Retirement Plans for Small Businesses

"Here are some highlights of four retirement plans that work well for small businesses.

The Simplified Employee Pension, commonly referred to as a SEP or SEP-IRA, is widely used because it is easy to establish and maintain.

An employer contributes to a traditional individual retirement account set up by or for each eligible employee. The employee owns and controls the IRA, but does not put any money into the account...

One of the easier plans to establish and maintain, a SIMPLE IRA is an acronym for Savings Incentive Match Plan for Employees and includes contributions made directly to each eligible employee's IRA...Employees can contribute to the plan. As employer, you can match employee contributions (up to 3 percent) or to make non-elective contributions (up to 2 percent) to employee accounts, regardless of whether workers contribute.

...A 401(k) program is a good benefit for companies with a mix of rank-and-file employees and owners/managers. It also offers participants a wider range of investment options. New in 2006, you can set up the plan so that workers can designate some or all of their contributions as after-tax Roth investments, making eventual distribution of such money tax-free.

Both company and employee contributions are allowed. As employer, you can contribute on behalf of all participants, match a portion of your employees' contributions or do both.

Of course, the greater benefits and options of a 401(k) plan mean more work for employers: creating a written plan, setting up a trust fund for plan assets, record keeping, keeping workers informed. Because of these and other administrative requirements, companies usually contract with an outside firm to handle some or all of the of a 401(k) plan's operational aspects.

Companies with 100 or fewer employees have the option of establishing a SIMPLE 401(k), which follows many of SIMPLE IRA guidelines. Individual 401(k) plans, sometimes called Solo(k)s, also are available to sole proprietors.

Profit sharing
As the name indicates, this plan allows you to share your company's success with your workers.

You don't need to provide a definite formula for figuring out the profits to be shared. Your annual company contribution also is discretionary. However, you must make systematic and substantial contributions to the plan.

You also must provide a precise calculation for allocating the contribution amount to the plan's participants, as well as for distributing it when employees meet plan guidelines...

Read more in this article from nfib.com.

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