Finding and Managing the Right Retirement Plan for Your Small Business

No matter how large or small your business is, planning for retirement not only makes good fiscal and tax sense it can also help attract and retain employees.

And whether you are a sole proprietor or manage only a few employees, there are many options that can meet your particular needs; if you know how to find them.

This article will walk you through some of the more popular options available and introduce you to a nifty online tool from the IRS that can help you choose and update your plan as your employee and business needs change.

Retirement Plans- A Quick 101

As a small business owner, there are several retirement plans available to you but the ones you will hear most about are IRA, SEP, SIMPLE, and 401(k) plans. Her-s a quick overview of how each of these works:

1. Individual Retirement Arrangement (IRA)

IRAs let you set aside money for retirement and are offered by banks, mutual funds, and other financial institutions. They are a common option for sole proprietors, although some plans do allow employees to contribute through a payroll deduction.

• Traditional IRA' These plans are easy to set-up and operate and award retirement benefits based on the participan's account balance. To contribute to a traditional IRA you must be under 70½ years old at the end of the tax year and have taxable compensation greater than, or equal to, your contribution during the year. Contributions may be tax deductible in full or part, depending on your circumstances. The amounts earned by your IRA contributions are usually not taxed until you withdraw the money. Generally you ca't withdraw money from your IRA before you turn age 59½ without paying income taxes and a 10 percent additional tax.

• ROTH IRA' You can set up a ROTH regardless of your age. And while you ca't deduct your contributions, if certain requirements are met, earnings will be tax free.

2. Simplified Employee Pension (SEP Plan)

The SEP Plan is specifically designed for small employers and has very few administrative burdens or costs. Employer contributions are made directly to IRAs that the employer sets up for the employees. A SEP is funded solely by employer contributions. Each employee is always 100 percent vested in (or, has ownership of) all money in his or her SEP-IRA.

3. Savings Incentive Match Plan for Employees (SIMPLE Plan)

If you have fewer than 100 employees and meet certain other requirements you can set up a SIMPLE IRA or SIMPLE 401(k) plan.

Because this is a simplified plan, the administrative costs should be lower than for other, more complex plans. Under a SIMPLE IRA plan, employees and employers make contributions to traditional IRAs set up for employees (including self-employed individuals), subject to certain limits. It is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan.

4. 401(k) Plan

401(k) plans are the most popular type of retirement plan used today. They can be a powerful tool in promoting financial security in retirement and are a valuable option for businesses considering a retirement plan, providing benefits to employees and their employers. Employees may defer a portion of their salary as either a pre-tax or after-tax contribution.

There are several types of 401(k) plans for which you can make either non-elective or matching employer contributions.

Finding the Right Retirement Plan for Your Business

If you are still not sure where to start or which plan is right for you, then i's worth exploring this small business Retirement Plans Navigator.

Created by the IRS, the tool helps small employers find and compare a variety of retirement plan options based on the needs of your business and its employees.

Managing your Business Retirement Plan

The IRS Retirement Plans Navigator also helps you stay ahead of the curve in terms of maintaining your new or existing plan.

Retirement plan requirements and tax laws are constantly changing, and i's your responsibility as a business owner to stay on top of these. This tool aims to help small business owners stay on top of the retirement plan upkeep with useful plan check-ups that can help you prevent problems or detect them early. You can even make the appropriate plan changes without having to notify the IRS.

When it comes to money management and retirement planning, it does't get much easier than this!

Additional Resources

• Small Business Tax Center - This guide from Business.gov consolidates many of the tax topics, resources and guides that are most relevant to small business owners.
• IRS Retirement Planning Guide for Plan Sponsors/Employers
• Small Business Cents - Articles, tips and information from Business.gov's official word on small business grants, loans, and finance.

About the Author

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley