Best Retirement Plans for Small Businesses
All small businesses operate toward the same goal: staying in business. Once the initial shaky stage is over, the next step is preparing for the future. One aspect is choosing the best retirement plan for your company.
However, the task can seem daunting. After all, owners want to choose something that'll be fair to their employees and give the right amount of tax benefits. But they also don't want a plan that'll eat up their company's liquidity.
There are a lot of choices when it comes to setting up an employee retirement option. So which one is right for your small business?
Savings Incentive Match Plan for Employees (SIMPLE) IRA
Perhaps the best place to start is the middle ground. SIMPLE IRAs don't allow employees to contribute as much as traditional 401(k) plans (in 2011 it was $5,000 less). But they require employers to match contributions. This is great for owners who want their workers to feel secure, but not break the bank.
A downside for employees is that the catch-up contribution for those over age 50 is less than traditional 401(k)s. Also, plan holders cannot borrow out money and there are no tax-free Roth-like options.
Traditional 401(k) or Solo 401(k)
These plans are perennial favorites for a reason. Traditional and solo (401)k plans offer a lot of versatility. Employers are given the option to match contributions and can give employees access to loans. They offer catch-up investment options for those over 50 and have Roth options that tax contributions up front instead of at withdrawal.
Solo 401(k) plans allow for even higher contributions over traditional 401(k)s. The catch is only owners with very few or no employees qualify for it.
Simplified Employee Pension Plan (SEP) IRA
If you're feeling really generous, a SEP IRA might be right for your small business. This plan doesn't allow for employee contributions, instead employers make all the investments. There are also no loan, catch-up, profit sharing, or Roth options. But on the plus side, SEP IRAs have more relaxed tax reporting requirements.
Small business owners should also note that there are variations within the retirement plans stated above. If you need more help in choosing which is best for you, don't be shy about asking for help.
Related Resources:
- Small Business Law Guide (FindLaw)
- Are Your Employees Ready for Retirement? (FindLaw's Free Enterprise)
- Types of Retirement Plans (FindLaw)