Small business owners must make many decisions. One decision that can have a major effect on owners, the company, and employees is deciding which retirement plan you’ll use. Though some retirement options may be more familiar—like a 401(k)—they may not necessarily be the best option for a small business. Finding the right plan for your business requires considering the importance of easy administration, whether employees will have the ability to contribute their own money, and the size of the company.
Learn more about small business retirement plans below, and contact Firenze Wealth today to speak with a knowledgeable financial advisor.
In a SEP IRA, the employer makes all contributions and must make them for everyone—no employee can be left out. This plan may be best for those with very small businesses or owner-only businesses. One attractive element of this option is that you can have a SEP and a personal IRA. SEP IRAs also provide a lot of flexibility on how much can be contributed.
For these Savings Incentive Match Plans for Employees, employers must contribute annually—employees may choose to contribute or not. This option may be best for companies with fewer than 100 employees and whose employees make less than about $50,000 annually. SIMPLE IRAs and SIMPLE 401 (k)s are very similar, with the key difference that with a SIMPLE 401(k) you can allow loans from the plan while you cannot with a SIMPLE IRA.
These plans are intended for self-employed or owner-only businesses. If your income is too low to maximize the benefits of an SEP-IRA this could be a great option, because you can earn less but contribute more. These plans have limited costs and paperwork. Just make sure to work with an administrator who doesn’t charge high setup or management fees.
This plan has fixed benefits, which are based on tenure and salary. The employer funds and manages the plan, and they bear all investment risk. This plan may be best for professionals with higher incomes and who can afford the setup and administration costs. It could also be an option for those who are retired but still earning income from consulting. Plans may be designed as either traditional pension equity plans or cash balance plans. Once an employee retires, their funds can either be turned into an annuity or rolled into an IRA. Defined Benefits Plans are often more costly, but for the right company they may provide many benefits.
Contact Firenze Wealth today for assistance in building a retirement plan for your business along with more financial advice.