A small business owner must become accustomed to multi-tasking, dealing with and taking responsibility for everything from developing a viable business plan to creating a manageable budget. It does not come as a surprise to any small business owner that funding the retirement plan is also a responsibility that will land in his or her lap.
There are several types of retirement plans available to the small business and because the options are confusing most small business people relay on a reliable retirement plan company to help them make the best decision based on the circumstances. Some retirement plans are far better for a sole proprietor while businesses with multiple employees will be better served with a different plan.
Most small business owners are familiar with a 401(k) plan, because of their familiarity with these plans many owners immediately say this is the plan they want. Once a retirement plan company reviews the business, often the conclusion is that a different plan may be the better choice.
The owner of a small business with ten or fewer employees has three basic retirement plans that are worthy of consideration; SEP IRA (simplified employee pension plan), SIMPLE IRA (savings incentive match plan for employees and a self-employed 401(k) plan. Each of these three plans has their own unique characteristics. To ensure that you choose the best possible plan for your business you must fully understand the nuances and ensure that they match your priorities.
Let’s take a quick look at the three available options best suited for a small business:
- SEP-IRA: Contribution are made by the employer only, the contributions are tax deductable.
- SIMPLE-IRA: Ideal for businesses up to 100 employees, funded by employer contributions which are tax deductible and pre-tax contributions from the employee.
- Self-employed 401(k): tax deferred plan which offers the most generous limits on contributions however this plan is not available to employees that do not have an ownership interest in the business.
It takes careful thought and consideration to choose the best possible retirement plan. If the owner knows in advance what he or she is trying to accomplish this is one thing, however many employers simply do not know and as a result turn to a retirement plan company for guidance. There are many variables that a small business owner in particular must consider; is ease of administration the most important factor, perhaps the employer knows that it is critical for employees to contribute to the plan. Every plan is a little different, every plan has unique benefits and drawbacks so knowing what it is you want from your plan are critical.
A small business has a number of retirement plans available that it can use. The plans are all complex and to ensure that the right choice is made a retirement plan company is often consulted. You are invited to contact Business Name for more information on retirement plans.