Retirement Solutions for Small Businesses

Small businesses may not be able match larger companies for

the most capable employees. One common

factor in leveling the playing field is through employee

benefits. In addition to the required benefits, employers who offer some form of a

retirement plan make themselves more appealing to prospective employees. Many employers shy away from offering

retirement plans out of fear that they're too expensive and confusing to manage. Fortunately for small business owners, if

you know what to look for and what's reasonable, there's a good chance you'll find

an option that works. Check out this

quick guide for a basic understanding of the most popular retirement solutions

for small businesses.

Simplified Employee

Pension Plans

Also know as SEPs

and SEP IRAs, Simplified

Employee Pension Plans are simple, cost effective, and generally a good

option for small businesses. Funded

through tax-deductable employer contributions, SEP IRAs are easy to establish

and take little management. Plan

highlights include:

• Available

  to all business owners, self-employed individuals, and employees who have

  worked for a businesses at least 3 of the previous 5 years and earned at

  least $450 in the last year (All qualifying employees must be covered).

• High

  contribution limits: Employers can contribute up to 20%-25% of

  compensation with a limit of $49,000 and must contribute the same

  percentage (as their own) to eligible employee accounts. Employees do not contribute.

• Can be

  opened with a bank, insurance company, or brokerage firm within minutes

  and can be opened as late as the extended due day of your income tax

  return.

• Contributions

  can be adjusted depending on your cash flow and do not have to be

  contributed to every year.

• Vesting

  is immediate.

• No

  annual government reports required.

SIMPLE IRAs

SIMPLE

IRAs (Savings Incentive Match Plan for Employees) are another popular,

realistic retirement option for small businesses. SIMPLE

IRAs are good for employers because they allow an employee contribution and

good for employees because they mandate an employer match. Unlike SEP IRAs however, these plans do not

allow for as high of contributions. Plan

highlights include:

• Available

  to all employers with 100 employees or less that do not carry any other

  retirement plans. All employees

  earning at least $5000 in the current year who have earned at least $5000

  in any two previous years are eligible.

• Contribution

  limits: Employers and employees can contribute up to $11,500 with an

  employer match of up to 3%.

  Additional funds can be accumulated after a certain age.

• Allows

  for larger contributions from lower-salaried employees than other plans.

• Vesting

  is immediate.

• Simpler

  and less expensive administrative requirements.

Profit-Sharing Plans

Profit-sharing

plans are a less common form of retirement plan for small businesses due to

the fact that they can be costly and complex.

In this plan, employees are entitled to a portion of their company's

profits with annual contributions made to a retirement account. Plan highlights include:

• All

  business owners and generally all employees who work at least 1,000 hours

  during the previous year are eligible.

• Contribution

  limits: Employers contribute from 20%-25% of salary or self-employment

  from company profits into your pension plan. Employees do not contribute.

• Because

  contributions are based on a business's performance, yearly contributions

  will vary.

• Vesting

  periods are determined by employers however vesting often takes a considerable

  amount of time.

• The

  administration duties that are required of these retirement plans

  generally require professional management.

401(k)s

Similar to profit sharing plans, 401(k)s tend to

be more expensive and complex and therefore are slightly less common for small

businesses; however, 401(k)s have recently become more popular among small

businesses. As competition increases

among 401(k) providers, plans for small businesses have become more

reasonable. 401(k)s

allow employees to make retirement savings by contributing fund from their

paycheck and deferring current taxes on the saved money until withdrawal. Plan highlights include:

• Generally

  all businesses and all employees who worked at lease 1,000 hours in the

  previous year are eligible.

• Employers

  often match employee contributions into their 401(k) account however employer

  matching is not required.

• Contribution

  limits: Combined savings of employee contributions and employer matchings

  cannot exceed $49,000.

• Vesting

  is determined by employer however employer contributions generally take

  many years to vest.

• The

  administration duties that are required to manage a 401(k) can be

  expensive.

Tax and finance laws are constantly changing. It is recommended that you consult a lawyer,

account, and small business expert when choosing to provide a retirement plan for your small

business.

Retirement Solutions

Resources

• Small Business

  Retirement Savings Advisor

• Tax Information

  for Plan Sponsors/Employers

• Employee Benefit Plans - What's Law and What's Optional