Small Business Retirement Plans
If you own a small business, you are probably used to planning for things. Unfortunately, the day-to-day demands of operating a small business can sometimes make it difficult to consider long-term planning decisions, like your retirement. You likely started your own business so that you could have control of your destiny and to reap the rewards of your hard work in retirement. That’s where Mountain View Strategic Wealth can help.
There are a number of retirement solutions that can hep you secure your future and that of your employees, but the process of decision-making can be daunting. We can help bring clarity to which program is the right one for your situation.
This is meant to serve as a quick overview of some small business retirement plans that are available to you. During your visit with us we can discuss specific contribution levels for each program, and how each might work for your specific situation.
Individual 401 (k) Plan
If you’re self-employed or a business owner with no other employees other than your spouse, you are eligible to establish a self-employed 401 (k) or solo 401 (k). This is the best retirement plan for maximizing contributions. This can be the right choice for sole proprietors, partnerships, C corporation, and S corporation business owners. This plan offers the greatest possible contribution among the plans because it recognizes you as both an employer and employee. This plan offers tax-deferred growth.
SEP IRA
The Simplified Employee Pension is ideal for a sole proprietor who wants to save for retirement with a minimum of administrative headache. A SEP IRA can also cover employees. The plan is easy to setup and maintain, and there are no setup or annual charges. These plans are completely employer funded, and employees make no contributions. While you are not required as an employer to make a contribution each year, you must contribute the same percentage for employees that you contribute for yourself.
Simple IRA
If you’re a business with fewer than 100 employees this allows you to establish an IRA for each employee. This plan is ideal for employee participation in funding the retirement account. Employees are allowed to make salary deferrals contributions up to the IRS maximum allowable. As the employer, you also contribute to the account, matching dollar-for-dollar up to 3% of compensation, or contributing 2% of each employee’s compensation. Some of the advantages of this program is that setup is easy and there are few administrative burdens. The contribution levels are also higher than what is allowed for Traditional or Roth IRA’s.
Simple 401 (k)
This is an alternative for employers with less than 100 employees who wish to avoid the administrative burden associated with offering a standard 401 (k). Employees can elect to contribute, but unlike a standard 401 (k), you as an employer are obligated to make a matching contribution up to 3% of each employee’s salary, or non-elective contribution of 2% of each employee’s salary. While you will have to file a Form 5500 each year, the administrative burden is significantly lower as the company is not required to perform expensive non-discrimination testing as with a regular 401 (k). One drawback is that contributions made into the account vest immediately which eliminates the plan’s employee retention benefit.