If you are a small business owner, you are responsible for practically everything that happens in your business, and you are also responsible for what happens to you during retirement. That includes finding and researching the best retirement plans for small business owners.
You might think that there is only one cookie-cutter retirement plan for people like you, however, the truth is that there are several types of retirement plans for small business owners. While there are those that are appropriate for one-man teams, some are better for businesses with employees.
Many small business owners are familiar with a Self-Employed 401(k) and find themselves setting it up, however, there are other options including the SEP IRA, the SIMPLE IRA, and the 401(k) plan.
If you have a rather large organization with up to 100 employees, it will be better to set up a 401(k) plan because of the setup costs, fiduciary responsibilities and other features you won’t find in the other IRA plans.
If you have less than ten employees, you should explore the first three, to repeat, the Self-Employed 401(k), SEP IRA, and the SIMPLE IRA. Each plan has different features that cover contribution limits, the ability to cover employees, administrative responsibility, among other features. Choosing the right plan requires understanding the nuances of each plan and matching them with your priorities.
Why do you need to carefully research retirement plans for small business owners? First off, the plan you were initially considering may help secure your employees’ future but not yours. Second, having a retirement plan attracts and keeps good employees. And lastly, there are tax benefits to having a retirement plan since contributions are deductible as a business-related expense. So, which plan is right for you?
SEP IRA or Simplified Employee Pension IRAs for self-employed individuals and small business owners with employees. The contributions are made by the employer exclusively. Contributions are treated as a business expense. The main advantage of this IRA plan over others is that it is easy to setup and maintain. Also, there is no initial setup and annual maintenance fee.
SIMPLE IRA or Savings Incentive Match Plan for Employees is for businesses with up to 100 employees. Contributions are made by both the employer and employee similar to a 401(k) plan. The key advantage of this retirement plan is that there is less administration work involved because it’s mainly a salary deduction plan. Also, it offers a low-cost option of $25 per plan participant or a $350 plan fee.
Self-Employed 401(k) plan is for self-employed people that have the most generous contribution limits. But it is only good for businesses with employees who do not have any ownership interest or are considered “common law” employees. Also, there is no initial setup and maintenance fee.
The information we provide in this article is just general information on three types of retirement plan options for small business owners. You can find more information by seeking the help of an advisor.