Retirement Benefits of Small Businesses
Many standard retirement accounts designed for company providers are too complicated for small businesses. Plans such as 401ks, 403bs and 457bs require a large amount of administration that can be costly and burdensome for companies with just a few employees. Thankfully, the Internal Revenue Service (IRS) has created a number of small business retirement benefit options specifically to counter this problem.
Other People Are Reading
-
Function
-
A good retirement plan for a small business has two purposes. First, it should encourage employees to save for retirement by offering incentives. These incentives can be tax benefits, employer matching or both. Second, a small business retirement plan should increase employee loyalty. Many small business owners have trouble competing with large corporations that can offer benefits at a fraction of the cost per employee. Since a small business cannot compete on this scale, it must take advantage of opportunities to be competitive with retirement options.
Options
-
The IRS offers SIMPLE 401ks, SIMPLE IRAs, SEP plans and payroll deduction IRAs. All of these plans are designed for companies with less than 101 employees. All offer low documentation, making it simple to sign up and maintain the retirement account. With the exception of the SIMPLE 401k, none require the employer to actually manage the funds in an employee's retirement account.
-
Alternatives
-
Even businesses without qualified plans can still offer significant retirement benefits. One potential option for small businesses is dolling out equity bonuses. These bonuses can give employees the chance to save for retirement as well as increase employee loyalty. They cost the business owner no actual cash flow. However, since employee equity increases receive no preferential tax status, the employees will not have the same tax benefits of a qualified plan account.
Process
-
The first step to setting up any retirement plan for employees is to check with your business accountant. You will need to set up the plan before Dec. 30 of any given year in order for deductions to count on the current tax year. There is also a notification period to employees that must be observed. You must inform employees of who is qualified to participate, what the benefits are and how the system will work.
Benefits
-
As a business owner, you will also benefit from setting up a qualified plan. You can save for your own retirement in a tax deferred account. In fact, with most plans, you will have the choice of either funding your account out of profits as the owner of the business or funding the account out of a salary you pay yourself for your work as owner. You have a tremendous degree of flexibility as a result.
-
References
- Photo Credit James Braund/Photodisc/Getty Images
