As a small business owner, you have a lot on your plate. While setting up an employee retirement plan may seem like another major responsibility, offering a retirement plan can actually provide a number of benefits to both you and your employees. A quality retirement plan allows you to invest money into your own retirement, reduce your company’s tax burden, and help attract and retain valuable employees. Here is a look at some of the most common types of retirement plans for small businesses.
A 401(k) plan for your small business can help you offer competitive benefits to your workers. This type of retirement plan is an excellent choice for both private and public companies, including partnerships, corporations, and nonprofit organizations, that want to take advantage of tax-deductible contributions. Employees under a 401(k) have access to tax-deferred growth potential and pre-tax contributions. Under a 401(k) plan, employers are able to match employee salary deferrals. While some plans do not require employee contributions, others may require a minimum contribution.
2. Profit Sharing Plans
Profit sharing plans are an effective way to use your business’ financial success to give back to your employees. Despite the name, profit sharing plans are not based on the profitability of your business. Instead, a profit sharing plan allows employers to take excess money at the end of a fiscal year and distribute the funds across their employees’ retirement plans. One of the biggest benefits of profit sharing plans for employers is the ability to save on taxes while rewarding your employees. Profit sharing plans allow you to add to your employees’ retirement accounts without having to pay payroll taxes.
3. Tax Deferred Annuity
Many small business owners find it difficult to save for retirement. However, having one or more annuities can be useful when saving towards retirement. An annuity is a type of contract you open with the insurance company. After making one payment or a series of payments to the insurance company, the money continues to grow on a tax-deferred basis until you make the decision to turn the annuity into an income stream. Tax deferred annuities can provide payments over a defined term or a lifetime stream of income. Another major benefit of an annuity is that they do not have any IRS-imposed contribution limits.
4. 529 College Savings
Many small businesses that are not able to offer a 401(k) or other retirement plan to their employees turn to 529 college savings plans. A 529 college savings plan is a type of education savings plan typically operated by an educational or state institution. These plans allow businesses to offer a voluntary benefit to their employees in the form of automatic payroll deductions that are directly deposited into 529 accounts. Employees are responsible for opening their own accounts and authorizing the automatic payroll deduction. There is no cost to your business unless you choose to match contributions. All contributions made by employees must be after-tax contributions.
5. Deferred Compensation
Deferred compensation occurs when a portion of an employee’s compensation earned in one year is received in a later year. With this type of plan, employees can reduce their immediate tax liabilities. Employees and their employers can both contribute to a deferred compensation plan. There are two main types, including qualified and non-qualified. Qualified plans have contribution limits, but are more protected than non-qualified plans. By offering deferred compensation plans, employers can attract talented employees. A non-qualified deferred compensation plan can also help increase your business’s cash flow.
6. Custom Strategies
In some instances, a business is not able to find a traditional profit sharing plan that meets their unique retirement plan needs. When this happens, it is best to look at custom strategies designed especially for your company using new comparability plans. Custom strategies share many similarities to standard profit sharing plans and can be highly useful for small businesses. Depending on your preferences, a custom strategy plan can be added to an existing 401(k) to help maximize annual retirement savings. To come up with a custom strategy plan for your business, contact professional financial consultants about your retirement plan objectives.
Learn More About Retirement Plans for Small Businesses
Choosing the right retirement plan is yet another responsibility that often lands on the shoulders of small business owners. There are a number of factors to consider when comparing these plans, such as the size of your business, the number of workers you currently employ, how your business is structured, and how much money you can realistically put towards a retirement plan. There are a several retirement plan types and not all are right for every small business. For more information about retirement plans for small businesses or how to set one up, contact the expert financial consultants at Incisive Financial Group (IFG).