4 Retirement Plan Options for Small Business Owners

For small business owners, hiring and keeping the right employees is crucial to the business’s success. One sure-shot way of attracting employees and retain their services is by offering retirement plan options. 

The size of the business doesn’t matter as there are so many retirement plan options for small business owners. From individual 401(k) plans to a SEP IRA, a small business retirement plant is beneficial for both the owners and the employees.

Individual 401(K) Plans

Small business owners are eligible to qualify for retirement benefits similar to those that large companies offer. For business owners that don’t have any employees, an Individual 401(k) Plan is a great option. 

Almost every type of business qualifies for individual 401(k) plan eligibility. However, any business that is a part of a controlled group of companies is ineligible. 

Benefits of Individual 401(K) Plan for Small Business Owners

  • Allows plan owners to shelter a more significant proportion of income from taxes in comparison to other plans 
  • Business owners can contribute more substantial amounts of their income 
  • Contributions to the plan are tax-deductible 

Simple IRA Plan 

The Simple IRA plan is also known as the Saving Incentive Match Plan for Employees. It’s one of the most accessible retirement plan options for small business owners that want to add retirement plans to their employee benefits. 

Any employees that receive a minimum of $5,000 in compensation from the business in the two years before the current year and will potentially earn a minimum of $5,000 in the current year are eligible for the plan. 

Employers can potentially set less restrictive requirements by allowing employees that make less than $5,000 to participate. Simple IRA plans are available to small businesses that have 100 or fewer employees. 

Benefits of Simple IRA Plan 

  • No need for non-discrimination and top-heavy testing, tax reporting at the plan level, or vesting schedule. 
  • Any matching employer contributions immediately belong to the employee
  • The tax credit will be available to both employees and the employer. 

Safe Harbor 401(K) Plan

A very inclusive retirement plan option for small business owners is the Safe Harbor 401(k) plan. It essentially allows employers to offer retirement plans regardless of the salary. 

Under the plan, eligible employees can contribute a portion of the salary as a Designated Roth Contribution. They have the freedom to choose if they want to contribute pre-tax or after-tax.

Any employee who’s above the age of 21 has been in service for at least one year and has worked at least 1000 hours in the year of hire. 

Benefits of Safe Harbor 401(K) Plan

  • Automatically receive employer contributions to the retirement fund. 
  • High eligibility as anyone can be part of the plan 
  • Tax deductions 

SEP IRA

A SEP IRA or Simplified Employee Pension plan is another retirement plan that’s straightforward to implement. Under this plan, only the employer will make tax-deductible contributions. The percentage will vary between 0-25% every year.

SEP plans are available to employees that are a minimum of 21 years old. The employees need to have been with the employer for at least three of the last five years. Lastly, the employee needs to receive $600 in compensation from the employer to be eligible. 

Benefits of SEP IRA

  • Tax-deductible contributions 
  • Greater employee loyalty 
  • Investment earnings for employees are tax-deferred until the withdrawal 

These are some of the most popular retirement plan options for small business owners. There’s no one size fits all policy, and it’s essential to assess the business’s needs before picking a policy.

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