Best Retirement Plans for Small Business

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June 10, 2013 Print

When I started my online business in 2007, saving for retirement wasn't the first thing on my mind. I wasn't at all familiar with the retirement savings options available to the self-employed and small business owners. But when my accountant told me I could save up to $50, 000 in tax-deferred accounts, my ears perked up.

As an employee, I resigned myself to the contribution limits imposed on IRA and 401(k) accounts. So the SEP IRA I opened in 2010 was an unforeseen advantage to starting a business. If you're self-employed, you may be stymied by the retirement options available to you. If you’re working for someone else, things are a bit easier because you can opt into your employer's retirement savings plan.

But as a business owner, you have the power to make more choices when it comes to your retirement savings. Here are some of your retirement saving options, including contribution limits and the pros and cons of each:

SIMPLE IRA

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is suitable for many small businesses. If you have 100 or fewer employees who earned $5, 000 or more on payroll in 2012, this plan could work for you.

Pros of a SIMPLE IRA:

Easy setup. To set up a SIMPLE IRA plan, you can use forms provided by the IRS. Use form 5304-SIMPLE if you will allow your employees to choose where to invest their SIMPLE IRA contributions. Use form 5305-SIMPLE if you plan to choose the financial institution for everyone on the plan. Once you've set up the plan, notify your employees about the changes, and you're ready to get started.

Affordable setup. It may not cost you a dime to set up a SIMPLE IRA plan. If it does, you may be able to write off the cost as a business expense on your taxes.

Affordable maintenance. While your employees may incur some small costs for an investment adviser, you probably won't have to pay anything for this plan, because there's no administrator.

Easy maintenance. Year-end paperwork for the SIMPLE IRA is surprisingly easy to understand and complete, so maintaining this type of plan is simple.

Higher limits. A SIMPLE IRA offers higher contribution limits than a traditional or Roth IRA. In 2013, employees can contribute up to $12, 000 to their account, plus a $2, 500 catch-up contribution for employees older than 50. Employers are required to contribute either 2 percent of an employee's total compensation or a matching contribution between 1 and 3 percent of total pay.

Matches are deductible. Money that you put into an account for your employees is tax deductible as a business expense.

Cons of a SIMPLE IRA:

Limited to small companies. This plan is formatted for very small businesses. So if you plan to grow your business beyond 100 employees, you'll have to change plans down the road.

Contributions count against your 401(k) contributions. If you're running a side business and contribute elsewhere to an employer's 401(k) program, this isn't the best option for you. Contributions to a SIMPLE IRA count against the $17, 500 limit for your 401(k), seriously limiting your overall retirement savings options.


McGraw-Hill School for Startups: The Breakthrough Course for Guaranteeing Small Business Success in 90 Days or Less
Book (McGraw-Hill)
2008-03-01 09:46:28 by newdemocrat

Healthcare reform

The National Federation of Independent Business has decided it can no longer say no to healthcare reform
NFIB represents the interests of small businesses. According Todd Stottlemyer, NFIB President and CEO:
Less than half of small businesses can afford to offer a health-insurance plan as a benefit. Fewer, about 30 percent, can afford to offer retirement plans. This is simply not acceptable.
For 20 straight years, small businesses have said that health-care costs are their number one issue. But things haven't gotten any better. In fact, they're getting worse

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