Small businesses are the backbone of the economy. These operations are run by local individuals who sincerely care about their communities and who want to help out their neighbors in any way they can.
However, small businesses can’t run on good faith alone. They need to have quality employees who stick around for the long-run. In order to attract these workers, small businesses have to offer incentives that appeal to most prospective employees.
Of course, every new employee wants to work in a fulfilling job with great coworkers; this is a given. But what really pulls candidates in and gives them an incentive to stick around is a solid retirement plan.
In this article, we will discuss the importance of setting up a retirement plan for your business and show you how easy it can be to initiate a great retirement option for your workers.
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Types of Small Business Retirement Plans
In general, there are three major types of retirement plans.
One popular small business retirement plan is known as the SEP plan, which stands for Simplified Employee Pension Plan. This retirement option utilizes Individualized Retirement Accounts, or IRAs, to drive the plan. Interestingly, the SEP plan is funded solely by employer contributions. Employers can decide to contribute a certain amount each year to employees’ plans, or they may decide not to contribute at all. This gives the employer significant flexibility. Self-employed individuals or those with a few employees might be drawn to this type of plan.
Another common small business retirement plan option is the SIMPLE IRA, or the Savings Incentive Match Plan for Employees. The SIMPLE IRA is another type of Individualized Retirement Account. With this plan, businesses must have fewer than 100 employees, or else they are not eligible. SIMPLE IRAs are, as the name would imply, very simple in structure. Therefore, the IRS does not require these plans to be subjected to annual testing, as 401k plans are. However, this means that these plans tend to have lower contribution limits in comparison to 401ks.
401k plans for small businesses are structured in such a way that employees can choose between Roth or traditional contributions. This gives more flexibility than some other plan types do. Furthermore, the 401k plan offers a high contribution limit. Because of this, the IRS is concerned with monitoring these plans for fairness. In order to make sure that these plans are fair for all employees, the IRS runs tests every year which ensure that businesses are not favoring certain employees who may be higher earners for a company.
Which Type of Small Business Retirement Plan is Right for You?
It’s hard to say generally which plan is right for a given business. Every company has unique needs and could potentially benefit from various retirement plan structures. However, all business owners need to take a good hard look at their company and realize that, whichever plan they choose, they need to provide a good retirement package for their workers.
If you have questions about small business retirement plans, call a plan provider like Ubiquity today!