Small Business Retirement Plans

There are several Small Business Retirement plans available. The plan you choose depends on the size of your business, how it is structured and how much money you think you can afford to put aside.

Simplified Employee Pension Plan (SEP) - All contributions for Simplified Employee Pension plans are made by the employer. You will have to make contributions for all employees. This plan is a plus for very small or owner-only businesses because it can allow you to put aside a lot of money with very little expense or paperwork, since you don’t have to file anything with the government. Besides the SEP contribution made by the employer, employees can also contribute to an IRA.

Simple IRA – The Savings Incentive Match Plan for Employees of Small Employers, or Simple IRA, could be a great choice if you want to contribute to a retirement plan and you have a small company. An employee may choose to contribute, but an employer must contribute annually. The employer can participate in 1 of 2 ways. He or she can choose to match each employee’s contributions dollar-for-dollar, up to 3% of the employee’s compensation. If the employer has a less prosperous year, the matching contribution can be reduced to less than 3%, but the contribution must be at least 1% and is only allowed in 2 of 5 years. The second option is an employer can make a 2% contribution of total compensation for each eligible employee. Under this option, employees don’t have to contribute anything but they may up to a stated limit.

Defined benefit plan – Defined benefit plans provide a fixed benefit generally tied to tenure and salary for employees at retirement. The employer bears all investment risk. These plans are especially advantageous for high-income professional who can afford the costs to both set up and administer them.