At the moment, do you have a retirement plan available for you employees? If not, you are missing out on a huge opportunity to make your company more competitive and appealing to your employees.
There are a few different retirement plans available to small businesses, each of which has its benefits and its drawbacks. In this article, we will review the different types of small business retirement plans and the reasons why having a small business retirement plan can take you from where your company currently is to where you want it to be.
What Retirement Options Are Available for Small Businesses?
Essentially, there are three main retirement plan options which bear consideration for small businesses.
- SEP Plan.
The Simplified Employee Pension Plan is a fairly basic option that may appeal to self-employed individuals and those who run a small business with a few key employees. This plan relies entirely on employer contributions. Further, employers can decide from year to year how much they will contribute to employee plans or whether they will contribute at all. For these reasons, this type of plan may appeal strongly to business owners, especially those who are self-employed.
- SIMPLE IRA
The Savings Incentive Match Plan for Employees is reserved for companies with fewer than 100 employees, but is not a good idea for freelancers or self-employed workers. This plan is, much like the SEP plan, fairly basic. Beyond that, it requires little maintenance and the year-to-year requirements are not very stringent. One thing to be certain of with this plan, however, is that your company will never grow beyond 100 employees. To reiterate, this plan can only accommodate a maximum of 100 workers. Once your business expands beyond that number, you are no longer eligible for the SIMPLE IRA.
- 401k Plan
The 401k plan is perhaps the most well-known retirement option. This plan can accommodate very large business enterprises, as well as self-employed individuals. That being said, there are a few important paperwork requirements and rules that must be met every year in order to keep the plan running smoothly. The IRS runs three specific tests on 401k plans every year to ensure that certain employees within a company aren’t being overly favored with regard to the retirement plan. Should your business fail these tests, you are required to fill out a plethora of paperwork and pay some hefty fines.
Why Should You Have a Retirement Plan for Your Small Business?
As was mentioned at the outset, a retirement plan is a great way to keep employees happy. Beyond that, retirement plans can help you from a tax perspective. For example, you can get as much as $16,500 in tax credits over the course of three years when you open a 401k plan for your employees.
Regardless of which plan you pick, you should certainly have some retirement option in place within your company. We are living through a very competitive time where workers are demanding more and more out of their employers. Give your workers what they want through the use of a small business 401k retirement plan!