Before choosing a retirement plan, know which option is best for you.
Can I afford a retirement account for my employees as a small business owner? Are there multiple options to choose from? The answer to both questions is yes. As the turnover rate grows and retirement plans become more affordable, many small businesses are finding that it is more costly not to offer a retirement plan. Aside from the countless tax benefits small businesses can receive, employers have many affordable options to decide from when choosing their plan. Here’s a brief overview:
1) 401(k) plans
401(k) plans are some of the most popular plans for businesses with employees, as they allow employees to save pre-tax and after-tax money (Roth). These kinds of plans also allow the employer to match employee deferrals as well as give a discretionary profit-sharing at the end of the year. These deferral limits are $22,500 or $30,000 for those ages 50 and older (Source).
2) Individual or solo 401(k)
The individual or solo 401(k) is intended for self-employed individuals, such as sole proprietors who have no other employees aside from themselves and a spouse. This plan also allows for pre-tax and after-tax money (Roth). Thus, a sole proprietor could potentially put away a substantial amount of income into the plan. They can contribute 100% of compensation or up to $22,500 in 2023, whichever is less. Those ages 50 and older can contribute an additional $7,500 in 2023. Employers can also make additional profit-sharing contributions of up to 25% of their compensation or net self-employment income (Source).
3) SEP IRA
The SEP IRA is inexpensive as well as easy to establish and maintain because the employer is the only one who contributes to the plan on behalf of their employees. Additionally, employer contributions are not an annual requirement, meaning the employer has the discretion to contribute during high-profit years and opt out during low-profit years.
4) SIMPLE IRA
The SIMPLE IRA is easier to set up and maintain annually. However, the business needs to have fewer than 100 employees to be able to use this kind of plan. Currently, it only allows for pre-tax deferrals, but in the future, after-tax (Roth) contributions will be added. This plan also allows for an employer match, but it does not offer a discretionary profit-sharing contribution. The contribution limit for 2023 is $15,500 or $19,000 for those ages 50 and older. (Source).
With these options, many employers can decide which plan will be best suited to them based on their financial situation, the education and experience level of employees they would like to retain, and the amount employers are willing to match. Even if you think your employees might not be interested in having a retirement plan, studies show that more than half of employees want to participate in some way. What’s more, they appreciate the help in building a successful financial future.
Our team knows it can be strenuous to sift through the many retirement plan options and decide which is best for you. That is why our Business Retirement Advisors will work alongside you through the process, ensuring successful retirement program implementation and offering you solutions to meet your specific needs. Have questions? Want to learn more? Contact us for more information.
Already have a retirement plan set up?
For those employers who currently have an existing retirement plan, we offer a complimentary review and plan cost analysis. Contact us for more information.
Want to learn more?
Here are a few more resources to help answer your questions…
The Best Retirement Plan Options for Small Business Owners 2023 – Business News Daily
Retirement Strategies for Small Business Owners – Investopedia
SIMPLE IRA Plan – IRS
401(k) for small business owners – ADP
Your Small Business Can Afford a 401(k) Plan – Business.com
Blog by Alex Kiritschenko, EA – Financial Advisor, Senior Tax Accountant
Learn more about Alex and the rest of the Storen Financial team here.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does an advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
The information being provided is strictly as a courtesy. When you link to any of the websites mentioned, we make no representation as to the completeness or accuracy of information provided at these websites.