Options of Retirement Plans for Small Businesses

Whether you are the employer or the employee of a large firm or a small organization, tax-paying or tax-exempted, there are different Retirement Plan options depending on the situation you are in. In this article, we will talk about Retirement Plans for small business, whereby you are an owner of a small business with less than 25 employees and would like to start a retirement plan. In fact, there are three different options available, which are the 401(k) retirement plan, the SEP IRA, and the SIMPLE IRA.

Before we elaborate and discuss each Retirement Plans For Small Business, you must understand that there are several factors that affect your choice of each option, such as who can contribute to the plan, the max employee contribution as well as the employer’s, the vesting timing for employer contributions, and the penalty for accessing funds before the retirement age in case of emergency. Other things to consider are whether you would like to have profit sharing, and the employee turnover rate of your business, whereby a vesting schedule or matching contributions would best suit high turnover rates.

The 401(k) retirement plan is the most popular plan available, whereby both the business owner and employees will make consistent, tax-deferred contributions throughout their careers. The contribution limits are much higher than other plans, plus, have much more choices in managing the costs and saving options, making it a rather flexible plan. For employers, they can choose whether to match with their employees’ contributions or not, to provide a nesting schedule, and if penalty is given when there is an emergency to access the funds. Furthermore, for late-starters, there is a catch-up contribution option available. If participants are afraid of facing higher taxes in the future or want to have better organization of their money, this plan allows contributions to be presently taxed, but withdrawals and earnings will be tax-free. However, this plan requires IRS testing and has reporting requirements.

The SEP IRA is another popular option because of their high contribution limit that is much like the 401(k), although everything else is very much different, such as the lack of Roth option, zilch loan options, the inability to profit share, as well as the inexistence of catch-up contributions for those aged 50 and above. The great thing about SEP IRAs is that the contributions are entirely made by the employers so every dollar is vested for the employee right away, and there are no IRS tests to sit for.

Last but not least would be the SIMPLE IRA. In this plan, contributions can be made by both employer and employee, and the employer will have to match the employee’s contributions, which matching is immediately vested. Unlike the previous two plans, the employee contribution limit is much less than them, as well as the catch-up contribution limit. On the bright side, there is no IRS test not reporting requirements.

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