So you’ve got your small business set up and have a small team of employees to support your operations and goals. However, now the question that lingers is, how do I keep them on this team? Larger companies have many perks and incentives such as retirement plans that encourage people to consider jumping ship.
Setting up a retirement plan for you small business encourages employees to stay with you for the long haul, as well as build your own nest egg for your own retirement. Additionally, business deductions and other credits can be claimed for setting up and maintaining savings plans for your employees.
Here are a couple of common types of savings and retirement plans small businesses use:
Simplified Employee Pension (SEP) – A savings plan that is very easy to set up. Usually used by sole proprietors and very small businesses. The SEP comes in the form of an IRA account. Participants must contribute to the SEP-IRA in the form of money (e.g., check, money order, cash). The annual contribution limit is up to 25% of the employee’s compensation or $53,000. A tax credit can be claimed for starting an SEP and deductions can be claimed for contributions to it.
Savings Incentive Matching Plans for Employees (SIMPLE) IRA and 401k Plans – Savings plan that is available to small companies of 100 or fewer employees who received $5,000 or more in compensation in a year. Employees elect a certain salary deduction to contribute and the employer matches the amount up to 3% percent. Annual contribution limit for an employee in 2017 is $18,000 (401k Plans). Contributions to SIMPLE plans can also be claimed as deductions on an individual’s income tax filing.
Qualified Plans – Savings plans available to small businesses and corporations. Generally divided into two types of plans, defined benefit and defined contribution plans. In very simplified terms, defined benefit plans are retirement plans that lay out what retirement benefits and amounts will be paid out (e.g. State employee pension programs) while defined
contribution plans define how much money will need to be contributed to a plan (e.g. private employer 401k profit-sharing plans). The rules surrounding setting up and maintaining qualified plans are much more complex and often small businesses will adopt pre-made plans from large brokerage firms like Charles Schwab.
This is general overview of common plans available to small businesses for savings and retirement. There are many more bylaws and rules surrounding setting up and maintaining these kinds of plans, as well as the number of employees you have and the contribution limits.
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