Buying Employee Retirement Plans for Small Businesses has two advantages, tax-advantage for the owner as well as being much appreciated benefit to the employees. There are several plans to choose from and the owner has to seek expert guidance to select the best-suited plan or combination of plans. They have to analyze which plan best suits the business and the employees, the highest amount of annual investment required, its administrative costs and intricacy and the tax benefit got by opting for any specific plan.
Types of Plans to Consider While Buying Employee Retirement Plans for Small Businesses: Profit-Sharing Plans: This is one of the most popular plans, which allows the employer to make contributions that are distributed to those who participate in the plan. A formula is set to work out how much each employee participating in the plan will receive and employers total deductible contributions may not exceed 25% of the total compensation of all employees participating in the plan.
Defined Benefit Plans: A formula is worked out to determine how much an employee will receive annually after retirement, if he works until the retirement age. An estimate is worked out to determine how much the employer has to pay each year to fund the plan taking into account the number of employees. This type of a plan offers the highest retirement benefits as well as offers the employer the largest contribution deduction.
401(K) Plans: This plan is fast gaining popularity and is a kind of deferred compensation plan. The employees set aside a portion of their salary to be used for this plan voluntarily. This kind of a plan is best suited for employers who want to opt for an inexpensive but effective plan. Usually this plan is incorporated into being a part of a profit sharing plan.
Money Purchase Pension Plans: This plan is like the profit sharing plan but has one difference; the employer has to make regular, annual contributions. This plan is inexpensive but not very popular because of the compulsory annual contributions.
Savings Incentive Match Plan for Employees IRA Plan: The employees can defer $10,000 from the annual contribution and can contribute it to the IRA. The employers have to match deferrals up to 3 % of the employees wages. The money contributed by the employer is immediately vested, this plan cannot be clubbed with any other plan, and compensation the owner gets is low and employers with more than 100 employees cannot use it. Therefore, it is not very popular.
Select an appropriate plan after analyzing all the plans; they can be powerful motivating tools as well as employee morale boosters. Buying Employee Retirement Plans for Small Businesses has to be done carefully under the guidance of qualified people such as CPA. There are firms that offer services as well as products to aid in running a successful business.
Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.
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