Comparing Small Business Retirement Plans
For small-business owners and fledgling entrepreneurs, offering a solid retirement plan is no luxury — it's a necessity. An attractive retirement plan is an investment in your company and your workers. Studies regularly show that the better your company's retirement plan is, the happier and more productive your employees will be, and that has a direct impact on your firm's bottom line.
But how can you be sure you're getting the best results from your company retirement plan? The smart answer is to familiarize yourself with the best retirement plans — the ones favored by the top talent you want to attract to your company. Here's a snapshot:
SIMPLE Individual Retirement Accounts (IRAs) – Savings Incentive Match Plan for Employees (SIMPLE) plans allow employers to make contributions to IRAs set up for employees. These plans are typically for startup businesses, with fewer than 100 employees, that do not sponsor another type of plan. Under a SIMPLE IRA plan:
- the employer makes contributions to an individual account set up for each eligible employee;
- employees defer a part of their salaries into the plan for retirement;
- the plan is funded both by employer and employee contributions; and
- employees are always 100 percent vested in their SIMPLE IRA.
401k Plans – Small-business owners often add employer-sponsored 401(k) plans to the retirement options they offer employees. With a 401(k) plan, employees, including owners, contribute to an individual account, to which the employer may also make contributions. Employees under 50 years old can save $18,000 in a 401(k) annually. Employees 50 years and older are allowed a "catch-up" contribution amount on top of this of $6,000 annually for a total of $24,000 in 2015.
Profit-Sharing Plans – Profit-sharing plans are another way employees can save money for retirement. Qualified participants receive a contribution to the plan typically calculated based on a percentage of their compensation. To create a profit-sharing plan, a written plan must be established that outlines the day-to-day operations and procedures of the program. Investment-wise, profit-sharing plans are most similar structurally to 401(k) plans.
Get to know common retirement plans and choose the plan(s) right for your small business. Your employees will be happier and more productive, and you will become more competitive with attracting top talent.