018
Rummaging through the variety of Retirement Options
Each type of plan has its nuances and thus it is mandatory that you understand them thoroughly to formulate a functional plan which is in accordance with your priorities and your business needs. Let’s take a sneak peek at the available retirement options which have been leveraged to suit the business owners:
Simplified Employee Pension Plan [SEP-IRA]:
It is a simple plan in which contributions are only made by the employer and for each employee. Since this retirement plan is not required to be filed with the government, a huge amount can be set aside with lesser paperwork and hitches.
The maximum amount to be contributed by the employer in the year 2018 should not be less than $55,000 or 25% of the employee’s net compensation. In the years during which employees contribute, the employer is liable to contribute the same percentage to their account as made by them.
Savings Incentive Match Plan for Employees [SIMPLE-IRA]:
This plan works on the contributions made by both the employer and employee and is ideal for business, which has employees near to 100. It is a kind of plan which witnesses salary reduction and is available against a meager participant fee.
The employee may contribute not more than $12,500 for the year 2018 depending on his compensation through salary deferral whereas the employer is required to contribute mandatorily annually. A $3000 catch up contributions is also allowed for employees who are more than 50 years of age.
Savings Incentive Match Plan for Employees [SIMPLE-401(k)]:
It more or less operates on the footholds of a SIMPLE IRA with the only and most lucrative option in the plan, being its flexibility, in letting the employer borrow loans or funds from it. The total contribution to be made to the account cannot exceed $55000 annually. It may be subjected to periodical legislative changes.
Here is more details on the subject: Small business retirement plans.
It is essential to consider the trade-offs of each plan and the withdrawal features before divulging into the one, which would be most suitable to the business owner.
To maintain good staff, it is essential that business owners provide retirement options to employees. There are several retirement plans which can be opted from which SIMPLE-IRA and SIMPLE 401(k) are most commonly sought after.
Have any questions? Our service professionals at Flagship Financial can help you. Contact them today an book a consultation.