Retirement Plan Options for Small Business

If you run a small business and want to make sure that you--and your employees--get the most benefits possible after retirement, it's best to be aware of your options as early as possible. This way, you can offer plans that will cater to the needs of your employees, and can boost company morale in the process.

SEP IRA

A SEP IRA, or Simplified Employee Pension Plan, is ideal for very small businesses (no more than about 20 individuals), and is low-maintenance. As the boss, you are responsible for contributing to the retirement plan--employees are not permitted to add funds. The amount of the contributions that you make can vary from year to year so you aren't obligated to give the same amount if your business has generated a lower profit than previous years. Contributions to the SEP IRA should be made for all employees who have worked for you for three of the past five years and have earned a total of $550 or more from your company in the past year.

Simple IRA

A Simple IRA, or Savings Incentive Match Plan for Employees, is another option for small businesses, and this plan permits contributions by employees. However, the employer must match the contributions that the employee makes to the retirement plan. The amount that you put into the Simple IRA must be at least three percent of the employee's salary, and this type of plan is ideal for businesses with around ten employees, although bosses with a small business of fewer than 100 workers are eligible as long as the company does not have any other retirement plans. If you are an employee of your own company, you can take advantage of the fact that a Simple IRA allows you to make larger contributions than any other small business retirement plan, making it easier for you to save after you are no longer working.

401K

Even though the 401K retirement plan is usually associated with larger companies, you can enroll your small business in this plan if you have 25 or more employees. An employer/employee match is not mandatory with a 401K, which will help you to save money, and all employees under the plan must have worked 1,000 hours or more within the past year. Any type of small business is eligible for the 401K plan if requirements are met. The total amount of contributions by employer and employee cannot be greater than $49,000--employees who will 50 or older by Dec. 31, 2010 cannot have a 401K that exceeds $54,500.

References

• SM Small Biz: Small Business Retirement Plans
• Smart Money: Small Busines Retirement Plans that Work