Employees with No Retirement Plans
Employees who work for companies or businesses that offer no retirement plan should talk to their employers about establishing a retirement program. Good employees are usually attracted by a benefits package that includes a retirement plan. Even employers who are small business owners can examine the possible options, as there are various types of low cost, low maintenance retirement plans available.
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Simple IRA
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A "savings incentive match for employees," or Simple IRA, generally works well for small businesses. Employers with 100 or fewer employees qualify for the plan as long as they offer no other retirement plan. This type of retirement program allows employee contributions, although there is a limit on the total annual contribution you can make. The plan requires a mandatory employer match of up to 3 percent of your salary or an employer contribution of 2 percent of your salary with a limited maximum contribution. In 2011 the annual contribution limit is $11,500 for employees younger than 50 years old, according to IRS.gov. If you are age 50 or older, you can contribute as much as $14,000. Earnings in the IRA account accumulate and are not subject to taxes until they are withdrawn.
401(k) Plan
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Any size business can start a 401(k) plan. The good news is that 401(k) plans for small companies are now much more affordable to manage than they were previously. There are inexpensive packages available to small businesses with 25 or fewer employees. Both you and your employer can contribute to the plan, although a 401(k) plan does not mandate that your employer match your contributions. Besides the tax-deferred advantages a 401(k) offers to workers, small businesses often qualify for tax credits during the first three years after setting up a plan.
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SEP IRA
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A ""simplified employee pension plan," or SEP IRA, is a low-cost retirement plan for employers who have just a few employees. SEP IRAs are a practical choice for self-employed individuals. This type of plan is inexpensive to set up and does not require an annual contribution. If an employer has a bad year, the flexibility in annual contributions can be an advantage. Employees cannot contribute to the plan, but an employer who makes contributions to a SEP plan for himself must also cover any employees who are eligible to participate in the plan. Employers may deduct contributions to the plan as a business expense. Employees who want to invest additional savings for retirement can also set up an individual IRA account at a financial institution of their choice.
Profit Sharing
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A profit-sharing plan offers another option for retirement income. Annual contributions are based on how well a company does; therefore, the amount of the contribution the company makes can vary each year. When profits are down, the company may contribute less than it did in other years. One drawback is that employees may not contribute to this type of plan to increase retirement savings.
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References
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