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ISAKOV Planning Group Blog
Tuesday, September 03 2019
Choosing a Retirement Program for Your Growing Business

Dedicated employees of a small, growing business need the security of knowing they are helping to finance their retirement. This is a key reason why some employees join one company over another. Starting a retirement plan not only helps finance your future, but it is probably the only way your employees can fund their own. Additionally, retirement fund contributions are tax-deductible as a business expense. This can mean considerable tax bill savings at the end of the year. 

Small business owners have several valuable options in setting up retirement programs. Much of the choices boil down to, (1) who will be eligible for the retirement program, (2) will eligible employees be able to contribute their own money to the plan? and (3) which is most important to you, the business owner—maximizing contributions or simplifying administration of the retirement plan? 

Four types of retirement plans are at the center of small business discussions: 

  1. The SIMPLE IRA (Savings Incentive Match Plan for Employees) 

  2. The SEP IRA (Simplified Employee Pension Plan) 

  3. The Standard 401(k) plan 

  4. The Self-Employed 401(k) plan

Each of these plan types offer the potential for tax-deferred savings growth and the possibility of deducting your company contributions as a business expense. In addition, your business will be entitled to a tax credit for start-up expenses associated with setting up your first retirement plan. 

In order to decide which is best for your small business, you’ll need to lay out all of the costs of administration, contribution limits, and the tax benefits of each type. Don’t make the mistake of choosing a plan that fails to deliver the best combination of costs and benefits. The US Department of Labor has published a detailed paper that compares each type of plan and is available free of charge.

Here is a basic description for each option: 

  • The SIMPLE IRA can be used for any business with no more than 100 employees. Similar to a Standard 401(k) plan, employer contributions (tax deductible) and employee contributions (pretax) are permitted. 

  • The SEP IRA was developed for those who are self-employed, but small business owners with virtually any number of employees can utilize its benefits. However, only the employer can contribute, which slows the speed with which the savings grow. 

  • The Standard 401(k) plan is best suited for larger companies, because of administrative set-up costs and fiduciary responsibilities.

  • A Self-Employed 401(k) plan offers the highest contribution limits (employers can contribute up to 25% of total compensation, to a maximum of $53,000 for fiscal 2016), but it is suitable only for businesses with no “common law” employees, meaning any person working for the business who does not have an ownership interest. 

Speak with our financial planning professionals at Isakov Planning Group about why a small-business retirement program is important and how the options stack up for your specific business.

Contact us for a free consultation.


Posted by: Eugene AT 03:31 pm   |  Permalink   |  0 Comments  |  Email

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