MightyRecruiterYou can’t get ahead in your market without bringing on the necessary talent. With that said, you can’t attract talent without offering benefits. Simply put, highly skilled employees value the security that comes from a company-sponsored retirement plan. Here are a few options to consider.
Traditional 401(k)
This program has no size requirements, and it’s easy to implement at any stage. Employees enjoy the freedom of choosing how much they want to contribute, and you can match those contributions and deduct the amount as a business expense. Plus, you can run other programs simultaneously. 401(k) accounts accept both employee and employer contributions. Everything typically goes in before taxes, so all funds are taxed upon distribution. As the business owner, you are responsible for withholding employee contributions before issuing paychecks. As of 2016, account holders may contribute up to $18,000 per year, all of which can be deducted through payroll. Also, any employee age 50 or older may qualify for an additional $6,000 annually. You may choose to match an employee’s contribution or put in a fixed amount of up to three percent of his or her salary. For 2016, the annual contribution is capped at the lesser of the annual salary or $53,000. This includes both employee and employer contributions. The best part about a 401(k) is that everything grows tax-free. However, this program is highly regulated and often expensive. Just be sure to file the 5500 form every year, and never discriminate against lower-paid employees.
Solo 401(k)
This is the ideal option for sole proprietors or a single partnership. Requirements are similar to the regular 401(k), but you might need an administrator if you plan on making large contributions. With a solo plan, you fund your account as both the employee and employer. Plus, you can cut back your election during seasonal downtime.
Simplified Employee Pension (SEP) IRA
SEP candidates include sole owners, C-Corporations, S-Corporations, partnerships and LLCs. However, most companies who choose this plan have only a handful of employees. It’s relatively affordable and easy to maintain. Plus, you qualify for a special tax credit, and you can opt out any time. An SEP IRA does not allow employee contributions, yet each employee must be included. This means that you as the owner are responsible for 100 percent of the funding, but it’s all deductible as a business expense, and you’re still allowed to run other programs. Annual contributions are capped at 25 percent of each employee’s salary, but all percentages must be equal. For example, if you pay two employees $40,000 each per year, you cannot contribute $3,000 to one account and $2,000 to the other.
Simple IRA
This plan is available to self-employed individuals, companies, government entities and tax-exempt organizations. Small business owners stand the most to gain. In fact, you won’t qualify if you have more than 100 employees on staff or if you currently offer any other retirement program. As the employer, you are required to contribute, but you are still allowed to deduct the amount as a business expense for tax purposes. Just be sure that all accounts are opened before October 1st. Employee contributions are capped at $12,500 annually for 2016. The limit is $15,000 for employees who are 50 and over. Furthermore, all eligible participants must make at least $5,000 during a one-year period. In order to establish a SIMPLE IRA, you must have 100 or fewer employees on your payroll. Each must earn at least $5,000 per year, and no one employee may contribute more than $12,500 in a given year. Workers age 50 and older get an additional $2,500.
Choosing a Plan
Do some research when selecting your retirement plan. If you expect significant growth in the near future, you may want to start out with a flexible option. Consult an accountant for specific questions.
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