Employee Retirement Plans Work For Small Businesses Too
There are two advantages to a small business setting up employee retirement plans. The first one being that it not only provides a tax advantage to the owner of the company but the employees find them extremely beneficial as well.
Today an employer has several different plans from which he can choose and it is best that they seek expert financial guidance in order to choose the right one for them and their employees. It might be that they find that not just one plan but a combination of different plans is more effective.
The things that they should be looking at when deciding to set up a retirement plan for their employees are as follows:
1. Which is the best plan for both the employees and the company?
2. Which plan is going to need the highest amount of investment and which one the least?
3. What administrative costs are involved in not only setting up the plan but also for running it?
4. What tax benefits if any each plan has to offer?
There are several plans that certainly a small business owner should be considering and these are shown below.
Profit Sharing Plan
This is the most popular of all retirement plans. It allows the employer to make contributions to the plan which will then be divided between those employees who participate in it. However the amount that each employee receives should not exceed 25% of all the contributions that have been made by each participant in the plan.
Defined Benefit Plan
A calculation will be made which determines just how much each employee will receive each year after they have retired (as long as they work up to retirement age). Then an estimation will be provided of how much their employer will need to pay each year in order to fund this account, while taking into account the number of employees that the business has. Compared to the Profit Share Plan this one offers higher retirement benefits and also provides the employer with the largest of all contribution deductions available.
401k Plan
This is a plan that is growing in popularity and is similar in some ways to a deferred compensation plan. Each month the employee will be asked to contribute an amount of their salary (before tax) to the plan if they wish. It is a completely voluntary employee retirement plan. Plus if the employer so wishes he or she can also make a contribution towards the employees plans which is tax free to them as well. This is the type of plan that is best suited to those employers who are looking for an effective but inexpensive retirement plan for their employees. Plus if they wish they could include this as a part of a profit sharing plan which was mentioned above. As well as the three employee retirement plans mentioned above there are others which a small business may want to consider including a Money Purchase Pension Plan or a Savings Incentive Match Plan or an IRA Plan. |