Which Small Business Retirement Plan Cant Decide 4 Simple by primusboy


									Which Small Business Retirement Plan? Can't Decide? 4 Simple, Inexpensive
Plans to Start You Off
You, as a business owner and employer, would have to set up and
administer your own small business retirement plan for yourself and your
It can be costly to set up a retirement plan but if you do some homework,
you can get it cheaply coupled with a number of advantages too such as:
Employer's contributions to a retirement plan is a tax deductible expense
A sound retirement plan can attract and retain qualified and valuable
A tax credit of up to $500 is available to small business (normally less
than 100 employees) for the cost of creating or maintaining an employee
retirement plan
Enhances your business's credibility and integrity
Increases your employees' loyalty
You could go for a variety of plans such as:
1. Defined Contribution Plan
It uses an allocation formula to specify a percentage of contribution
made by employees. Say, your employees can voluntarily deduct a certain
portion of their salaries, in many cases before taxes, and place the
money into a qualified retirement plan of your company, where it'll grow
You as an employer can also match the contribution your employees make.
2. Defined Benefit Plan
You as an employer, determine a desired level of benefits to be paid upon
your employees' retirement, using a fixed monthly payment or a percentage
of compensation and then you (the employer) contribute to the plan yearly
according to a formula so that the benefits are available when needed.
The amount of annual contributions is determined by an actuary, based
upon the age, salary level, and years of service of your employees, plus
prevailing interest and inflation rates. You'll bear the risk of
providing a specified level of benefits to your employees when they
This plan loses its attractiveness attributed to the fact that nowadays
employees became more mobile, and few are willing to commit their entire
working lives to a single employer in order to gain a pension.
Employers, too, began moving away from this plan because of the financial
pressure involved in funding them.
3. Simplified Employee Pension (SEP) Plan
This is an employer-funded retirement account that allows a small
business to direct at least 3% and up to 15% of each of your employee's
annual salary, to a maximum of $30,000, into tax-deferred individual
retirement accounts (IRAs) on a discretionary basis.
It's easy to set up and inexpensive to administer, as you simply make
contributions to IRA initiated by your employees. Your employees would
have to make investment decisions regarding their own IRAs. That way, you
avoid the risk and cost involved in accounting for employee retirement
Besides, you've the flexibility to make large percentage contributions
during good financial years and to reduce contributions during leaner
SEP plan applies to all types of business entities, including
proprietorship, partnership and corporation. Employee's eligibility: aged
21 or older with at least 3 years of service in your company and a
minimum level of compensation.
4. Savings Incentive Match Plan For Employees (SIMPLE)
This plan comes in 2 forms: SIMPLE IRA and SIMPLE 401k.
Both provide an easy, low-cost way for a small business and its employees
to contribute jointly to tax-deferred retirement accounts.
An IRA or 401k set up as a SIMPLE account requires you, the employer to
match up to 3% of an employee's annual salary, up to $6,000 per year. An
employee is also allowed to contribute up to $6,000 annually to his/her
own account.
If you set up a SIMPLE, you can't offer any other type of retirement
It's best you choose the SIMPLE IRA option, as the SIMPLE 401k proves
more expensive than a regular 401k due to the company matching
OK, Which Plan Is For You And Your Business?
I would say you should carefully examine your priorities when deciding on
a small business retirement plan for yourself and your employees.
If your main concern is to minimize administrative cost, a SEP plan would
be your best bet.
If you count upon key older employees, a defined benefit plan would help
reward and retain them.
If you go for a long time horizon until retirement, you would probably do
best with a defined contribution plan.
If you want your employees to fund part of their own retirement, you
should go for a SIMPLE or a 401k plan.
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