There's so many options out there for small business retirement plans for employers! How do you choose one you can afford and that won't cause headaches to administer?
Marcel wrote in: I’m a small business owner, who has recently expanded to have 8 employees. We’re doing well as a business, and I’d like to encourage my employees to save for retirement. What are my options?
Almost all these plans will require you to make any eligible employee able to use it, which means you can't set up one just for yourself as the business owner without also providing something to your eligible employees. You have the ability to set eligibility standards, but all accounts have a minimum requirement for employee eligibility (such as if they've worked there for 1000 hours a year, for at least a year, they have to have access to the account.) This is important to bare in mind if you are making employer contributions but have part-time or seasonal employees.
Your options as an employer
- Simple IRA: A relatively simple to administer retirement account that requires employer contributions of at least 2% of the employee's salary, even if the employees don't contribute anything. There are no IRS filing requirements for the employer but you can only offer this plan. The annual contribution limit is $13,000 for employees under 50.
- SEP: A SEP (Simplified Employee Pension) IRA A traditional IRA for self-employed people or small business owners. It has more recordkeeping requirements A small business owner with one employee or more, or anyone with a freelance income can open a SEP IRA. These are advantageous for owners because the contribution limits are high, but no employees can contribute to this plan for themselves - it's just employer contributions. Individual employees who are eligible to participate in their employer's SEP plan must open individual Traditional IRAs to which their employers will deposit SEP contributions.
-401k/403B This is the "traditional" retirement plan, and it has the headaches meant for a large employer to administer it as far as recordkeeping requirements. It has the highest limits for non-owner employees, $18.500 per year for employees under 50.
-Allowing employees to contribute to a Roth or Traditional IRA through automatic deduction This has no cost to you, just a little more work during payroll. Unless the Traditional IRA is set up as a SEP, you cannot contribute as an employer to these plans.
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