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Everyone needs to prepare for a comfortable retirement, but planning can be more complex for business owners. You not only have to prepare for yourself, but your employees, and in this you want the retirement plan you choose to balance cost-effectiveness with the ability to attract and retain top talent.
Here is an overview of the most common retirement saving arrangements for small and mid-size businesses:
SEP IRA
Appropriate for employers with a smaller number of employees, a SEP plan gives the employer the option to elect each year how much to contribute on behalf of eligible employees. You as employer may contribute from 0% to 25% of compensation, subject to an annual cap, with all contributions tax-deductible as a business expense. SEP contributions go directly into a Traditional IRA in the name of the employee, relieving the employer of having to oversee the assets after they are contributed.
Benefits:
401(k)
Historically the retirement plan of choice for large corporations, 401(k)’s are now attractive to businesses of all sizes, thanks to recent rule changes that have lowered the administrative cost.
Benefits:
Individual 401(k)
In an owner-only business1, planning and preparing for retirement can be a dilemma. Until very recently, retirement plans were limited, and the available choices had significant drawbacks. Plans like Evergreen2 OnePlanSM offer owner-only businesses all the advantages of a bigger company’s 401(k) plan – at a price and level of convenience that may be ideal for many small businesses.
Benefits:
SIMPLE
SIMPLE plans, also known as Saving Incentive Match Plans for Employees, combine the simplicity of SEP-IRAs with the employee funding of a 401(k), where employer contributions largely match employee contributions.
Employers are required to either:
Profit Sharing/Money Purchase Pension Plans
For self-employed or small businesses, Profit Sharing and Money Purchase Pension Plans allow an employer contribution for oneself, with special vesting and eligibility requirements to restrict the involvement of part-time or short-term employees.
Don’t overlook your personal investments
Even with these or other retirement plans for your business, an IRA allows you to contribute up to $4,000 for 2007 and $5,000 for 2008. If you are age 50 or older, you are also eligible to make an additional “catch up” contribution of $1,000 to your IRA for each year.
You may be eligible to make contributions to a Roth IRA if your income does not exceed certain limits. With a Roth IRA, qualified withdrawals are tax-free.
Talk to your Financial Advisor about savings accounts for short-term funds, finding ways to set aside money in a brokerage or mutual fund account for long-term purposes, and for finding ways to keep your business from being the only asset you will have in retirement.
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Related Products and Services
•SEP Plan
•Small Business Retirement Plan
•Emerging Business Retirement Plan
•Owner Only Business Retirement Plan
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