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Retirement Solutions for Small Businesses
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Retirement Solutions for Small Businesses
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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.
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
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).
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
can be adjusted depending on your cash flow and do not have to be
contributed to every year.
annual government reports required.
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
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.
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.
for larger contributions from lower-salaried employees than other plans.
and less expensive administrative requirements.
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:
business owners and generally all employees who work at least 1,000 hours
during the previous year are eligible.
limits: Employers contribute from 20%-25% of salary or self-employment
from company profits into your pension plan. Employees do not contribute.
contributions are based on a business's performance, yearly contributions
periods are determined by employers however vesting often takes a considerable
amount of time.
administration duties that are required of these retirement plans
generally require professional management.
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
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:
all businesses and all employees who worked at lease 1,000 hours in the
previous year are eligible.
often match employee contributions into their 401(k) account however employer
matching is not required.
limits: Combined savings of employee contributions and employer matchings
cannot exceed $49,000.
is determined by employer however employer contributions generally take
many years to vest.
administration duties that are required to manage a 401(k) can be
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