The word “retirement” paints a picture of leisurely days spent on the golf course or lounging by the pool. But for most people, retirement is not just about relaxing and enjoying time off from work. In fact, many retirees actually have to continue working in order to make ends meet financially. Fortunately, if you own a small business, there’re various retirement plans to help you save for your future while also providing additional benefits for your employees. To help you choose what’s best for your situation, we’ll highlight several types of retirement plans for small businesses.
Individual Retirement Account (IRA) Plans
It’s a straightforward retirement option for companies of any size. Depending on the owner’s preferences, these programs may require little employer participation or company payments.
SEP IRA
For the benefit of small businesses, a SEP IRA enables you to deposit up to 25% of your net income or $55,000 (whichever is less). If you’re self-employed, then you can contribute up to 20% of your net earnings for the 2017 tax year.
SIMPLE IRA
The SIMPLE IRA is an easy-to-use retirement plan that allows you to contribute up to $12,500 per year. You can also contribute up to $3,000 of this amount in non-deductible contributions and another $6,000 of your contribution in deductible contributions. If your business uses a calendar year as its tax year, you have until April 15th of the following year to contribute for the previous tax year.
Payroll Deduction IRA
Participants create either a Traditional or Roth IRA. The worker then notifies their employer of the amount they wish to contribute to their IRA through payroll deduction. After deducting the IRA contribution from the worker’s paycheck, the business will deposit the money into the worker’s IRA.
Defined Contribution Plans
Under this category, the most known retirement plan type is 401(k)s. To help workers save for their retirement, many companies now offer 401(k) plans in which workers can choose to have a percentage of their paychecks into a personal savings account.
Traditional 401(k)
With a Traditional 401(k), the employer has the option of either matching the workers’ contributions or making contributions on their behalf, irrespective of whether they’ve made contributions. All contributions are required to adhere to nondiscrimination standards, and businesses have to demonstrate, every year, that their policies prevent highly paid persons from receiving an unfair advantage from their contributions.
Safe Harbor 401(k)
The plans aren’t subject to rigorous annual non-discrimination assessments. Nevertheless, without a profit-sharing provision, businesses are unable to provide a bigger wage increase to their highest-paid workers.
Solo 401(k)
If you’re self-employed and have no employees, a solo 401(k) plan can be a good option for you. With this plan, the earnings grow tax-free until withdrawal during retirement.
Conclusion
If you’re a small business owner who wants to provide for yourself and your employees, consider investing in one of these plans. They’re easy to set up and they can help you save money on taxes today while increasing your retirement savings tomorrow.
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