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As a business owner, you’re under a lot of pressure to recruit and retain employees. If you don’t already have a retirement plan, it’s probably time to consider setting one up. There are many different plan options available to you, including traditional 401(k)s, SIMPLE IRAs, and SEP IRAs. Our financial advisors can help you understand the employee benefits under each of these plans and help you select the one that makes the most sense for you.
Business owners have a few options when it comes to retirement plans, including a SIMPLE IRA, SEP IRA, and a traditional 401(k). Solopreneurs, you can set up a solo 401(k), too. SIMPLE IRAs are only available to small business owners with 100 or fewer employees, but it allows you to match your employee contribution to help them build a retirement nest egg. SIMPLE IRA's are a great option if you don't have the administrative power to keep up with a 401(k), but want to provide a match.
A simplified employee pension plan, short SEP, is another type of retirement account. What makes a SEP IRA unique is that only the employer can make contributions on behalf of the employee. It also provides great flexibility for businesses with uncertain cash-flow, because the contribution amount is flexible - we're looking at you, start-ups!
Employers have to meet certain requirements to set up eligible retirement plans. For example, when you make matching contributions for your employees, you can’t discriminate, even with plans that don’t require regular employer contributions. Traditional 401(k) plans can include a vesting period, but SIMPLE IRAs have to be vested immediately. With SIMPLE IRAs, you typically contribute up to 3% of the employee’s salary in matching contributions.
Regardless of which type of retirement plan you choose, you have an ethical and legal responsibility towards the plan participants as the plan sponsor. This fiduciary duty extends to all the plan managers who make investment decisions on behalf of the plan’s participants. Our financial advisors can help you make sure you follow the legal requirements to ensure your retirement plan qualifies under the IRS eligibility rules.
When you provide your employees with an employer-sponsored retirement plan, you're not just paying your employees for today, you're helping them invest in their own future. Showing your appreciation and helping them plan for tomorrow leads to lower turnover, saving you the money and time spent training new employees. Offering benefits can attract higher quality applicants and a more effective workforce. On top of all that mutual benefit, many companies find that tax breaks that are offered based on the retirement plan make this employee benefit more than worth it.
This is a complex question, it really comes down to what you're trying to acheive with the plan. We’re happy to discuss the differences between the plans with you to help you make an informed decision.
Not necessarily. Using a 401(k), for example, you’re not required to match your employees’ contributions. However, in that same 401(k), the IRS allows many employer match contributions to be deducted from the employer's federal tax return you may find that the tax deduction makes up for that initial outlay.
The traditional 401(k) is the most common type of employer-sponsored plan. But you can also set up a SEP IRA, which only allows employer contributions and is very flexible. If you’re a small business owner with 100 or fewer employees, you can set up a SIMPLE IRA, which is often more cost efficient for you and provides significant benefits for your staff.
There are many options for retirement plans available to you, and it’s difficult to choose the option that’s best for you. Our financial advisors are ready to help you select, set up, and manage a plan that provides meaningful retirement benefits for your employees and fits your company’s budget. Call us today to set up an appointment.
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